Andritz AG

VSE:ANDR

Q2-2025 Earnings Call

[Operator]

Good morning, ladies and gentlemen, and welcome to the ANDRITZ Q2 2025 Results Conference Call and Live Webcast. My name is Joseph, the Chorus Call operator. [Operator Instructions] This conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Matthias Pfeifenberger. Please go ahead.

[Matthias Pfeifenberger, executive]

Welcome to our Q2 earnings call from Graz. I would like to present your host today. With me are our CEO, Dr. Joachim Schönbeck; and our CFO, Vanessa Hellwing. We will start the call with the key highlights, followed by the financial performance review and then go into an update on the business areas, followed by the outlook and 2027 targets. We will then conduct the Q&A. Please make sure you register with your full name for the Q&A. In the end of the presentation, I would point you at the disclaimer. Please read it carefully.

And now I'd like to pass over to Joachim.

[Joachim Schönbeck, executive]

Matthias, thank you very much. Good morning to everybody. Thank you for attending our call, spending the time with us and jumping right into the details.

We are very pleased that we can report another very strong quarter in order intake. We had an extremely high order intake in Q2 and also first half of this year. We did not see any significant impact of the tariffs. Growth was mainly driven by our business areas, Metals and Hydropower. We had, I would say, a very satisfactory level in Pulp & Paper, and we had a decline in Environment & Energy. The book-to-bill was again above 1 for the third consecutive quarter. We saw a decrease in revenue, though that results from the low order intake we recorded last year, and we had a moderately negative FX impact due to the strengthening of the euro against major currencies we have in our portfolio. We have a stable comparable EBITA margin that's based on a very solid improved order execution and selectively also better pricing. We could increase the service share increasing in a year-to-year basis.

If you look to the numbers themselves, order intake for the second quarter was EUR 2.4 billion, revenue EUR 1.9 billion. Order intake was up 26%, and as the revenue declined, the order backlog also rose by 7% to EUR 10.4 billion. So a very solid backlog to generate revenue to come.

EBITDA margin comparable was at 8.4% compared with 8.3% in Q2 2024. The reported EBITDA margin though dropped to 7.8%, down from 8.6% and that was mainly driven by severance expenses for restructuring needs. The net income margin is at 4.5%, down from -- sorry, 5.4%, down from 5.7% at EUR 102 million.

A quick look to the first half financials. Order intake, very strong at EUR 4.7 billion, up 23%, compared to the previous year. Revenue, as I said, for the second quarter, down by 8% to EUR 3.7 billion. Backlog is the same and the EBITA margin at 8.3% compared to the 8.4% and the reported margin a bit down due to the restructuring costs that we had. We could see a very good and continuously increasing project activity. It's reflected in the momentum in the order intake that we see, and we are very happy that apparently, we have the right offerings for our customers in these challenging times and are happy that they are staying with us with a lot of confidence and trust to our solutions.

If we have a closer look to order intake in the first half, and in the second quarter, we can see in the total second quarter up by 26%. That's mainly driven by Hydropower and Metals. Hydropower jumped by 173% from EUR 284 million to EUR 777 million, Metals jumped by EUR 200 million from EUR 321 million to EUR 527 million. So that's really good. Pulp & Paper decreased slightly against the Q2, but we have -- but we see a strong growth in the first half of the year and it's basically only Environment & Energy, where the markets are extremely cautious at the moment to place orders. Project pipeline is quite good, but decisions are awaiting. However, what we could see in Environment & Energy is a good growth in FEED and engineering studies, especially for the -- for our new products like carbon capture and Green Hydrogen.

The revenue as I already mentioned, decreased in the second quarter and in the first half, we would see an increase compared to these figures for the second half of the year, but the low order intake that we had in 2024 drove this decline, especially in Pulp & Paper and in Metals. In both areas, we had necessary capacity reductions have been started and I would say to a majority already implemented.

Hydropower gets a strong momentum, is increasing revenue and executing the large backlog. And we could see in Hydropower a very nice growth in the service business. Environment & Energy, we have the revenues at an all-time high and a very solid growth in the service revenue. The backlog is again solidly up at EUR 10.4 billion. As usually, 2/3 of that is driven by Pulp & Paper and Hydropower, and you can -- we expect about 2/3 to be executed in the next 12 months.

