Earnings Call: H2 2018

Mar 6, 2019

Dear ladies and gentlemen, welcome to the Results Fiscal Year twenty eighteen Call of Enders AG. At our customers' 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. May I now hand you over to Doctor. Leipner, 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 Handwritten 2018. Profitability adjusted for extraordinary items, and we had two extraordinary items in different directions between 2017 and 2018. We're practically unchanged compared to 2017. Obviously, it could always be better. Within this profit numbers, there are several very bright sites, but also some, I would not say, sites, but sites 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 and 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, Serum and Ascor. And in our biggest business area, which is Pulp and Paper, we had record profitability of close to 10% EBITDA of sales. So with the positive development, clearly, are negative developments, things that we would have hoped to develop differently, and that is in metals, both metals processing, the old enriched metals part and metals forming, developed clearly below expectations, and I will come back to that in a minute. And 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. So much the introduction. Let me start now with the presentation. On Slide three, you see again the summary. Group order intake, highest ever, euros 6,600,000,000.0. Sales slightly up €6,000,000,000 Obviously, it's always tracking the order intake. Face value of EBITA decreased to €394,000,000 from 7.5% to 6.5%. However, if we adjusted 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, dividend proposal will be to pay an unchanged dividend of €1.55 which represents a payout ratio of 70%. We now go into the detail on Slide five. Order intake from €5,600,000,000 to €6,600,000,000 From that, only €147,000,000 come from first time consolidation, mainly Xerion. 16 percentage points are organic. And you see on the right side, all four business areas developed very favorably with regards to the order impact, which means also, obviously, we have a good order backlog for going into 2019. On Slide six, the order intake per quarter. You see a continuing increase. We had a very good fourth quarter with 1,900,000,000 supported by a large order in the range of €300,000,000 from Arauco in Chile or a substantial part of a new pulp line, actually, in a piece of brownfield. First time consolidation of Serum, which started in October, on October 1 in the fourth quarter, contributed to this approximately €100,000,000 By region, on the right side, you see approximately onethree Europe North America, 17% Asia without China, 15% with China or China alone, 18% So and emerging in other emerging markets, about 10%, meaning South America mostly and Africa and Australia. So overall emerging markets, 48%. On Slide seven, sales, very small growth, 2% from EUR 5,900,000,000.0 to 6,000,000,000. Again, about EUR 150,000,000 comes from first time consolidation. It's a slight decline in Hydro, good growth in Paper, however, supported by Geologic and Pave's first time consolidation. Metals, stable separation, increased by 7%. If we look at the sales figures split into capital and service on Slide eight, capital sales, it's last four quarters, it's increasing. Overall, it's a slight decrease we had in 2015, coincidentally, several large orders for projects, especially in the pulp and paper area. So that was certainly a substantial very high above average order intake. If you take the last four quarters, so capital order intake was €3,900,000,000 On Slide nine, the continuing increase in Service business, which is definitely our goal, from €1,700,000,000 to €2,200,000,000 in 2018 in rounded figures, compound annual growth rate of 17%. On the right side, share of service business is now our total business is now about 36. And obviously, Clarion full year consolidation will further increase the service sales quite substantially. So therefore, we think that Clarion 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, 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 we have that the share of hydropower in the backlog is declining. We are now at 38% and pulp and paper is growing to 34%. Also metal is quite substantial. Slide 11, the analysis of the profitability. On the left side, you see the adjusted figures. In 2017, we had a favorable €25,000,000 from the sale of the Technipista and some other assets. And if we take that out, it would have been €420,000,000 in 2018. If we add back the €21,000,000 provision for restructurings, it would go up to $415,000,000 so minus 1%, and profitability would slightly decline from 7.1 to 6.9%. Obviously, the face value figures are important. So profitability EBITDA on the right side declined from €444,000,000 to €394,000,000 by 11%. The EBITA bridge between EBITA and net income on Slide 12, starting with an EBITA of 8.3%, corresponding to EUR498 million Deduct depreciation, 104,000,000. We get this EBITA unadjusted EBITA of EUR $394,000,000. We have EUR 53,000,000 IFRS amortization. Of that, approximately €12,000,000 from first time consolidation of Cerium. Going forward, Cerium will show an amortization of about €32,000,000 this year and a little bit more this year and next year and the following years and EUR 32,000,000 roughly. Metals impairment, a small impairment and impairment overall of EUR 60,000,000 in actually predominantly pulp and actually, everything is pulp and paper. Some smaller adjustments of previous acquisitions over the last five years gives us an EBIT of EUR $322,000,000. Financial result is minus EUR 17,000,000, lower net cash, lower