Voestalpine AG (VOE) Earnings Call Transcript & Summary

[Foreign Language] in France, a digital press conference again. I think this is a good idea against the background of the infections in Austria. We are very happy to present better figures than 12 months ago when we presented the last half year results in spite of the ongoing pandemic and the many challenges we see. So the press conference in digital form is unchanged. We have a 30-minute presentation of the Management Board. And afterwards, you have the opportunity to ask questions. So please log into the system 5 minutes before you ask the questions. You will find access data on our website. You also have media information on the website, the press release and also updated photo and video material, www.voestalpine.com in the Media section. I would like to introduce the speakers today, CEO, Herbert Eibensteiner, will start with a review of the past 6 months of the current business year and we'll give you an outlook towards the end of the business year until end of March 2022; and CFO, Mr. Ottel will give some explanations behind the KPIs. So much for an introduction, I would like to ask the CEO, Mr. Herbert Eibensteiner, to start with his presentation. Mr. Eibensteiner, please.

Ladies and gentlemen, I'd like to welcome you most cordially to the presentation of the environment and the KPIs of the first half of voestalpine's business year. Let me start with the beginning of the first half of the current business year. Right at the beginning of the first quarter, we saw soaring demand. In some areas, we also saw overheating of demand. High demand stabilized over the summer. Basically, we saw solid demand in most essential market segments, construction, engineering. And we see that there is a rebound in the oil and gas industry, the energy industry due to rising energy prices and also due to the investment levels that are rising at the moment. So the oil and gas industry recovered. And we also see that the aerospace industry is slightly rebounding. We see increasing demand from the aerospace industry, in particular for short- and medium-range airplanes. And we also expect an improvement of the situation in this segment towards the end of the year. We also have problems in the supply chain, in particular with relation to the European automotive industry. After the summer, we also felt the first consequences of that. As far as the global economic environment is concerned, we saw positive trend, of course, with regional differences. North America, for example, has a high dynamic, high demand and high growth rates, which is still persisting. We also see high employment there. In Asia, especially in China, after a good economic development towards the end of the first half of the business year, we saw the dynamism to level out. But over the whole year, we expect solid growth. Europe lagged a little bit behind but we also see a good demand environment in Europe, in all essential sections or business segments with the exception of the automotive industry, of course, which is hit by a scarcity in semiconductors. As far as South America is concerned, basically Brazil for first, we have a good -- we see good performance against a good business environment and also benefited from the good development there. Let me continue with key figures. Mr. Ottel will present these figures in more detail a little bit later. Revenue. Here, we see a market increase to EUR 7 billion. And this is also evidence of the boost that we saw in the first quarter as well as partly in the second quarter. What is also very pleasing is earnings, EBITDA, EUR 1 billion and EBIT of approximately EUR 650 million for the past 6 months. We're very happy about these figures. And what is important is that against this backdrop -- against this background, we succeeded in reducing net financial debt of the group. Our employees did a sterling job. I would like to thank our employees for that, and that takes me to employment. We have 49,000 employees. Again, that's an increase as compared to the last half year, of course, also based on high demand that we saw in the first half year. voestalpine is growing, but doesn't forget to think about the green future, a sustainable future. You know That decarbonization of our steel production is an essential part of such a green future, a path to a green future. voestalpine is committed to the agreement -- to the Paris Agreement on climate change. We are working hard to find a path to climate neutrality with Greentech Steel until by the year 2050. CO2 reduction can only be provided by technological transformation. We have a project Greentech Steel, and we have a clear path in this direction, up until 2030, by partly switching from a blast furnace to steel production yielding electricity. We want to reduce CO2 emissions by about 30%. And by 2050, a green hydrogen will play an ever more important role in production so that by 2050, we will have a CO2-neutral production. What is important is, of course, green electricity. That's the solution for these technologies, which means that we need green electricity, insufficient volumes and also at digestible prices. We also need the energy infrastructure in order to achieve our long-term goal. I talked about hydrogen. You might know, and you also see it in the picture, we have a pilot plant where we can produce green hydrogen. That's a research project. This research project will expire towards the end of the year, and we will continue to operate this plant. Currently, we are thinking about how to use green hydrogen in future. I would like to give an example today that reduction of CO2 and sustainability issues do not only limit themselves to the Austrian plants, but play a very important role throughout the group. We already have group-wide photovoltaic plants. 310,000 square meters, which are installed or currently being implemented in Austria. This amounts to 100,000 square meters. This is 10 hectares. The performance of such PV plants are approximately 60 megawatts. It's a first and important step to a green in-house energy supply. I talked about lines and cables in order to supply Linz and also Styria, and we are currently preparing the 220 kV cables, and this is a very positive thing to announce. All this -- all our processes and issues resulted in a certification of voestalpine by responsible steel. We are the first steel producers that have received a certificate for sustainable steel production. I'd like to pass the floor to Robert Ottel to present the figures of the first half of this year.