EBITA development. We have a stable comparable EBITA margin, and we have -- we are falling on the EBITA along with the decrease in revenue. On the reported EBITA margin, we are dropping from 8.4% to 7.9% and that's mainly driven by the one-offs due to the capacity reductions in Pulp & Paper and in Metals.

On our ESG program, we are -- I would say we are well on track. The majority of the targets for the 2025 have already been reached. It's the share of sustainable solutions and products where we are lagging behind and the share of women in the workforce, where we are below the target. Everything else, we have reached the targets already and are preparing for new ones, which will be communicated within the next couple of months.

We had a very good run on our acquisition strategy. In the first half of this year, we completed 4 major acquisitions, very important, very perfect complementary fit to our product offerings in our various areas. The LDX, we already reported in Q1 that was closed in February. Then we acquired A. Celli Paper, a specialist for paper and tissue machines, especially in the winder and rewinder business, filling a product gap that we had in our portfolio. They have locations. They're based in Italy, but have a strong location also in China. Revenue is approximately EUR 70 million. We are strengthening our customer service for the energy business for boiler cleaning equipment. Diamond Power, more than 120 years of experience to clean boilers. We are working together with Diamond Power for many years, so we know them. And I would say it's a perfect fit to our product offerings. And it is, I would say, a significant step forward to serve the customers for the outages out of one hand. We received good feedback from the market for this acquisition.

Same applies for acquisition of Salico Group. It's a small Italian machine maker for finishing equipment for strip and plate, exactly located in between our metals processing and metals forming part because they are providing the equipment to further to further petition the strips and the plates for the -- as the incoming products for the press lines in our Schuler business. So that makes a lot of sense to close that gap. Revenue is approximately EUR 100 million and very complementary to our current business.

Service is steadily increasing. The revenue is increasing to an all-time high of 44%. So we are continuing on that track. With the acquisitions we made, we will strengthen that further. So that's, I would say, that is on the right track.

And with that, I would like to pass on to Vanessa to give us some more details on the financial performance.

[Vanessa Hellwing, executive]

Thank you, Joachim. Yes. Hello, and good morning to everybody listening. Before I go into the financial details of Q2, let me take a moment to reiterate the cornerstones of our strategy of long-term profitable growth and also illustrate how focused diversification and risk-conscious expansion have made all that possible.

This chart is a 25 years performance snapshot that does not only show the absolute growth with 400 basis points margin expansion. It also shows that ANDRITZ is growing well across the cycles, with, in fact, only a few down years with rather moderate revenue declines and quite a low margin variance from peak to trough. This resilience is achieved by various factors, which mainly are the following: We are exposed to different sectors with generally phased economic cycles. We have increased our service business to 44% share of revenue with good margins. Our long-term track record with bolt-on M&A contributes to growth and value generation. Our asset-light business model supports flexibility. We benefit from synergies across the 4 business areas with limited dependencies.

Our internal focus is on cost consciousness, flexible cost base, improved project execution and detailed risk management. We manage our global supply chain effectively with local for local and multisource strategies and also have manufacturing cooperations. Furthermore, we focus on digitalization, reduction of structural complexity, and we are also implementing global shared services. So your key takeaway from this slide should be ANDRITZ's long-term performance demonstrates that we have delivered consistent profitable growth across cycles through the right mix of sector exposure, a resilient operating model and disciplined execution, resulting in both margin expansion and long-term value creation.

Let me now walk you through the key components of our EBITDA to net income bridge for the first half of 2025. Our EBITDA margin remained stable at 10.3% despite higher nonoperating -- operational items, while absolute EBITDA decreased to EUR 374 million due to the temporary decrease in revenue that we are undergoing in the first half of this year.

Depreciation was slightly lower at EUR 86 million due to asset devaluation in the Metals restructuring in the first half last year. This results in a reported EBITDA of EUR 289 million and the purchase price allocation from recent M&A, mainly LDX Solution, lifts the IFRS 3 amortization to EUR 31 million. The financial result improved from minus EUR 8.6 million in the first half '24 to minus EUR 0.5 million in the first half '25 due to the deconsolidation of Otorio last year and the recent fair valuation of Armis shares. The tax rate remained flat at 25.5%, leading to a lower absolute tax charge.