interest rate, especially in Brazil and additional interest costs from our short term balance similar to a bond that we issued last year gives an EBITDA of $3.00 €4,000,000 Tax rate was quite low, 27.8% due to some extraordinary onetime events, so we are not expecting this low tax rate to continue. Brings us to the net income of €220,000,000 around 3.6%. Coming back on Slide 13 on the net working capital, which swung from €121,000,000 negative to €161,000,000 positive, so by approximately February time consolidation, again, predominantly Exterium added €105,000,000 and this will be permanent because that's the basis of Exterium's business. They don't have shutdown payments, they don't have progress payments. So it's a regular aftermarket business with some level of inventory and some level of receivables. The next two need to be addressed. So we added €100,000,000 in Hydro and €66,000,000 in Pulp and Paper. Here we are working intensively. It will take some time until we see here 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 discounted cash flow calculations. So for them, terms during the construction phase only during the construction phase play a role in comparing competitive offers. And in a situation where we have a substantial amount of cash or net cash, received practically no interest on that, it made sense to offer more favorable payment terms without incurring any risk of actually receiving the payment. So we always insisted on getting full confirmation, full collateral for the outstanding payments or similar things. It made sense to rather than maintain the price and offer payment terms. Now in the future, we certainly will put more emphasis also on the payment terms. But again, since this will take time until we really can see that with execution times of two years and more of these large projects, But we are addressing it on in all aspects and hope to report some debt by debt process as we proceed from here. So much to the net working capital change. On Slide 14, cash flow. Earnings before tax, $3.00 4,000,000 interest result, tax depreciation, impairment tax changes in provision. These are typical project provisions. We still have very substantial. So this does not mean that we, let's say, realize all the reserves we have. It's just that if we finish a large project and all requirements have been fulfilled and the customer has confirmed it, we have to release provisions that we don't didn't end up leaving. And therefore, this €106,000,000 is as we go, is typical for our business. It will not come every year, but think one way or the other definitely will come every year. This goes to a gross cash flow of EUR $4.00 5,000,000 and the change in net working capital, as discussed, EUR $779,000,000 interest paid, some small things, interest income taxes paid gives the cash flow from operating activities of EUR 8,000,000. So main issue also in the cash flow, obviously, is the increase in the net working capital of two eighty million euros Slide 15, the summary again. I I think we have covered the adjusted and non adjusted EBITA figures, capital expenditure and yes, normal development, 137,000,000 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 from with acquisition of GE's out of our business. And net liquidity is obviously heavily impacted by the acquisitions, which cost approximately €770,000,000 of that €700,000,000 cerium 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. Then on Page 16, dividend. Yes, it gives you the difference of the dividend. We 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 above to maintain dividend stability because we didn't see any reason to cut the dividend. If we move on to the business areas, again, quite different development. 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 in during the last year, which shows that we are competitive. So overall, I would say, lower level than in the top years, but improved compared to last year. And profitability wise on Slide 19, you see that if we adjust for restructuring measures, profitability was practically unchanged, 7.8% to 7.9%. After these restructuring costs, it went slightly down from 7.8% to 7.5%. Variable profit of the 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. We show full year sales for Therion, More than 40% of our total sales will be in pulp and paper. And with the good market environment that we see there, for pulp and also for power generating wireless, biomass wireless in Asia, We are very happy that we are very profitable there. On Slide 21, you see the EBITA margin now 9.9%. And yes, I think order intake went up. Again, Exerium contributed a little bit more than $100,000,000 to that, so very good organic growth. And also, a really quite good market outlook, would say. There are several large projects on the pulp side, also on the reboiler side. It's, I think, on the let's say, not so Promising side, we have seen an increase in pulp inventories beyond fifty days of consumption, which definitely is too high. South American producers, especially Susana, being the market leader by far, have indicated they will cut production to bring inventory down again. That, yes, may impact slightly the prospects for the pulp market. But on the other hand, we see several clearly serious projects in this field. As always, it's so 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. So there, we continue to be optimistic, and we clearly have a good position, especially on the pulp side, also on the biomass boiler side. And with the service sales now growing very substantially with the Exerium, 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. And service percentage of pulp and