Good day, and welcome to the voestalpine AG first quarter FY 2022/2023 conference call. Today's conference is being recorded. At This time, I would like to turn the conference over to Mr. Peter Fleischer. Please go ahead, sir.
Good morning, ladies and gentlemen, and warm welcome to our results presentation for the first quarter of the business year 2022/2023. With me is our CEO, Herbert Eibensteiner. We're happy to discuss the results and outlook and all your questions, of course. But before jumping into Q&A right away, I would like to mention a few highlights of the Q1 development. I think the results actually are well known.
We had to pre-release the figures in an ad hoc statement on fourteenth of July. I assume there are no surprises with that respect today. The Q1 result is the highest we ever reported in a single quarter. I have to say it was mainly driven by an excellent performance of the Steel Division, where we saw a decent margin expansion.
Also the High Performance Metals Division printed a really strong set of results, mainly driven by lag effects from the implementation of the energy surcharges. Metal Engineering and Metal Forming performed very solid as well. I think there is no big surprise here. Nevertheless, one topic I want to touch is the poor cash flow development of this quarter.
The main reason is the build of working capital in an amount of EUR 1.3 billion. This really massive build can mainly be attributed to build of inventories, which was a build of around EUR 1 billion in this quarter.
The largest part of this, around EUR 650 million, is coming from a value uplift driven by raw material prices, driving up the value of the raw material stocks, the half-finished and the finished goods. To be frank, the half-finished and the finished goods are the by far largest part of this value uplift of the working capital. This is something which was which happened inevitably, because of raw material price developments.
The by far smaller part, around EUR 300 million, is a volume effect, and this stems from deliberate increase of our raw material stock levels. First of all, we built up a natural gas storage for the first time ever. This amounted a bit more than EUR 100 million.
This is an additional, or this is a working capital build of EUR 100 million we did for the first time. On the other hand, we increased our raw material stock levels for safety reasons as well. The war in the Ukraine impacted our raw material sourcing directly. The actual problems with logistics in general made it necessary to increase our stock range.
As you know, we are not selling our material in the spot market, but we have long-term contracts with our customers and supply to these customers, and the delivery performance is absolutely crucial in our business model, which is the main reason why we had to build up the safety stocks.
Nevertheless, I'm completely aware the figure is massive, but on the other hand, I think we really saw the peak of the working capital in this period, in this reported quarter, and we are actually expecting a release in the coming quarter. So far my very brief remarks, and I would like now to hand over to Herbert Eibensteiner and of course to you as well to the audience for your questions.
Yes. Good morning. Good morning, ladies and gentlemen. I think Peter has given a short introduction, and I think we should jump right into Q&A. I think you have already went through the figures, and now we are ready to answer your questions.
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Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. We will now take our first question. Please go ahead, caller. Your line is open.
Yes. Good morning, everyone. I have two questions. Firstly, on the working capital. Can you quantify the extent of working capital release that you expect into the current calendar year-end, if current commodity prices remain unchanged and I guess assuming the macro situation is stable from here onwards?
Just to verify, the question was until the calendar year-end or the fiscal year-end?
Yes, either or. I guess the guidance in the release in the next 2 or 3 quarters, I would say.
Yes, as Peter mentioned, the part of the volume part, I think it's around EUR 200 million, the pure volume part coming from raw materials. I think this is safety stock for redirecting our supply chains for pellets and also coal. I think this will disappear till the end of the year. The stock for gas, I think, will be decided. This is safety stock in case we will be at a gas shortage in Europe. As soon as we get a clearer picture, this is ready to release it.
I think, but depends on the further development of the war. Maybe this will remain at the end of the business year. The devaluation of the remaining part of this biggest part of this EUR 650 million, it's at the moment difficult to quantify. What we see is that, it's clear the peak, the highest raw material prices, I would say, ever coming from this peak after the Ukraine crisis. We see that the lower prices, which are coming in at the moment, are mixing down the value also in the next quarter.
To give you the final figure is, I think, difficult at the moment, but what we see and there are several scenarios, but for sure we will see a positive free cash flow at the end of the year.