Thank you very much, Herbert. I'm deeply sorry that I can't meet you in person. I miss you. I don't know whether you miss us, but direct exchange of ideas, exchange of information has always been an interesting process. It was more interesting and more enthusing than looking into a camera definitely, but this is due to the current circumstances. And I do hope that when presented the year-end results, we can meet you in person again after so many months of not having seen us. The first half of the current fiscal year was a good one. It wasn't the best one. It was the second best year, at least, as far as I recollect. If you compare it with the first quarter of 2021, of course, we are comparing our figures with the COVID half year, the worst half year of the past years or decades. Of course, revenue rose by almost EUR 2 billion. Why did we see increasing revenue? 50% by an increase in volumes, demand of our customers. And the other half by rising prices driven by higher material and energy prices -- raw material and energy prices. The operating result EBITDA, rose from EUR 400 million to EUR 650 million. So half of it due to more -- higher volumes and the other half resulting from better prices. EBIT as opposed to EBITDA, EBIT from the previous year was influenced by an impairment loss of almost EUR 200 million. And this is the reason why EBIT was negative. And this is why the difference in EBITDA is smaller, and EBIT, the difference is higher. We are reducing our debt. I will show that in the next slide. And this means that the difference between EBIT and EBITDA is smaller because we don't have to pay so much interest. Profit before tax, EUR 611 million. And profit after tax, almost EUR 0.5 billion. This is a respectable result, which helps us -- thanks to the rather modest expectations in terms of dividends of our shareholders, this helps us to increase our equity. You can take that from the blue bars that equity rose by EUR 0.5 billion minus EUR 100 million dividend payment. This was the driver for the reduction of the gearing, that is to say the relationship between net debt and equity. You see that we could not reduce net debt as compared to the year-end of the last fiscal year. Why was that so? Although we have a good economic development, but also because we have a good economic development, it was necessary to have higher raw material inventories, and we also had higher prices, and this resulted in an investment in working capital of almost EUR 0.5 billion. This trend is not expected to continue in the coming 6 months, at least according to my opinion. If we look back to the end of 2019, we had EUR 2 billion more debt. And together with all our employees and all our colleagues, we could pay back debt in the amount of EUR 2 billion in the past 2 years. This trend of reducing our net debt will continue in the next 6 months. And this will mean that we have leeway to invest and -- in attractive business segments, to invest in and extend interesting business segments. What we are planning will be presented by Mr. Eibensteiner.

Ladies and gentlemen, let me continue with the outlook. The first half year was marked by strong recovery. We expect raw material prices to remain volatile. We saw that towards the end of the second quarter, energy prices increased markedly. And we also saw that supply chain problems in the automotive industry are expected to continue into the next year. This means that production plans will also be shifted to the next year. But we expect all other market segments to show a positive development. And this is why our outlook for the business year '21, '22 remains unchanged. We expect an EBITDA between EUR 1.2 billion and EUR 2.2 billion at the end of the fiscal year. This means that we will continue the positive development of our company. Now we are here to answer your questions. Thank you very much.

Thank you to the members of the Management Board for presenting the figures. We will continue with questions. Here, you see how you can ask questions. On the one hand, will be via telephone. It will take 3 to 5 minutes until you are caught in the system. And you -- it will be your turn in the series of requests. We'll also find a confirmation number, but you can also send us a question via e-mail, [email protected] or via Twitter, #voestalpinemedia. So let's have a look. We see that the first already dialing in. So it takes a little while, and then we start with the question-and-answer session. We have already received the first questions. Ms. [ Schmidinger ] from Kronen Zeitung.