Summing up, the net income for the first half '25 at EUR 192 million is actually reflecting the temporary revenue softness and elevated nonoperating items. Just as a reminder, ANDRITZ has recently sold its stake in Otorio to Armis, that was a leading supplier of cyber exposure management and security. So ANDRITZ received a consideration in Armis equity that generated the fair value gain that I just mentioned and fosters thereby a cooperation that will strengthen ANDRITZ digital solution offering in cybersecurity.

Turning to cash flow. Let me outline the key movements from EBITDA to free cash flow in the first half '25. We start with EBITDA at EUR 374 million. Well, outflow from net working capital increased from minus EUR 31 million in the first half '24 to minus EUR 114 million in the first half '25 due to bonus payments to our employees, but also due to higher inventories basically supporting our service activities. Also, we had lower trade payables and prepayments resulting from missing large-scale projects. Cash outflows from income taxes were basically on the same level as last year. The net interest received decreased from EUR 18 million in the first half '24 to EUR 8 million in the first half '25 due to lower interest rates and reduced net liquidity.

Changes in provisions and other are nearly at the same level as last year and mostly comprise outflows from provisions.

Summing up these items brings us to a cash flow from operating activities of EUR 169 million for the first 6 months mainly driven by lower revenue and working capital outflows. Then deducting the CapEx at a similar level as last year with EUR 98 million, we arrive at a free cash flow of EUR 70 million.

As Joachim mentioned, our M&A delivery exceeded last year's level with 4 deals signed in the first half 2025. LDX was closed in Q1 and the other 3 were signed in Q2 and will trigger further cash outflow in the second half of 2025 after closing of the deals. So M&A spend, thereby increased to EUR 99 million in the first half of '25 compared to EUR 58 million last year.

To summarize here, the working capital build was the single biggest drag on operating cash, but it is set to unwind as service and project revenues convert.

Our core CapEx discipline is preserved while keeping the free cash flow positive despite the volume dip. And continued bolt-on M&A support strategic priorities. The corresponding purchase price payment will, of course, impact the cash flow of the second half of this year, but balance sheet capacity remains ample.

I would now like to turn your attention to our operating cash flow generation. Operating cash flow amounted to EUR 96 million in the second quarter '25 and EUR 169 million for half year. Following a decline in Q1, Q2 actually showed already an improvement in the operating cash flow year-on-year.

In general, we're still seeing the usual volatility in operating cash flows on a quarterly basis, which is typical in the project business and driven by an actual processing of large and midsized orders. It's worth to emphasize here that the overall high level, we are maintaining an operating cash flow compared to the history. That becomes evident if we look at the right side of the chart at the annual 3 years rolling average. 3 years rolling actually reflects the average execution cycle of our capital business.

Let me turn from cash generation now to liquidity and walk you through the changes in our net liquidity profile. Over the last 3 years, we steadily decreased our liquid funds by termination of bonds while maintaining a stable net liquidity, as you can see here.

In 2025, our net liquidity, together with the liquid funds further decreased from EUR 905 million by end of '24 to EUR 516 million by the end of June '25. Hence, the total change in net liquidity in the first half of '25 amounted to minus EUR 389 million. This decrease in net liquidity in the first half of the year is actually not unusual and results mainly from payment of the dividend typically conducted in the second quarter. Based on a lower operating cash flow of EUR 969 million, as explained before, the dividend payout amounts to a total outflow of EUR 254 million. Furthermore, and now I'm repeating here, our liquidity was spent for usual CapEx in the amount of EUR 98 million and our enhanced M&A delivery, which led to an increase in M&A spend to EUR 99 million in the first half of '25.

As shown before, also working capital needed funding and the usual amplitude of our business. Despite what we call enhanced capital allocation, which I will address later, ANDRITZ continues to hold a strong financial position with sufficient liquidity as part of ANDRITZ' DNA. Not included in this picture here is our undrawn revolving credit facility of EUR 500 million provided by our core banks, which implies further headroom for ongoing M&A.

