Voestalpine AG (VOE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and a cordial welcome to the presentation of the half year results of Voestalpine AG. We are speaking of the period 1st of April until September 30, 2022. Very good news, very successful period that was, we are here at Voestalpine AG's headquarters at Linz in the Blue Tower. I'm Peter Felsbach, Head of Group Communications, and I'll be your moderator. First of all, thank you very much for being with us for listening in. And we have the same procedure as usual. First presentation, some 20 to 25 minutes by the Management Board and after that, you can ask your questions, address them to us. You have several options. You can use the phone patch. You can come in via a conference call. You will receive the information later on, and you can find it already on the press information, voestalpine.com. Please do that 5 to 10 minutes before and when we are at the outlook of the second half year, please wait for a few minutes before you are in. It is also a new that we also have directly operations which you can enter and you will then also have your [indiscernible]. Please use this as well. And the press information, the pictures and the videos can be found on voestalpine.com in the media area. Then on to your presenters today. First, we have CEO, Herbert Eibensteiner who will start with a perspective look on the elapsed 6 months and give an overview of the 4 divisions development and then at the end with some outlook. And before that I had over to Mr. Ottel -- over to Mr. Eibensteiner.

Thank you very much. Good morning. Good morning to the presentation of the first half year '22-'23 of Voestalpine. And let me get started with the current situation, where do we stand. And this, of course, also is a retrospective glance on the elapsed 6 months. So generally speaking you can say that we have benefited from high demand and a good price level and we live in a business situation which is getting more and more difficult. And towards the end of the first half year, we had an all-time high year-over-year. And I believe that this indeed is a very favorable and good news for all of us having had a share in this, our staff, of course and in particular, all those having worked in an excellent manner in this difficult context. And over a large area, we had a very high demand in most central market segments. What we did see was an excellent situation and development in the total field of energy, which, of course, goes across divisions and also has an input in most diverse fields and is certainly also driven by high energy price. And I can offer this in by saying that the sector of energy will show a very good development in the future as well. It's a positive trend also. And in aerospace, for instance, this trend is definitely going on. You see that this is a very cyclical area and it does not surprise us that it is so. And railway systems. Here, as usual, we have a very solid and favorable situation, but this is international business, which is on all the continents in there. We have an excellent situation and we have a very good order backlog. And what we also have is an excellent output which we see. And here it says solid as usual. And this also means that this area also in the previous years has been in the very stabilizing factor also for Voestalpine's business. And particularly in Europe, what we also have is a very stable demand and also on a cushion level. You also know the reason. The reason is the program of delivery chains, supply chains, particularly also as you can -- semiconductors and I believe that we had a stable demand, but only low level. And in the cyclical areas, particularly in consumer goods and so on and also certain parts of the construction industry, we have seen this very good trend. What then is the situation in the individual regions in North America, there is also the [ effect ], which also had quite high reactions and there also the economic trend has been the same even if the trend is still very high. And so is head count. So still what we do have is an excellent environment. Towards the end of the first half year, we had a certain weakening of the business situation in Europe, but with the stable areas which I had addressed before. In China, as a matter of fact, we have had a development which hasn't been so bad at all. Yet in China, particularly in the first half of the half year due to large-sized lockdowns, the economic growth and the economic perspective have clearly been worsened. And we have also felt this, of course, our end. And still, we have mastered this period quite well. And it's always surprising more and more the development in South America and in Brazil. There we see a continued positive development in our areas. Just a few words on the figures which Robert Ottel will [indiscernible] what we have is a half year revenue of EUR 9.3 billion, again, a clear improvement year-over-year and the previous year was very good already. And in the EBITDA, we have EUR 1.4 billion, also an all-time high. In our EBIT amount to short of EUR 900 million, which also is by some 40% better than the previous half year. And net financial debt once again has decrease and the number of employees or head count has risen slightly in that elapsed half year. Possible for us within the Voestalpine Group, we want to be and remain an attractive employer. You know that everywhere skilled workers are missing. There is an enormous shortage in this field. So we mainly focus on education and further training of our people. And education for us means, of course, to attract young professionals, mature and train in our state-of-the-art training centers. Presently, in Austria, we have some 900 apprentices in 30 professions will be trained. We have added another 409 autumn. This is 100 more than last year. And what is particularly important is also further education and training for all those being with us already, this is CPD, continuing professional development and we spent some EUR 500 million on this per year. And maybe I should also add here that internationally speaking, we trained 1,400 apprentices. We have a similar system, as you know, in Switzerland and in Germany. And just to give you an idea, we spent some EUR 90,000 per apprentice there. And I'd like to hand over to Mr. Robert Ottel, my colleague, for some KPIs.