A question relating to the corona situation. Austria and Upper Austria sees soaring infection rates. What about the situation at voestalpine? Are there limitations in production because you see corona clusters? What precautions is voestalpine taking to avoid shutdowns?

We have had any production problems caused by corona. As you know, we have this new 3G rule And finally, we know what to do. It is all clear what has been done. Of course, we will implement the 3G rule. For us, health and safety of our employees is key. As far as the current regulations are concerned, testing is important. How do we react to the current situation? We try to find -- to make sure that our employees have access to test capacities. And we also, we'll prepare the logistics for the evaluation of tests. Employees are commuting to our locations and also working in shift patterns. And what we want to do is to make sure that testing is possible. And we want to make sure that our employees have access to tests. And we think by setting such measures, we can keep infection rates low. As far as COVID is concerned, we are already preparing for the third jab or for virgin jabs, so to speak, we are planning to set up again vaccination capacities because the employees that were vaccinated before the summer would have to receive their boost in November and December.

Another question in relation to the tests. What does that mean? In [ Lindstrom Ritz ] Kapfenberg, how -- do you have PCR testing stations?

We are trying to get gargling tests and take over logistics and synthetists to the laboratories for evaluation.

[Operator Instructions] We see that we have some people in the system that haven't registered for questions. So we'll give you a further 1 or 2 minutes to dial in and to ask your questions. We have a written question by KURIER, Mr. Pressberger. I read the question to you. The European Union and the U.S. found an agreement in the customs problem. What about this agreement? Is it currently implemented? And how do you comment this tariff topic in hindsight?

voestalpine was hit by the Section 232 customs, tariffs. Of course, we paid customs tariffs. And all the divisions had a high administrative burden. To qualify for exemptions in the U.S., the new regulations which will get -- come into force on the 1st of January next year is positive because we will have a quota system. We can supply to the U.S. without paying customs tariff in a certain bandwidth. Of course, this will have positive effects for our -- two business in the oil and gas business.

Next question via the phone, Sigrid Brandstaetter, Oberösterreichische Nachrichten.

I have several questions relating to your -- to the forecast. Mr. Ottel said that it's the second best result. If we look back to the previous years, the half year '17, '18, we had an EBIT that was even higher than this year. So please come back to the outlook and the forecast. Will this be a record year? If you extrapolate revenue and earnings and by simply multiplying them by 2, this seems to be a record year and this also means that the crisis -- you've left the crisis behind and overcome the crisis.

I am not certain that we will have a record year. You saw the outlook as presented by Mr. Eibensteiner. If we have the maximum of the outlook, it's a record year. If we stay in the bandwidth, it's not a record year. So the answer, will it be a record year? Do we expect a record year? No, I can't give you any change of the outlook that was already presented.

Let me continue with a question relating to the divisions or the business segments. The result seems to be driven by the steel industry. EBIT margins of 13% to 14%. Could you be a little bit more precise where this comes from? Because the steel industry, the steel is the segment that normally would suffer from the standstill in the automotive industry, which is a very important customer segment.

Your observation is right. The result is very much driven by the Steel Division of EUR 650 million EBIT, EUR 370 million resulting from the Steel Division. And the steel industry, yes, has market exposure to the automotive industry, which is suffering from supply chain problems in the semiconductor industry and changes their demand policy. And of course, in the second quarter of this year, we see volume reductions also in our deliveries to the automotive industry. We also know that we have a long-term customer structure. And when mixing the contract structure, we see a positive development, and we can also pass on price increases to the customers. As far as the second half year -- the second quarter is concerned, we saw lower volumes due to the problems in the automotive industry, but we also saw higher margins. So the automotive industry, of course, has an impact on the steel industry, but this is compensated by better prices and by a better contract mix.

Let me also ask a question relating to the COVID situation. You say you try to get gargling tests. But at the moment, the company doesn't have capacities to offer PCR tests in the company.

So the tests have been ordered. And at the moment, we have this transition until -- a transition period, and it will be possible to have sufficient tests for our employees.

Another question relating to the situation in the U.S.A. and the customers you talked about administrative burdens. Can you also give us your expectations, how this agreement will translate in monetary terms?