With this slide here, we provide further transparency on net working capital. While our total net working capital remains part of our financial disclosure, we decided to increase granularity on changing the working capital by presenting now also the operating net working capital. The quarterly development of the operating net working capital is shown here. As you can see, we are still pretty lean overall, with current run rates of some 12% of sales.

As a project engineering company, our operating net working capital consists of the typical trade working capital means inventory, receivables and payables as well as contract assets and liabilities with prepayments. What you can see here at the operating net working capital that we increased somewhat following the period in 2022, where we received large -- several -- actually several large projects and, therefore, large prepayments. Following the increase throughout last year, the operating net working capital has been slightly reduced in Q2 '25 after the all-time high in Q1.

In absolute terms, but also in percentage of sales decrease from Q1 to Q2 is visible. So -- and to even enhance transparency further, we have split the operating net working capital into its 2 components: Trade working capital. That's the upper blue part in this chart and contract assets and liabilities and advanced payments. Those are reflected in the gray at the bottom of this chart. It's a typical management element for us as a project engineering company, and it is used to set and control targets for project execution. The trade working capital remains relatively stable at about 16% of revenues on a long-term average. And our net contract liabilities and prepayments typically fluctuate between 3% to 10% of revenues, depending on where we stand in the execution of our several thousands of projects. This fluctuation is especially driven by large projects where we typically receive significant down payments, as you might know.

On the prepayment side, we have seen a sequential improvement over the last few quarters, along with our increased order intake. The orange line in the middle of the chart shows the 2 items combined, again, resulting in operating net working capital, as shown on the previous slide. This has recently improved slightly to 12% of revenues, normalized on a 12-month basis and generally shows a stable development between 7% and 13% of sales.

So I hope you appreciate the improved financial disclosure, which makes the drivers behind our working capital development, more tangible for you. Some further background with regards to our liquidity decrease. We paid the dividend of EUR 2.60 per share for the business year 2024 in April this year, totaling to EUR 254 million. The payout ratio was 51.8%. And at ANDRITZ, we aim for a gradual and sustainable increase in dividend payments. This commitment is reflected in our track record. We have raised the dividend for the last 5 years, and a target payout of more than 50% of net income. So being committed to generally enhance our financial disclosure.

Here is another slide providing better insights into the capital allocation and explaining our liquidity development.

Since 2020, we have progressively increased our capital allocation to support strategic growth and value creation from, as you can see, EUR 238 million to EUR 679 million. Next to increasing CapEx spend, you can see continuous strong spending on M&A, which represents a cornerstone of our strategy of long-term profitable growth. As just mentioned, we have also significantly increased dividend payments in the last 5 years. And in addition, share buybacks are a flexible tool with our capital allocation framework.

As you can see in the pie chart on the right side, in the period of 2018 to 2024, we have achieved a quite balanced capital allocation mix, with roughly 1/3 each devoted to CapEx, M&A and dividends. 34% CapEx, 31% M&A, 29% of dividends and 5% share buyback. So important to mention here as well is that operating cash flow has covered, as you can see, 95% of our capital allocation in this period of the past 7 years on average.

Following these details on our capital allocation, let me briefly also show you how effectively we are putting that capital to work and how profitable our operations truly are. ROIC is our main metric, quantifying value generation over the long run. It has been increasing since 2020 and stands at a substantial margin above our cost of capital. Above 20% is actually an industry-leading level. Return on invested capital is calculated on a post-tax basis, so fully comparable with WACC. And as it includes the goodwill and intangibles, it also gives a good picture of how value generative our CapEx and M&A initiatives are. ROIC slightly declined in the first half of '25 compared to year-end '24, driven by the decrease in EBITDA. However, at 20.7%, our ROIC is still significantly above our WACC at 7.9%. This clearly outlines the substantial value we generate at ANDRITZ.