Okay. Thank you very much, indeed. Thanks. I'd also like to say hello to you all in this virtual press conference. [Indiscernible] encounters much more. And my impression is that in the figures have some more meaning. So it's a bit like all press or videoconferences we have so much used to. Anyway, here you see the comparison of the first half year's KPIs compared to the previous first half year. And you see the change here in the right column. Almost in all KPIs, we have an increase of around 40%, which suggests that it has been a very special half year, particularly in the first quarter of this half year that was characterized by high raw material cost for the second quarter that was characterized by declining raw material cost, but high energy cost. What you do see here is the revenue compared to the year before from EUR 6.8 billion to EUR 9.3 billion, almost EUR 2.5 billion more. This particularly is due almost exclusively to the high raw material cost we have seen this year. Just for the sake of comparison, you see in the first half year that the first Voestalpine Group had a revenue of EUR 9.3 billion and compared to this, the COVID year, the total year 2021, that was some EUR 10.9 billion, I believe. So you clearly see that this half year was clearly characterized by the higher raw material cost. Then our operating result of EBITDA, it has climbed clearly by more than EUR 400 million, in particular in the Steel division and in particular, in the first quarter where we had this excellent result. The second quarter then from my perspective went back to normal, so to speak and this is still a very good one. What we then also see the difference between EBITDA and EBIT is that you see this year the depreciation is higher. We've published this already. In the second quarter, in the HBM division, we had to do an extraordinary depreciation behind energy cost and the volatile interest situation have brought this about, it does not take any cash effect or cannot be seen in the operating result. After interest and tax, it means a profit after tax of more than EUR 700 million. So this EUR 700 million has been invested into our equity. So the financial basis of the Voestalpine Group is even stronger now. When compared half year over half year, so in the last 12 months, the gearing of the Voestalpine Group does has come from 55% to 33%, so a very massive decrease. What is the situation of the gearing ratio in the long run? You see it here, gearing is the ratio between the net financial debt and the equity. And you also see that this year, as of end of March, the gearing ratio was kept stable. On the one hand, debt, this is the gray part, went up a little bit. This is mainly due to higher values in the raw material storage or inventory. On the other hand, equity in the 6 months has been stepped up by close to EUR 0.5 billion. And this certainly is an all-time high in equity. This is the financial muscle and power of Voestalpine. What we also very clearly see here is that the equity, the book value per share also has an all-time high of EUR 42. And this is a bit clearly different from the share price. And since the business year can be appraised, can be analyzed much better now when we see such stability as the Management Board, we have a share buyback program, which we have decided upon which will start tomorrow on the 10th of November. What is such a share buyback program? If we buy all shares at today's price, the equity would be reduced, debt would go up a bit. And in total, this would amount to some 4%. So there again, on today's basis, with the exception of last year, we would have the lowest debt of the last 10 years. And on that, I'd like to hand over back to Herbert for his outlook.

Yes. Thanks, indeed, Robert. As to the outlook for the remainder of this business year, you certainly know that the economic experts forecast some cool down of the business situation in the second half year. And we also expect a decline of demand in the cyclic industries like, for instance, in white goods, in construction and also in mechanical engineering. But we have these very stable areas like energy. And there, the upward trend is expected to continue, same thing in aerospace, where our order backlog is very good indeed. And we expect, furthermore, a stable development in the field of railway systems. And I do believe that this geographic international positioning which we are having and also our group's diversification mean that we have some stable areas and some cyclic areas, which more or less outweigh each other. And this supports, of course, our revenue and our results. And this is why the Management Board gives an outlook for the business year '22-'23 an operating EBITDA in a bandwidth between EUR 2.3 billion and EUR 2.4 billion. And that, assuming, of course, that there won't be any unexpected further economic distortions. Well, ladies and gentlemen, just on time. This is the end of our double presentation. And we'd now like to hand over for your questions.

Thank you very much, Mr. Ottel. Thanks, Mr. Eibensteiner for your presentations.

[Operator Instructions] We have already on the chat tool our first question from [indiscernible]. His question, in Sweden, there is the first climate-neutral steel plant. How long would it take before Voestalpine has one? And why is Austria then slower than Sweden?

Well, [ Mr. Marsha ], you certainly are familiar with our Greentech steel project. If you see the 2 locations dealing with this project, if you look into this, you will see there is some preparatory work already for the first step of a CO2-reducing steel plant because with Greentech steel in the first step by 2027, we want to drop our emissions by 30%. This would amount to 2.5 million tonnes of green steel. The preparatory work for this is going on already at the locations. And if we say that the preparatory work has been launched, this is a EUR 200 million worth activity, which we currently are investing into such preparatory work already. We are now waiting for March. The final approval of the project and then construction work will start in from 2027, the 2.5 million tonnes of green steel will exist. Then there will be some further steps and I believe it's essential to see this modular structure and procedure, so that even during ongoing operation, we can decarbonize as best possible. So you see Voestalpine and Austria are not lagging behind, but definitely at least as good as Sweden, if not better.