I don't dare to estimate how much the financial -- the costs were for this administrative work. Mr. Eibensteiner said that Section 232, tariffs hit the companies that are produced in Europe and export to America. That's the seamless tube production in Styria, which, of course, has other markets as well, but the U.S. is a very important market for them. The market -- of course, we delivered to that market also under the 232 tariff scheme, and we paid the tariffs. As soon as we continue with our deliveries, and we don't have to pay the tariffs, of course, this is a financial advantage, which will improve the tubulars result in Kindberg.

And the last question relates to capacity utilization. Would we have sufficient capacity utilization? Or do we have segments that lag behind? You said that demand from the oil and gas industry is recovering. Are you working full capacity? Or do we have -- do you have room to maneuver?

In most segments, we have a very good and high capacity utilization. Of course, in segments where we are supplying directly the automotive industry, we had to adapt to lower demand. And of course, this happened partially. We, of course, have additional -- would have additional capacity available. So of course, we had to adapt our capacities. If we look to the aerospace industry, we see increases in short and midrange planes, but there are still capacity as far as long range planes are concerned.

So we have also received a number of written questions, which I will read out. Let's start with Bloomberg first question. Limitations by zinc -- in zinc production by important European producers that limiting your production in zinc products? And second question, will the hot roll rod coil prices fall? Or how will -- are they probably developing in the long range average? Or what do you expect?

As far as your first question is concerned, zinc supply. At the moment, zinc supply is good and we have good supply until next year. We are not affected by problems in the delivery. And as far as steel prices are concerned, this is always a very difficult topic. You know that we are having long-term contracts and don't have so much spot contracts. We have long-term contracts with our customers. We had a peak in summer in spot prices. Our prices have gone down again and stabilized at a rather high level.

Thank you. Next question, [ Kelenish ]. What do you think about the chip scarcity in the automotive industry? Some say 2022, some say this will last until 2023.

So there are diverging opinions. What we hear from our customers is that they expect to -- the shortage to last until 2022, and then there will be a recovery.

Thank you. Next question to you, Mr. Eibensteiner. You say that you are thinking about further using the pilot plant -- the hydrogen pilot plant. What options do you have? Do you expand the plant? And do you need state financing? What are the factors that -- what are the key factors? And did -- was the plan successful? The question was asked by Monika Graf, Salzburger Nachrichten.

We tested this pilot plant for several years. It was a new technology. So we know the efficiency and efficacy. We know how to operate such a plant. We know about safety concepts. Hydrogen is highly combustible. So we know about all that. We will further develop this project. The hydrogen hasn't been refined, finally. Isn't dried and condensated in order to transport it or to further use it. We will think about the ways of doing that in the follow-up concept.

Thank you. Two questions by Kronen Zeitung via telephone, Mr. [ Ebert ], then Ms. [ Kleindingher ].

I would also like to ask a question relating to hydrogen. There were clear demands for state aids from the industry. What do you think is necessary? And which volumes are we talking about, which volumes would first need for full -- resupplying the locations with hydrogen? You also talked about the aerospace industry. What do you think -- what about the future development, production of new jets? Will the production of new jets reach precrisis levels? What do you think?

Hydrogen is an intensely debated topic, as you also said. At the moment, hydrogen that is produced from natural gas is, of course, has a CO2 footprint and is cheaper than green hydrogen which we are producing by electrolysis in our plant. So it's a factor 1 to 3, 1 to 4 as far as the costs are concerned. So it's 3x, 4x more expensive than hydrogen that is produced from natural gas. This gap will probably close over time when the plants are getting larger, when energy supply with green electricity will be cheaper as well. But I think the most decisive thing is that we have green energy at economical prices for the production of green hydrogen. So all types of funding or subsidies are, of course, welcome.

Ms. [ Kleindingher ]?

I have a question relating to the semiconductor delivery problems. Mr. Eibensteiner, you talked about capacity adjustments. What does that mean? Is there already short-time working schemes? What are we doing with free capacities? Can they be shifted to others business segments? Do you have any accounts where people accumulate minus hours?