paper sales is now approaching 40% for the quarter. Coming back to the not so bright side, 22, metals. The market is very volatile. We had I think when we had our last quarterly result call, probably, I'd say, it looks quite promising. We had in last summer, last September, we even saw first stainless steel project to build new capacity in stainless steel. Now clearly, 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 prices 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 emptied in January, for example. So that clearly was concerning. Now as you have certainly followed, the Bank of China has provided decided to provide much more liquidity to the market some ten days ago, I think it's now, which again changed the atmosphere, I would say, quickly. Shanghai stock index went up by more than 5%. But obviously, it remains to be seen whether it is sustainable, whether it really creates new investments or whether it's just a short blip. Coming back to 2018, we had a good situation, good market situation overall in Metals Processing, but it was impacted by this automotive industry concerns or hiccups, especially in Europe, but also in China. On Slide 23, clearly, profitability was unsatisfactory. We show an adjusted EBITDA margin of only 2.5%. Now Schuller Metals Forming did substantially better, but also not to the level that we didn't look for at Schuller, And Metals Processing was negative, negative due to cost overruns. The good side is that the cost overruns were from with projects that were first time deliveries, first time deliveries into the aluminum industry, first time technology, first time in the galvanizing lines to the leading producer globally. So 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. Formerly, we have not closed them. The expectation is that the impact for this year should not be very high, but we feel we need to get final confirmation that we have achieved all the performance guarantees. Yes, sure, as I said, reasonably profitable, but not to the level that we want. Automotive industry is one factor, and the high capacity in Europe and in Germany is the second sector. And the first sector, we cannot change. The second sector, we need to change. We need to reduce capacities in Germany, need to continue to reduce capacities in Germany, and that would be one of the focused projects for this year. Yes. '24 separation, I think good development What impact was as we hoped for on 2025 now. And if remember, we got a good sizable order from wastewater treatment plant in Shanghai for sewage sludge drying. Profitability is slightly increased, but clearly, we our goal is 6% as a medium step and then further on to around range of 8%. So we are disappointed about the small progress we have made on the EBITA margin. It remains to be achieved now this year. Coming to the outlook on 27%. As I said, we have a good order backlog, which, yes, 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 CRM is going very well. I think customers like that CRM is not part of us. It's a stable supplier. We see synergies we see synergies. We have realized substantially better part of the cost reduction opportunities that we were planning have been realized while in the process of being realized. So now we need to Naxiero needs to continue to perform, and we need to realize also the top line moderate top line growth that we are planning and have planned in the acquisition. And we need to improve the net working capital by various measures, and 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, EBITDA margin should also increase compared to the previous year. So much the report on 2018 and some guidance, and I'm sure you will have some questions on both topics. Thank you very much. If you find your question is answered before it's your turn to speak, you can dial 02 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. The first question we received is from Andreas Willi from JPMorgan. Your line is now Doctor. Leitner, good morning, everybody. Question I have is on the provision release you've shown in the slides. Maybe you could talk a little bit more about this in terms of this obviously, is this EUR 106,000,000 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, but then 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? Second question is on, clearly, on the contribution in the quarter in the EBITA, was that maybe you could give us some more details around that and that if there was any one off costs, the first time consolidation costs in the EBITA in the Q4. And the third one on the cash, you explained earlier the trade off between basically getting good terms in 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 Cerium, EBITA impact has been zero. One time expenses has been somewhat above €10,000,000 roughly. Then the payment terms, I don't think that overall, they will have any impact on the profitability on the margins. I think we are just more with less cash, we just have more focus that we and also looking at the development that we just want to reduce this working capital, which should end up on the cash side that we as we can show. It's I think it's just a change of focus, which needs to be communicated to all our salespeople at least to these larger projects, salespeople. And do I think that we will get dramatically better payment terms? No. We'll be marginal. Do I think that we can do better on, going after our receivables? Yes. Do I think we can do better We got to our PLC payables to our suppliers. Yes, I think there is room. And if you combine all that, I think we have reason to believe that we can improve it step by step. Obviously, we are locked in into the backlog of