Then [indiscernible]. How many of your apprentices you trained stay in the group?

We always submit an offer to each and every individual apprentice to remain within Voestalpine. And most of them also take it. Along the years, we have been having a very high retention rate. And we see that the fluctuation of the trained staff is much lower than all staff which we get from outside and integrate into Voestalpine. So it is a very high retention rate.

And over to the phone patch, [indiscernible].

One question from Mr. Eibensteiner. You spoke about an excellent development in the field of energy. Can you elaborate on what Voestalpine produced for the energy sector, what does first produce and where?

Well, we produce tubes and pipes for the gas area in Styrian, Steiermark. We also produce heavy plates at Linz for instance, for pipelines or also for drilling platforms and also in some other areas like wind power. We produce steel constructions and structures for the now very important area of photovoltaics. And also some special demands in the high-performance metals division for valves, for instance, for pumps and for some other products, which then are also used in the arena of renewables and also some other fields of energy.

Excellent. Then a question as regards the shortage of skilled labor. First, the 1,400 apprentices, do you also integrate the Austrian ones here?

Yes, we have some 900 of the 1,400 in Austria.

And you've also addressed a training and education, you invest some EUR 90,000 into 1 that was at EUR 70,000 once, I remember. Why is it so much higher now? Have you changed anything? Have you intensified, improved things? Or is it just the increase of prices everywhere?

Well, of course, we have our training centers, which we have expanded and clearly improved and revamped and we have focused much more on digitalization. Obviously, the number of apprentices in the course of the years also have gone up more and more. And I believe that now we can also offer an infrastructure, which is certainly excellent and is among the best which we have in the field of apprentices trainings.

[Operator Instructions] On the go, in the chat tool Bernhard Ecker, Trend Newspaper. In the field of energy, what about the trend in wind power, renewables and conventional areas of oil and gas? Can you differentiate here? Is there an equal amount of growth in the 2 fields?

Well, I can only speak for our own area. In oil and gas, there is an improvement there. Of course, we grow continually along with the market. And what is especially in the field of renewables, there a lot is being invested, particularly in the field of PV, and this does not only happen in Europe, but it also happens in Brazil or in the U.S. And I believe that this very area is growing far more than the market because there, there is also a lot of investment. And the field of wind power presently is growing if a bit more slowly, but will also increase in the future.

Next question from the chat tool [ Christian Ebert ], [indiscernible]. How high will EBIT -- would EBIT be without the cost inference?

I find it difficult to do this calculation. It's an if calculation and everything is iffy here. I think the EBIT would be more or less the same. But in terms of revenue, you can, of course, reduce that by EUR 2 billion more in terms of raw materials costs, but you cannot separate. You cannot decouple the 2. I could not do that. And in terms of revenue in the half year, the raw material cost increase amounts to some EUR 2.1 billion.

Next question, [ Rucas Melus ] [ Star Magazine ]. Which challenges do we expect for 2023? And how do you wish to encounter it?

Well, I believe the essential point for all of us in our industry is how are we positioned, how resilient are our business cases and models in a market which is worsening. I would say that this is a key topic for all of us. And Europe has to grant security of supply energy-wise. And there are the high energy prices. There are so many topics. We could discuss decoupling of electricity price from gas price and so on, reduction of energy prices. So all of that will be important for us obviously. And there is also a lot of uncertainty and it will be a bit difficult to continue stable business. This will be a challenge also for 2023, as said before. We have very good diversification also internationally and in our segments. And we have some segments which are very, very stable.

Next question comes from [ Smitoslav ], [ Aprisimov Kalenish Commodities ]. I hope I haven't mispronounced the name. What is your expectation as to demand for steel in the automotive sector?

Well, we know, of course, and you might have gathered it from our outlook that the automotive situation will remain stable, short term. And in the long run, we do not expect any further improvement in this field. So I would say maybe as an answer to your question, we expect that the development of the steel demand in automotive will remain on today's level. We do not see any further improvement soon.

Next question, Birgit Kremser, [ Arpa ]. In your press release, you speak about the gas supply situation. What about iron ore because a lot of ore comes from Ukraine?

Well, our delivery paths have been changed. We had raw materials from Russia and also have some new delivery parts for quantities, which had come from Ukraine and can't be delivered any longer. That also has been changed. And that's also granted for raw materials supply and [indiscernible].

Then Claudia Haase, [indiscernible]. Two questions. First, an update on hydrogen in Linz, how much money will it be after the uncertainties over the last few months? What is the future perspective for a further extension? And the second question on gas supply. You certainly have secured it for several months. Do you further expand this? Is that possible at all?