So with this, I'm coming to -- at the end of the part of my presentation. Let me just also quickly summarize the drivers behind the key financials. Our leading indicators are positive. Order intake significantly increased by plus 26% in Q2 and plus 23% year-to-date and a book-to-bill ratio of 1.3 for the first half compared to less than 1% from last year. The high order backlog already secures a material part of next year's revenue. The margin development in order intake is positive and strict project management is improving the execution.

Lagging indicators on the other hand, are rather negative, but not surprising. Revenue declined by 8%, coming from a high comparable sales basis and low order intake of the last year. Along with lower revenue and restructuring impact from capacity adjustments in Pulp & Paper and Metals, our profit decreased by double digits. This has the effect that several non-P&L indicators are behind last year as well, all impacted by lower revenue and thereby absolute returns like cash flow, net working capital and ROIC as just explained.

The operating net working capital remains in high focus going forward. Again, to outline, lower order intake from 2024 is now materializing in sales figures, no surprise and no concern. Our enhanced capital allocation and higher M&A delivery is supporting value creation and has reduced our net liquidity position.

Last but not least, the numbers of our employees steady and overall at the group level, but with variances, of course, across the business areas. FX has been headwind in the first half, but tariffs have still not impacted our operations, and we will provide further details on that later in the presentation.

For now, I would like to thank you for your kind attention and handing the word back to Joachim, who will present the developments of the business areas.

[Joachim Schönbeck, executive]

Vanessa, thank you very much for the detailed insights. Let's turn quickly to the business areas, starting with Pulp & Paper. I see we can see a good development in the market, driven by large pulp mill orders and as well as single-line orders. Majority of the investments are in the U.S. and in Asia. Not so much in Europe and in South America at the moment, but project activities are going on there as well. It's very good that it's not only the pulp but also the paper business that could grow compared to the previous year, which is a good sign for the months to come. The revenue declined. That's -- as I said, that is driven by the low order intake we had last year. Capacity reductions in Pulp & Paper, I would say, have been basically completed, and we are -- we have set our cost base adjusted to the new -- to the volumes that we see.

The profitability could be on a comparable basis increased. We had -- we improved project management a lot and could also lift the service share. In the Metals area, we could see a strong growth in order intake and that's, again, driven by the U.S. U.S. business and China business and also the Metals forming, the Schuler business in China continues to grow exceptionally. The decline in revenue is driven by the low order intake last year. Also here, the capacity reductions have been implemented. The processes, that's the majority of the capacity reductions are in Germany, takes a bit longer to have all negotiations done with the unions, but it's on the way. And we can see everything will be implemented by Q4 this year. On a comparable basis, the EBITDA remains stable. And the service Share has increased a bit, even though it can still -- it is still compared with other ANDRITZ businesses at a rather low level.

Hydropower for sure, is the highlight. And I can tell you this is not a onetime event. We see a structure. We are in the beginning of, I would say, significant upturn of the entire market. That is what the project discussions and the plans that our customers reveal show. So we will see a very good market in the years to come. Increase in Q2 by 173% on the order intake. The revenue grew by 11%, and we already discussed it last year when we -- when basically the order intake started to pick up in Hydro. The execution time in Hydro even longer than we have it, for example, in Pulp & Paper or Metals, so we often talk 2 to 5 years. So the revenue grows a bit slower, but it grows continuously. The good market condition also allowed us to moderately increase the prices. And with the phasing out of the old projects, we are, first of all, seeing improvement on profitability here already in the Q2, and we also see that this trend will continue.

Environment and Energy. Here, we see a decline in the order intake. We had, I would say, several special effects in markets where decisions have not been taken. And in this area, we also depend a bit on our -- on the new developments we have made, the green hydrogen development Power2X but also carbon capture. Here, we had a good growth in the engineering studies, FEED studies for these areas. But final investment decisions have not been taken in the first half of this year, and this is why order intake remains low.

Revenue is on a record high, EUR 703 million and the service in Environment Energy is growing very nicely. Where we have quite a good development is in clean air technology and that's especially in Europe, but also in China, a lot of pollution control, flue glass cleaning systems are looked after and our -- apparently, our offerings are the right ones.