You almost mentioned all ways of how we can solve this problem. In the German automotive -- in the German plants that are depending on the automotive industry, we have short-term working schemes where a certain number of employees has been registered for short-term working schemes. And here, we also can react to short-term changes in demand. Here, in Austria, we don't have any short-term working schemes. Here, it's about consuming over time. Then we have segments that have a high utilization. And we have shifting of employees among the companies in order to cope with rising capacity. So in Austria, we don't have any short-term labor. As far as Germany is concerned, yes, there are such systems.

Let me come back to hydrogen production, the question that we heard before. So the question was we have a test plant that was erected for research purposes. It is a research plant. We need the 500-fold capacity to fully supply our plants. This would be 3,000 megawatts or an energy supply of 27 terawatt hours per year. And I think this illustrates and undermines what Mr. Eibensteiner said, that, of course, power and power supply is most important to support such a transformation.

Thank you very much, Mr. Ottel. Next question? Ms. Ungerboeck from Standard. Let me read the question. What about the wage agreements of the metal industry? It's very high as employers and economists say. And what does this new wage agreement cost for the group?

It was a high increase for wages, and for voestalpine, of course, it means that we have to compensate the costs with efficiency boost. The cost roughly is a middle double-digit million euro amount.

Thank you. Next question by Mr. [ Hager ]. Gentlemen, up until 2030, you plan to switch electric arc technology to switch steel production to green steel. Would we need a green Danube? Where do you want to take green electricity at competitive prices in future?

If you look at Greentech steel in a first step. We have a partly transformation from blast furnace technology to electric arc technology. And power demand is much lower. And this is why we chose this path. And we think by taking this first step, we can produce 2.5 tonnes of steel with CO2 -- whether we reduce CO2 emissions.

Ms. Haase from Kleine Zeitung. First question. After a reduction of employees in the aerospace industry in this area? Will you increase number of employees? A second question, give us an update on Styria, Kapfenberg? Are there further problems caused by supply problems? And the second part of the question, we will ask after the first questions have been answered.

As far as increasing headcount in -- for the aerospace segment yes, in Kapfenberg in the aerospace segment, we are currently building up our workforce as order income is increasing, as I said before, as far as tubulars are concerned, we already have increased the number of employees. And we think that in the coming months, in most segments, we will have pre-COVID levels -- pre-COVID headcounts. Second question, Kapfenberg, I think you mean the steel plant -- steel plant Kapfenberg? Basically, nothing has changed. As far as the situation is concerned, it has already been communicated. We are working hard to finish the plants. And as already communicated, we will start full operations mid next year.

Second part of the question of Mr. Haase -- by Ms. Haase. Mr. Ottel, financial advantage for tubulars in Kindberg, what -- can you name that? Another question relating to the price level. I think it was already answered. What is your view as far as price trends are concerned? And the third question relates to segments which you are planning to expand.

We had EUR 40 million in Kindberg that had to be paid in terms of tariffs. So that was the year that was the tariffs that we paid for the year. So it is almost difficult to anticipate price trends. Prices are formed by supply and demand. Demand, and we are very positive as far as future outlooks -- the future outlook is concerned. Demand is expected to remain high. Given the increase in energy prices, we are forced to pass on the price increase to our customers and we will charge higher prices.

As far as business segments in which we are planning to grow are concerned, in segments where we have innovative products, high-quality products, we will have an opportunity to grow, and we plan to grow together with our customers. We are developing new products, and of course, want to deliver such new products. That's one way of growing. And another way of growing is inorganic growth by acquiring other companies. This can happen in segments where we see profitable developments with a good return. And I -- and these will be the segments where we plan to grow. In terms of volumes, we will not grow in the steel industry. We are focusing on high-quality products.

[Operator Instructions] And we will close the telephone line at 11:00. So Sigrid Brandstaetter from Oberösterreichische Nachrichten has another question.

I wanted to ask questions relating to the topics that kept us busy in the past years. What about the situation in Texas, in the HBI plant, as far as the financial situation is concerned, and capacity utilization is concerned? And as far as Cartersville is concerned, what about restructuring of that plant? And please also give us a financial information.