If I may comment, I think we had also some technical aspects.
Yes.
The receivables and liabilities. I assume from this part of the working capital, we might see a release of EUR 200 million-EUR 400 million in the next quarter. The value part very much depends on your assumptions on the raw materials development. This is also for us hard to quantify.
We think looking at what has happened on the raw materials, I think iron ore price has come down, coking coal prices have come down substantially. I think we can expect a substantial release of the value part of the working capital also until end of the year.
The volume part is, as Herbert Eibensteiner mentioned, it very much depending on how the war in the Ukraine and the logistics supply, logistical situation will perform. If we have a situation where we are sure we get all material in time, we will drive stock levels down to normal levels.
If the situation is unchanged at the year's end time, that we have massive delay on the logistic routes, and we have a real tightness in cargo space, I think then for safety reasons, we will keep stock levels at elevated level. Maybe not at today's level, but
Yeah.
Still elevated.
Thank you. My second question is on the HBI plant sale. Now that you have exited your HBI plant or at least 80% of it, should we expect you to recycle this capital into other investment? If yes, where would you be putting your money today that you are free to keep from ArcelorMittal? Thank you.
Yes. The money for this, you know that the debt levels are very low and, as I have mentioned before, we think also in growing our business and we have plans for that. I think it will be part of our growth story in the upcoming years. It's investing in new products, but also in acquisitions to improve our markets. I think this is the main topic of the Texas HBI.
Thank you.
Thank you. We will now take our next question. Please go ahead, caller. Your line is open.
Good morning. This is Seth Rosenfeld from BNP Paribas. I have a couple of questions, please, starting out with the EBITDA guidance, please. In this morning's presentation and release, the commentary seemed to be quite sanguine on Q2, given the strong order backlog, but flagging much greater risk in the second half, principally top-down macro.
Can you perhaps give a bit more color on the scale of earnings decline you expect by quarter? What's implied, especially for fiscal Q2, and how should we expect that progressing into the second half? Is it really depending on the development of macro or are you already seeing that scale of weakness factored into some of your order book? I'll start there, please.
You know, we see this record quarter now with everything up and running at very good capacity. You know, in Q2 this is also normally affected in the first half with seasonal effects over the summer, stops from customers, and normally lower volumes.
Looking at the price levels, I think we especially the long-term contracts are cleared with the end of the calendar year and also half-year contracts spread over the year. I would say when I can give you a figure around a bit lower, EUR 500-EUR 550 normally.
I would say in Q3 and Q4 that is our estimation, roughly. To divide the rest of our forecast by 2, then you get a rough figure. What we think in the last two quarters, in quarter three and quarter four is our scenario for this outlook, today.
That's very clear. Thank you. If I can ask you the second question on the outlook for auto demand and pricing.
On the demand side, can you give us a bit more color on what you're currently seeing in offtakes early on in July and August? What's the feedback from OEMs on their expectations for auto production post summer? Are they already seeing some alleviation of supply chain bottlenecks? Lastly, on contracts, can you give us a bit of an update on how contracts have reset in July and any impact of that on price realizations in second half of the calendar year?
Yes. What we see is, you know, the expectation for the year is not a big change in volumes, I would say. I would say or we expect volume level on these lower levels we have seen in the last quarters. July and August is normally the time of the maintenance stops of the OEMs, which are normal, I would say. No surprises so far, at least, from the planning side.
I would say on an expected level, we have seen in the first quarter a slight improvement coming from the, I would say, improvement of this wiring harness shortage. At the end, we think that till the end of the year, we do not expect a severe improvement in the semiconductor topic. That's why we plan with this normal level also into autumn, I would say.
We have not very much contracts in July, also a minor part. The next half year contracts are negotiated in September, October. We take over the contracts from April, half year contracts from April, and also the yearly contracts till the end of the business year.
The contracts are as far as we have seen them so far, it's largely you can say flat to maybe slightly up, but that's very much customer specific, depending from where they're coming from. I think largely speaking, you can say contracts, longer term contracts flat as of July.