So if we target our look to the future. I would say on the trade, we do not see any change from what we told you 3 months ago. So basically, we have not seen a direct impact. Of course, we have seen some indirect, but nothing so much material. The strengthening of the euro, which started already beginning of the year, but which accelerated from April onwards was hitting our revenue and will most probably further hit our revenue development for the second half of the year, because we do not see from the experts that the euro will weaken over the second half. So we see that, that trend continue. And you see, it's for us, it's not only the U.S. dollar, it's the Brazilian real. It's the Mexican peso, but it's also the Canadian dollar, and again, against these currencies, the euro has strengthened. So we are -- it's not a concern. We are protected there. But of course, we cannot impact that and the revenue will move accordingly. This is why we see that the revenue will drop, and we will be in the guidance more on the lower end of the -- of our revenue guidance compared to what we told you last time.

The midterm targets on revenue and profitability will be -- are confirmed, EUR 9 billion to EUR 10 billion for 2027 and more than 9%. I would say that's all the targets for the business areas remain the same. I don't need to repeat it. That's more added for sake of completeness to make it easier for you and not to dig out your old presentations.

Thank you very much for attending. And I pass over to Matthias to further guide us through the Q&A.

[Matthias Pfeifenberger, executive]

Thank you, Joachim and Vanessa, and we can now start the Q&A session.

[Operator]

[Operator Instructions] The first question comes from Akash Gupta, JPMorgan.

[Akash Gupta, analyst]

I got 2 to start with. The first one is on order intake. We had another strong quarter for orders in Q2. And I'm wondering if you can talk about pipeline at a group level and your expectations for second half, particularly on book-to-bill when we will see some uptick in revenues. So maybe your comments on book-to-bill expectations for second half to start with.

[Joachim Schönbeck, executive]

So we see strong project pipelines in all business areas. So we believe that the markets will remain intact. The demand is there. We also see that a lot of the hesitation that came in beginning of Q2 with the tariff discussion now come down because people better understand what it means, precisely for their business, how many exemptions are from tariffs and that not everything is written in the newspaper is really becoming material. So we, despite the increase in revenue, we would not expect that book-to-bill would drop below 1. Is that -- did this answer your question?

[Akash Gupta, analyst]

I mean, yes, it does, but maybe I was wondering if you can provide a bit more color at a high level that where this -- because you said earlier in your prepared remarks that you expect strong hydro, but just any color outside of hydro in terms of expectations for the second half in order intake?

[Joachim Schönbeck, executive]

Yes. I would say from -- as I said, a good project pipeline is supported by all business areas. But for sure, hydro, I would say, from a market point of view is the strongest, yes.

[Akash Gupta, analyst]

And my second question was on your margin guidance. So I completely get it that due to exchange rates, you are now seeing lower end of the revenue outlook. But when it comes to margin, I think you're also indicating lower end of margin guidance, which would imply full year margins could be down about 30 basis points, while we are up 10 basis points in the first half. So maybe if -- maybe for Vanessa, like if you can elaborate what is driving this? How much of this is exchange rates and how much of this is maybe some of these cost-saving measures coming with some delay or maybe anything on execution, which is driving this weakness in second half margin?

[Vanessa Hellwing, executive]

Well, I mean, first of all, as you could see, with the margin stable even though with the lower revenue that we have currently seen. And we see that for the total year, of course, also, FX will slightly impact the margin as such. But as mentioned, we have a very good development in Hydro business. So also, the mix might impact. As you know, we have a lower margin in general in hydro than in the other areas. And this mix, of course, is affecting the margin slightly also for this year already.

[Akash Gupta, analyst]

Just to clarify, this lower indication is mostly due to mix outside of exchange rates. Nothing unusual that you have seen in other businesses?

[Joachim Schönbeck, executive]

But Akash, I think we are not -- on the margin side, we have not decreased in the -- we have increased from 8.2% to 8.3% on the comparable EBITA margin. That is our guidance. And so we did not decline in the first half, and we do not expect that for the second.

[Akash Gupta, analyst]

Sorry, my question was for the full year, because you're indicating full year margins towards the bottom end, which would be around 8.6%. And last year, you did 8.9% and H1 was up 10 basis points. So I was trying to get why you are indicating second half margins to be down year-on-year.

[Joachim Schönbeck, executive]

Okay. Thank you.