the orders we're executing, but we have identified several tasks and have distributed them in the group. So from that, I expect to see some positive development on the net working capital side without assuming not expecting any negative side on the margin. And the first question was Reasonable Reasonable provision, yes. I think beyond that since the operating cash flow was nearly zero, we thought actually, Michael thought of bringing this bridge. This is regular business. It is nothing very special. It's probably, I would say, 20,000,000 or €30,000,000 higher than it usually is. And but this is basically a quarterly business. Once we have really finished all the performance guarantees, we have been released from all obligations to our customers, and we have release these provisions. We cannot justify them to our auditors and do not want to justify them. So this is not pulling out all the reserves or any reserves we have. It's probably, as I said, maybe EUR 20,000,000, 30,000,000 higher than it usually is, but this is basically standard business. And on the working capital, in terms of the progress, is progress for you basically that from now on you get stability and then improvement, so the absolute working capital starts to come down? Or is this just about slowing of the build of working capital? It's I would not commit that from now on you see a decline, but it's obviously the goal is to reduce it, yes, yes. The next question here is Jack O'Brien from Goldman Sachs. Just want to come back to that networking 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 66,000,000 working capital outflow. Was hoping you could expand on that given how strong order intake was and you would assume a degree of prepayments would come with that order intake? That's my first question. As I said, it's already three factors. Payment terms have not really changed to any sizable amount. They may have one or the other progress payments may have been maybe three months later than it used to be, not delayed, but just from the contractual payment terms. And but again, I think it's also a question of focus. It sounds easy, and we need still need to deliver. But POC receivables, POC overdue POC receivables and especially also POC payables, then we need to focus on that more. And we I think we can see some results if we do that. Thank you. And 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 €100,000,000 which is that we'll stay. So there's nothing wrong about it, nothing special about it and nothing to we can always optimize it. And we'll also have an eye on that, But the room there is extremely limited. And but clearly, with any percentage point of higher service shares, it will go slightly up, yes. Okay, thanks. Just because aftermarket has inventory, aftermarket has receivables, payables are more or less the same probably, but these two things inevitably come with the aftermarket. And therefore, also our profitability goals assume higher costs for capital in the Service side. Just moving on to the pulp side. Obviously, you won that good Oralco order in the fourth quarter. Does do orders where both yourselves and Velvet 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. But 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 if as usual, if a customer customers typically have a high interest in making sure the projects where they invest €1.5 €2,000,000,000 is on track and finishes on schedule. So they for them to have to split the order between two sometimes makes sense for them in the eyes because they think they don't spend only on one and maybe the one may be overloaded or whatever. So they feel more comfortable on the other end. Or in addition, there are some technical preferences that may contribute to the decision to split the order. But it's a competition until the end for each and any of these packages, usually six or seven parts in the pulp mill. And only in the end, well, sometimes we have obviously hypotheses what the customer prefers technically, and there we probably never see a chance to maybe add one or two percentage points to our calculation. But you never really know in which direction it goes. And sometimes if the customer is only price sensitive, he just makes the calculations. You know, what is the price if you get one package? What is it if you get two? What if get three and so on. And then he makes his homework and decides what to buy from home, which is all of the case to a certain extent. But I would say it's very rare that the customer doesn't have any technical preference. But the limits that he can pay more for the technically preferred solution are quite small. Thank you. And just one final question on Metals. Obviously, the profitability in that division is still fairly weak. Clearly, your order intake for 2018 was strong. Where would you expect EBITA margins to get to in 2019? And 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. So 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 tracking 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 their this first time projects that I've mentioned before in aluminum and zinc anonizing. On the forming side, on the Schuller 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. 