What we see on the short term business, the quarterly business is that we are now with this delay, which is usual for specific applications, we are seeing now prices coming down. It's basically a delay of the spot market movement.
Yeah, yeah.
Three months ago. On average, we're expecting average selling price to come down. The contracts which you mentioned in particular, well, can be penciled in as a rather flattish, I would assume.
That's great. Thank you so much.
You're welcome.
Thank you.
We will now take our next question. Please go ahead, caller. Your line is open.
Hi. Good day. Thanks very much for taking our questions. It's Patrick Mann from Bank of America. I wanted to ask, given the changing dynamics in the natural gas market, is that influencing your thinking around your decarbonization plans, at all? You know, given that energy is in short supply. Then the second question is, I see your outlook is dependent on there not being gas rationing in Europe.
I mean, from your discussions or your sort of scenario analysis with your customers and OEMs, you know, what is the sort of range of potential outcomes? You know, if we get mild levels of rationing or if we remain constrained through winter, what do you think the impacts will be on volume?
I know that you have now built up natural gas supply, right. What about the impact on your customers and the end markets? Thank you.
You're asking when we see a gas spot in Europe?
Yeah. Well, not a full stop, but if we see some rationing.
Oh.
We see.
Oh, rationing.
Yeah. Yeah.
It's a question of how much it is. So normally I would say, even when gas supply is becoming tight in wintertime, I think there may be some reductions in production. But it depends how much it is. You know, this is, there are different plants in Europe. And some countries are not really affected. Some countries are more affected, like Germany.
I think what we see is this is part of this expectation of lower volumes. We see that everybody's preparing gas storage in all the countries. At least we think that with all the measures which are taken at the moment, there is a good scenario that this gas rationing is not necessary. This is why we are also prepared for with our gas storage, which is possibly in Austria. We have also physically stored this three months full production gas volume.
When you think of rationing, if you are, I don't know, 20% or 30% lower, then it goes even lower, so we can keep up production.
Maybe worth mentioning this as well, the big gas consuming industries are rather in the beginning of the supply chains. Our customers and many of our customers are not really the big gas consumers, but we suppose the question will be which of their suppliers will stop their production. We don't want to be the one to do so.
This is why it's extremely hard to estimate what the gas rationing would mean on our customers. Because our thinking is that it's mostly the bigger effect is that our customers will be shut down from their suppliers and not from their own gas needs. As Mr.
Herbert Eibensteiner just mentioned we with all the storage and with all the preparation work we have done. We just try to be exactly not the one who will shut down our customers.
Yeah. I think it's worth to mention that we have a responsibility for our customers, especially when we talk about this longer term contracts we normally have, and we are not so much in the spot business. I think this is a responsibility to produce their products. This is very important for us. That's why we do this gas storage. Your second question or first question, gas market, any changes in our decarbonization plans? Not yet. Not yet. I think we still stick to our decarbonization goals.
We have the rules and regulations in Europe to decarbonize. Our plans are that we will start the first plant in 2027. I think in the course of the year of this year we have to decide, are there any delays or not? So far, we stick to our plans.
Thank you.
You're welcome.
Thank you. As a reminder, if you would like to ask a question, press star one on your telephone keypad. We will now take our next question. Please go ahead, caller. Your line is open.
Thank you very much. It's Carsten Riek from Credit Suisse. I have three questions, if I may. The first one is on the steel operations. I noticed that the production and shipments were comparatively low, especially in June. Could you talk about the reasons here? Is it more the demand? Is it the low water levels in the rivers Danube and Rhine? And how long do you expect that will last? Thank you. That's the first one. I'll come back with two more.
Yeah. There is a clear answer. It's outbound logistics, and it's a mix of different topics. You have mentioned some of that. We are not so dependent on the Rhine, more of the Danube. It's some volumes for ships, heavy plates. We have to move to railway. We have some shortages in logistics as well in other areas. That's the reason why we are behind, especially in Steel Division. It's nothing to do with lower demand so far. It's only a, I would say lack of railway wagons and trucks.