[Operator]

The next question comes from Lars Vom-Cleff, Deutsche Bank.

[Lars Vom Cleff, analyst]

A quick one regarding Pulp & Paper. I mean, we saw this decline 10% year-on-year in Q2. I know yes, this order intake tends to be volatile from time to time. And looking at the first quarter, I was hopeful that we would see an improvement now. Any view on -- you said the pipeline is good for all divisions. That also affects Pulp & Paper, I assume. So you're expecting Pulp & Paper to also positively contribute to order intake going forward?

[Joachim Schönbeck, executive]

Yes. I can confirm that.

[Lars Vom Cleff, analyst]

Okay. Perfect. And then secondly, I'm scratching my head a bit looking at the flat development of your contract assets while we saw this revenue or seeing this revenue decrease. And if my math is correct, the ratio even is at an all-time high currently, which normally is not a good sign. And giving you the benefit of the doubt, does that imply for us that we should expect a very strong revenue and profitability generation in the second half? And that would also be helpful for your free cash flow, I would say, because your H1 free cash flow comparing it to the Bloomberg's consensus figure so far only is a fraction. So I guess a lot more needs to come now.

[Vanessa Hellwing, executive]

I'll take this question, Lars. Thank you for this. I mean we have -- we just talked about the guidance for the revenue. So this is, of course, also affecting then our contract assets as such and the net working capital overall. I mean you can do the math, your own. But of course, we also go for further business and hope that we continue with the good order intake coming from the pipeline that we see. So I cannot promise anything. We firstly do business. But of course, we also convert into revenue as it goes through the year.

[Lars Vom Cleff, analyst]

But I guess the contract assets are not necessarily related to the upcoming order intake. It's rather the business you're doing currently.

[Vanessa Hellwing, executive]

Yes, of course. But if we have the order intake, it will revert into contract assets sooner or later. And since we see that we have rather midsized orders instead of large orders, this happens sooner than later now. Currently. So that's also because of the mix. So with the large orders, of course, we had some tailwind on this in the past. And since we see -- since last year, we are more going into midsized or smaller orders, this has an impact also on the part of the net working capital development. I also have to say, I mean, we have like, as you might know, 60% only POC orders.

[Operator]

The next question comes from Daniel Lion. Erste Group.

[Daniel Lion, analyst]

You mentioned that, of course, the demand and pipeline look good, but obviously, especially in Environment & Energy, you have some uncertainty on the market, potentially also for large investment decisions, so larger projects might be impacted. Do you think that is this already changing now with sort of tariff deal in place with U.S. and EU and Japan? Or would we need to see more tariff deals happening, especially with China as well in order to have a more settled situation with better visibility? Or what do you see as a driver for investment decisions to be again taken instead of pushed out?

[Joachim Schönbeck, executive]

We see that the deals that have been reached take out the momentum of uncertainty, which usually is the worst for an investment decision. Now that the deals are in place investments can be made more clearly. And I believe that is really supporting. And I mean, we also have to make sure U.S. is a very important economy, but many of the projects we are delivering U.S. only takes a part of the share. And we can see that the trade within the rest of the world, is not so much affected by the tariffs. So the uncertainty is out, and we believe that this will drive decision-making again to a good level in Q3 and Q4.

[Daniel Lion, analyst]

Okay. And then you mentioned that capacity adjustments should be finalized towards the end of the year and Q4. I think this is true both for Metals and Pulp & Paper. So would you expect to see a reported margin pickup then already in Q4? Or rather starting in Q1? Maybe also tied with this question, when would you see -- maybe also based on the order intake and order book level, when would you see the turnaround in revenues on a quarterly basis through this year or next year as well?

[Joachim Schönbeck, executive]

So the -- we expect -- we already see that the cost base in Pulp & Paper where we had the reductions already implemented, we can see in the -- already in the third quarter. Maybe in Metals, we will start to see that in the fourth quarter, yes. And full year effect for both will be in next year. And guidance on revenue on a quarterly base, we cannot provide that. We are not prepared for that.