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, which obviously our area costs are covered, but obviously, we have planted 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, it should have succeeded in selling the first mid market lines into Asia. Also there, customers are struggling with the situation in the automotive market. They have also delays in or the cost delays in execution because they cannot fulfill their requirements. So 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. Mid term, I think we see continuing projects also in the most sophisticated market segment. We let 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. This will we are just in the process of working on that. We have started and implemented several either, how do 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, but which has been negative for several years. We are looking at some other alternatives. So I think we are working on the structure, but that will certainly imply a further reduction of capacity in Germany and probably continuing buildup in the emerging markets. But China, also for the Express, as I've described before, has been weak or very weak in the beginning of this year remains to be seen. How it will continue? Currently, it looks quite small, quite slow. So that would mean that we will not expand in China. Do we expect substantial restructuring in China? No, that is not the case. But we expect some restructuring. I would not and cannot outline what to which extent it will be in Germany, but we clearly need to continue to adjust our capacities in Germany. The next question we received is from Andre Finke from HSBC. 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 intake given the market outlook you provided on Slide 28 with very good and covered up for Pulp and separation and good for metals. Is it fair to assume that you expect not only sales to rise in 2019 but also order intake? Sure. Order intake just from first time consolidations should grow somewhat, yes. I'm sorry, on an underlying basis, maybe excluding the Hiragou project as well. Just if you look at the underlying trends in the four segments, do you expect I mean we cannot what we cannot do is take out large projects because we depend on large projects, and that's part of our daily business, as I said. Let's say, taking out the first time consolidations, we I mean, 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 in 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? And I can guarantee it, no. Yes. Very helpful. And the second question also on the outlook on the margin side. I understand you're looking to improve profitability. Is that referring to the reported or to the adjusted EBITA margin? Yes. We adjust for extraordinary items. So I think so therefore, it's 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 that be? We probably but we'll be able in the next quarterly meeting or definitely midyear to give you a better outline on that. But overall, the profitability, I think we see promising developments on the sugar side. We just need to adjust the cost structure and the capacities. And once that is done, continue to see it as a very attractive addition to the Andrews Group and promising good profitability. The next question we received is from Sebastian Growe from Commerzbank. The first one would be on the Metals business and here the Metals Processing. Said that the overall impact that you're 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. And if you could also give us a sense on how big those projects are in terms of sales? That's the first question. Yes. On the Smetals Processing side, cost overruns was low double digit. Size of the orders is in the mid double digit typically. And middle double digit is individual order size, low double digit overrun is the aggregate of the overruns of these several orders. And the second part of the question was That was exactly what That was exactly exactly Sorry. If I just add back around, say, 20,000,000, if that is the right analysis behind the low double digit cost overruns, then this would give you something like a 40 basis points or so tailwind on the margin end for 2019. So I would be interested in your thoughts around what you think is doable in this increase in the EBITA margin. So 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. So 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, it should be. It clearly should be as I said, it had a loss of for various reasons. One of them was the 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 single teens EBITDA. And Schuller, I mean, the main question there is restructuring, Maybe also this lower first time mid market price lines for the automotive industry in Asia will have an impact continue to have an impact, but clearly should be at least as good as the Metals Processing figure that I said. And for the remaining businesses, it's really the last question. So especially in Pulp and 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 €27,000,000 more than it usually is. Therefore, the profitability is maybe somewhat higher than it that I feel confident will continue on. But clearly, we continue to see and expect good profitability, very good profitability on the Passive Inspector side. The next question here is Svenweier from UBS. Line is open, sir. Yes. Good morning, Doctor. Leithman. Two questions, Good morning. First one is on the GLNV acquisition of Valmed. If I look at the deal, it was priced like at a mid single digit EBIT multiple. And I was just wondering, it would have not been a very sizable acquisition for you guys if why you haven't participated in this. And if the multiple they paid tells us is not a good business? That would be the first question. And 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? GMV, we have not been invited, and therefore, we don't think it would have been an attractive acquisition. No. It's we have not participated. I think TLNV's business in all respect is in this case has been, say, either a legacy business of an old installed base where we certainly can make good money. But it would be I hope the best for Valmed, but I would be surprised if they would have a very aggressive growth plan for that business. So and I think with our Clarium acquisition, we see I mean, it was not an eitheror situation. But clearly, Clarion is as we said, it's not also not serving an area with substantial growth, but it's high-tech and it's certainly much more the type of this business is much more promising than this legacy business. We have looked in the last, I don't know, ten years more from time to time in some parts of some parts of Chile's business. But we always have said that we would not be interested in that. But again, we have not been invited, so therefore, it wasn't our decision, but decision of the seller. 