Well, as to the update of H2 future, we are having a project in the pipeline. For the further use of hydrogen, this is hydrogen compaction, hydrogen cleaning in order to also use it with some further processes. That project has been planned, has been submitted. We do not yet have the final go ahead as to whether we will get any subsidies. But we believe we will have the green light in the next few months. So as to your questions, yes, this project definitely will be continued. And as to gas supply, the 1.5 terawatt gas has been stored. And for the time being, the storage situation is very good. And that's kind of an insurance policy for us in the case in the event of a gas shortage. Presently, we keep the storage volume as it is. We don't expand it any further.

[Operator Instructions] So far, all questions have been dealt with. So back to [ Ms. Kneidinger ] for your next question.

Mr. Eibensteiner, when answering to Mr. Marsha, you said that EUR 200 million have been invested into preparatory work already at Linz. Can you tell us what cost EUR 200 million there? Is this construction work? Has something been demolished? Or why is it EUR 200 million already?

Let me specify. Maybe the budget for this preparatory work is EUR 200 million and you just have to see, and this applies to both areas, Linz and Donawitz that we are, of course, integrating steel mill into an existing one. And there, of course, there are some pipings and tubings, some preparatory work has to be done for -- I don't know, for heating, ventilation, you name it, power supply, which will go across a kindergarten. And we add a new kindergarten and there are many such infrastructural measures which have to be implemented. Now while preparing for the real fully fledged project of Greentech steel, so it's part of it, it's a sub project, if you will. And you just have to see that there is pipes and tubes of 3 meters of diameter and they have to be re-laid and adapted and these are huge task and huge bits of work. That is why we have to start on time in order also to then start and launch the real work after the approval end. Since I'm speaking of the kindergarten, what you might not know, we are making a kindergarten for 200 children. This is so important for us in order also to attract more families. And in order to win over more families for Voestalpine. So we offer 200 places at our kindergarten around the clock even 24/7 in order also to attract some employees having families for shift work and the jobs we are offering. This, I believe, is also a major point we should highlight.

When will it be operational, the childcare facilities? When will it be operational?

In spring time next year.

And really 24/7? Or is this just a saying?

No, no, it's really 24/7 at least part of it if some staff do shift work with us.

And a very concrete question as to the kindergarten, there has been an existing one already. And is this now a new project, the greenfield one?

No, no, there has been one, but with 80 places only and now of course, due to the high demand and the shortage of childcare facilities, we have decided to step up the number clearly to 200 children.

Then again, a question from our phone patch, Claudia Haase, [indiscernible].

It's much better to speak than only to write into a chat. And I'd like to speak about the medium range. Maybe you can say already, will it be 20 or 30?

What do you mean? You mean the demand for green steel volume?

Well, the demand, of course, is one topic that will be fascinating for all as well. I think it will be in very high demand. But what will you be able to produce in terms of volume?

Well, in the first 2.5 million tonnes of green steel, Greentech steel, this is our production capacity. In the Greentech steel project and as you have heard as well, there will be a next step after 2030 and then it will grow up, grow continually.

And since you said it would be a modular extension. I thought that in 2030, it will be more than 2.5 million already. But you don't, of course, want to make any promises now time-wise. So it will rather be post-2030, will it?

Yes. It will be operational, say, in 2027, then we take it that a market will be created for Greentech steel. And then we will have concluded our new activities and will grow along the green steel market.

How much more expensive is Greentech steel than "normal steel" in inverted commas?

As a matter of fact, right now the first green steel markets and prices are being created or being formed. So it's a bit too early, I would say, to speak about prices, which will then exist in 2027 maybe.

And what about hydrogen in the medium run? How can that be integrated? Will it play a part therein?

Well, hydrogen for us will then be important in the second step or in some further steps post-2030. You certainly know that in Styria as well, we are working upon some technologies with hydrogen as to pre-material for the steel production. And we take it in order to really decarbonize that there, again, hydrogen will play a major part. This is why we have all these projects in the field of hydrogen.

And there is no time lag, no delay in hydrogen, no, say, time gap between projects old and project new? Is this hampering you anyhow? Or is it not so important?

No, no. I think here we are still in the field of research and development and the quantities we are producing right now are available even now. So I think the final approvals for this project will come and then we will go on.

And this takes us to a final question, a second one for Mr. Ebert, [indiscernible]. As to the real property sale amounted to EUR 120 million, which plot or a piece of land is it? And who is the buyer?

It's at Dusseldorf, Germany from the former BOHLER Group which isn't used any longer by us. It's rather used by some other tenants. So it has no strategic importance to us any longer. The buyer is a real estate group or developer and we do not yet know because there are several interested parties.

Ladies and gentlemen, thank you. This is the end already of our press conference call on the half year 2022-2023. Thank you very much to the 2 presenters, to the management, thanks to the team. Thanks to you for your questions and for listening in, for having taken the time. Back early in February with the figures on Q3 and we wish to you and your families all the best. Please stay healthy. See you, hear you soon. Bye-bye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]