[Daniel Lion, analyst]

Okay. And maybe can I ask a last question? How would you see the M&A -- the announced M&As to add to profitability going forward? Overall, are these margin accretive?

[Joachim Schönbeck, executive]

They are. And that's -- yes.

[Operator]

The next question comes from Elias New, Kepler Cheuvreux.

[Elias New, analyst]

I hope you can hear me. I would just have a question on the sort of Pulp & Paper market dynamics and outlook. Just sort of given the current geopolitical uncertainties and declining pulp prices, do you see customers delaying investment decisions? And what are your expectations of the market environment going forward, particularly with regard to greenfield projects? Do you expect customer activity to improve going forward or hold at the current level? So any color you could provide on that would be very helpful.

[Joachim Schönbeck, executive]

I mean, investment decision in last pulp assets, I would say it's a complex decision-making process. You have -- on the one side, you have the current pulp price. But everybody knows that the current pulp price, you cannot sell anything on that price. So you need to have a clear view where is your pulp price in 3 to 5 years. I would say that's one element. Psychologically, the current pulp price is affecting but that's only one element.

The second is that if you want to build a pulp mill, you need to have forest. And the forest, once you have secured is growing and this gives you a certain time line when you have to make a decision because if the forest become overdue, then it's again very costly.

The third element is the demand side. And what we can see, talking to our customers, what we can see when we talk to the gurus of the industry, pulp demand is growing, and it will grow for long term. So I would say in these elements, the decisions will be made and discussions are ongoing, but decision-making is definitely not predictable.

[Elias New, analyst]

Very helpful. And just a second question on Environment & Energy and the demand development there. So you've seen a relatively muted investment activity lately, particularly in Pumps and Separation, I believe. Could you just comment on what is driving this weakness, particularly in Pumps and Separation and maybe give a little bit of a demand outlook for the different sort of businesses within Environment & Energy?

[Joachim Schönbeck, executive]

Very good question. Thank you very much, and I would be happy to share it with you if I would have the answer. And we would -- we see projects, we see a good project level, but we do not see decisions. We also do not lose a lot. So I'm -- it's -- for us, it's a question. So unfortunately, I cannot provide the clarity you like to have and I like to have.

[Operator]

[Operator Instructions] The next question comes from Patrick Steiner, ODDO BHF.

[Patrick Steiner, analyst]

Patrick Steiner speaking. Two questions from my side. Firstly, looking at the Metals business, especially the service part, what are, in your view, the main drivers, but also the challenges to increase the metal service business going forward? And what number is realistic in terms of service revenue share in the division over the mid- to long term?

[Joachim Schönbeck, executive]

So there is -- we have -- at the moment, we have 2 challenges on the -- everything related to automotive, all factories, all companies have a very strict cost control as they see a declining business, and they only go for very necessary investments in modernization repairs.

On the Metal Processing side, the main challenge is that, historically, the maintenance has been done by the customers ourselves. And this is where we have to take a lot of the business away from and this is what takes a bit longer. This is why we are not growing with the pace we like to see. But we know there is a value add from our service offerings, and we are persistent and patient.

[Patrick Steiner, analyst]

Okay. Second question, could you give us some more information on your current M&A pipeline? What are you looking at in terms of size, product geography-wise?

[Joachim Schönbeck, executive]

Yes. I mean, I presented 4 acquisitions, and they very much fit the ideal profile that we are looking for. Right size, complementary to our product portfolio, good profitability and good regional fit. So I would say they are exactly the blueprint role model we are looking for, and we will continue supporting our strategy on service, on digitalization and on decarbonization.

[Operator]

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Matthias Pfeifenberger.

[Matthias Pfeifenberger, executive]

Yes. Thank you for your interest and your participation in our Q2 earnings call. And then I'd like to hand back the word 1 more time to Joachim for concluding remarks.

[Joachim Schönbeck, executive]

Yes. Also, thank you very much from my side, and we will continue to work hard that all the opportunities we explained to you will materialize, and we can mitigate the risks to give you good numbers when we meet again in 3 months from now. Thank you very much. Have a good summer break, vacation, if you can take it and then looking forward to seeing you again at the end of September. No, end of October, sorry. Thank you very much. Bye-bye.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.