So the first half year with the HBI plant is over. We saw very good development and good demand development in the U.S. And this is why we saw a positive development in Texas. The market is positive. We have a planned shutdown in Texas, but we don't expect any major changes in the market environment. And we hope that we will -- we see that in future, we will see more electric arc technology in the U.S., and we see that very positively. As far as Cartersville is concerned, we already had improvements last year. These improvements stabilized at a certain level but we have to admit, that even if the U.S. was not hit that hard by semiconductor supply problems, the automotive industry was hit. But the enormous losses that we had in Cartersville have not occurred anymore.

Let me come back to the HBI plant. What is the capacity utilization at the moment? What is production volume, production output?

Mr. Eibensteiner described the market situation, which is very attractive. And everything which we produce can be sold. Of course, due to the planned shutdown, the annual capacity is lower. But as far as the sales side is concerned, we are working full capacity.

Mr. [ Ruprik Comor ] would like to know from Mr. Eibensteiner, if voestalpine surprised by the semiconductor problems over the summer and how the group reacted?

We were not surprised. We have permanent contacts with our customers, and know when there are problems in supply -- in the supply chain. Of course, we are hit by a certain degree. And as I already said before, we are adjusting to the situation. We have fluctuating call-offs of our customers and we are adapting to this situation. And as I said before, in our plants in Germany, we registered some employees for short-term labor in order to be able to react more flexibly to the demand situation. Basically, we were not surprised, but in some plants and some locations, the changes in the call-off behavior of our customers were difficult to foresee, and it was difficult to coordinate that in our production. And of course, we had some problems, and we had negative effects due to the change in behavior of the customers. In their call of behavior, we had problems in some locations.

Thank you very much. We have another question by telephone and via mail, Ms. Ungerboeck from Standard. Tubulars, how is the business development in the tubular segment? Did you reach precrisis levels? And second question, are there backlogs or rather reluctant demand in other segments? And here, another question relates to short-term working schemes and another question relating to Cartersville, which was already answered. What does the ban on combustion engines mean for the automotive sector in the medium and long run? Is voestalpine preparing for this situation? And will demand of the automotive industry change? And will this have an influence on the sales of voestalpine?

As far as tubulars are concerned and the ban on combustion engines, Ms. Unabe's , we have a 2.5 shift plus capacity utilization. This is a very high capacity utilization and is -- can be compared to pre-COVID levels. As far as combustion engines are concerned and the ban on combustion engines, let me state that our products are included in the body, in wide, in tool manufacturing and very low components in combustion engines. This means that this transformation to electric vehicles or hybrid vehicles can, of course, be accompanied by us. It's not a disruptive development, at least in our view. We have a transformation towards a mobility -- e-mobility, and we see chances for those when thinking about the electric arc technology. And we took the challenge. We took up the challenges and converted them into benefits. And the battery box also needs crash-resistant parts. And here, we have high-quality product, which will be another business opportunity for us. Yes, there is this transformation. And yes, voestalpine can accompany this transformation from combustion engines to E electricity.

Next question, Ms. Haase with Klein Zeitung via the telephone.

I have a question relating to Glasgow. Which impact do you see -- or do you expect on the global steel industry? Or don't you think that there will be any impact by Glasgow on the steel industry?

So it's a -- the tax in Glasgow are ongoing. We see different speeds in CO2 reduction in different areas in the world. We have ambitious goals in Europe. Then we have more long-term goal goes in China, even longer-term goals in India. I think this is a difficult political topic. We ourselves are focusing on Europe because we have steel production here and we have a clear situation, a clear legal situation. We have the Emission Trade Act. We have the climate goals, Fit for '55. We'll be awarded in the coming years. Finally, awarded in the coming years. For us, the development in Europe is, of course, essential. But we also see that we don't have a level playing field as far as the climate measures are concerned in the various parts of the world.

Okay. No questions. Thank you. All questions that have been asked via mail or via telephone have been answered. It took us exactly an hour. That takes us to the end of the presentation of the half year figures. I would like to thank the Board for the presentations. I'd like to thank you for the questions, for having been with us. And I'd like to thank the team behind the cameras, behind the schemes. We will publish the Q3 figures at the beginning of February. Stay healthy. Stay in good mood, although we have the COVID situation. Thank you very much. Stay healthy, you and your families, and goodbye from Linz. See you again. [Statements in English on this transcript were spoken by an interpreter present on the live call.]