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 things, but this is not the main lever. It's continuing to grow. And looking at the margin and the prices. So that is the key to continue to improve the EBITDA margin and also the gross margin, obviously. And 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. Is that did I understand that Yes, we control it, but we don't know what we decide to do. Of course. The next question we received is from Daniel Jorn, your line is now open for your question. Yes. Hello. Sorry, I was too. Good morning. I would like to focus on Clarion a little bit. Maybe could you give us a feeling of how you consolidate the order backlog of Clarion in the fourth quarter and how you plan to do so going forward? And maybe also related to Xerium, would you expect further implementation costs now, maybe in the first half year in 2019 or even even beyond that? Your thoughts would be interesting. No further implementation costs, very small order backlog because they typically have a very small backlog. And it's we had an order backlog of 100,000,000 something, so very, very small. So basically, quarter, Not because they were empty, that's the character of the business. So less than one, that was basically one quarter. That's it. But most of this, 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 one or the other, but to a large extent, it's recurring. And Rolled Services is also recurring, but not on a regular basis. So it depends on when the robot needs to be. It needs a new cover or needs to be otherwise refurbished. Okay. And then one on your working capital or maybe net debt level, what would be 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 or For both working capital sales or maybe net debt Both the net working capital is in absolute figures to adjusting for this first time consolidation, but in absolute figures to bring it down step by step. As I said, it will take some time. And on the debt side, I mean, from a cost standpoint, we've got now fixed interest rates of, let's say, weighted seven years in the range of 1.5%, 1.6. So we are not concerned about I mean, obviously, it has interest payments, and we want to maintain the good liquidity, but we don't see that as limiting factor. But clearly, we have I think we have been lucky last year with the M and A opportunities we had, and we have been successful in taking advantage of these opportunities. But 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. The next question here is Graham Phillips from Jefferies. Unmute. Mr. Phillips, your line is now open. Maybe Yes, you are on sorry. Same problem. Okay. Yes, sorry. Just on the provision release, it was $54,000,000 alone just in the fourth quarter. How much was hydro and how much was paper and pulp? Would maybe we will need to get back to you on that. Okay. And 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 again a comparable basis is performing? Profitability was good according to plan. And according to the previous quarters, there was some growth of about low single digits, 34%. But 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. So we see more synergies on the service side. And we have yes, I think that's the basis of our business plan. So we for that, plan to improve very short term the profitability from the cost savings, which I said we are nearly complete with regard to that and then some very moderate growth going forward. And coming back, Michael Bupa has figured out the split in this provision. So we have 50,000,000 Subsidy was EUR 40,000,000 hydro and EUR 10,000,000 pulp and paper in the fourth quarter, rough figures. Okay. And just on service, so if we strip out Exerium, the service growth, it barely grew in sales terms. How should we think 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? And what should we expect in terms of contribution going forward from that from service in Hydro and Paper and Pulp? Yes. I'm not sure what you're referring to. Typically, our service sales are growing at least little single digit, maybe 6%, 7% per year organically. So and I think that is the goal we have. Again, in this service sales from time to time, there can also be a €20,000,000 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. But 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. And then maybe explains the lumpiness. Okay. And then 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 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. I mean on the Metals Processing side, we have acquired a company as a pure service company for the big industry producing knives in the 30,000,040 million euros sales range last year, AFCON. And on the metals forming side, which will add 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. And there, we see good growth opportunities. All right. Thanks very much. Thank you. As far as there are no further questions, I hand back to Doctor. 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.