Okay, perfect. The second question I have is, you mentioned in your presentation that the OCTG recovery continues. Do you believe that you could even increase your volumes in seamless pipes further in the coming quarters? Did you increase actually your offers to the North American market in particular? Thank you.
Yeah. I think the biggest portion of our business is coming from our relation to North America. I think we are nearly fully utilized, I would say, with our production. Volume-wise, I think it's not a big increase possible. We are working quite on a maximum level.
We're pushing hard for higher prices this year.
Understood. Last one is on the gas consumption. You had a comparably high gas consumption compared to your peers, but that was to large extent also because of the Texas HBI plant. Could you give us a rough estimate by how much your group gas consumption will decrease post the disposal of the Texas HBI plant?
So we-
$4 million in Texas.
I think 4 TWh was Texas. The remaining gas consumption for voestalpine is now 5.5 TWh.
Perfect. Thank you very much for the answers.
You're welcome.
Thank you. We'll take our next question. Please go ahead, caller. Your line is open.
Hi, yes. Hi, good afternoon. It's [Tristan Gresser] from [BNP Paribas Exane]. Just a few follow-up questions on demand. I think Mr. Eibensteiner, you talked about auto already. What do you observe in other compartments like white goods, household appliances and in the construction space, which seem to be the areas which have been hit first by this economic slowdown? Any color on what you see out in the demand would be great. That's my first question.
You know, I think you mentioned all those sectors which are very inflation dependent, I would say. This will be for sure the first sectors with lower demand. We see that white goods are a bit down and here from the construction market that new contracts or the order intake is lower. That's the reason why we can expect in the autumn here and there the first reduction. Similar situation will be in mechanical engineering. Yes, we think that we will see a bit lower volumes in those areas.
This is also part of our forecast or outlook that we expect those market sectors a bit lower.
All right. What kind of volume decreases are we talking about here compared to the levels in the first half?
Good question. At the moment, we see only the first signs. I think it's too early to give you a clear percentage figures. The first signs is we see in household appliances so far. I think this is 5%-6% at the moment.
I think what's worth mentioning is also that construction and where we see the deterioration at the moment is rather in the tubes and sections business. There it is volume, but I think at the moment it's predominantly a pricing issue. The volume is in this downstream business, not such a big driver of the earnings as it is in the Steel Division.
What we see there is a slowdown in demand volume-wise, but it's accompanied by falling prices, which I would say is the larger issue at the moment. Our basic assumption for the full year is that despite the cooling of the economy, the steel plant in Linz will produce around 5 million tons shipments, roughly 4.9 to around 5.
Which is not a bad volume figure for the full year, despite the cooling of the economy. In the downstream businesses, we might see lower volumes, but there the leverage on earnings is not as high as in the steel plant there.
Okay. No, that's great. Maybe from a top-down point of view, how do you see the, you know, the regional performance altering because of the macro slowdown? Is there anything you can flag, like Brazil, which might be doing better in that environment compared to U.S. and Europe? Any directional color would be great.
Yeah, Brazil is always an interesting market so far. You know, high inflation, high interest rate environment which is very difficult. What we see at the moment and also for the next upcoming months that we see a very solid development for our business there. You know, we make products for sugarcane, for photovoltaic, and so on. This is booming at the moment.
This is very interesting. Brazil will be very stable, similar level as we have seen last year. When we look at the USA, the United States in America, I think so far there is no increase in employment, but still pressure on jobs.
I think at least my expectation is a soft landing for the USA. US business will stay at least in the next quarter on a very good level. With the same situation that we will see a price reduction here and there and some volume decreases. China also at a very low level. We will see how they can pick up in autumn. I think they have increased the efforts in infrastructure again. We will see how the outcome will be. I think Europe is hit most. Brazil, very stable. US, less problems.
China is for me at the moment a bit of a question mark, because at least from my perspective, I think China will improve compared to the very weak first quarter one we have seen so far. Yes. That's at least the expectation at the moment.
Okay. That makes sense. Finally, on gas and electricity pricing. I guess compared to last time we spoke, we have seen further inflation on both parts in Europe.
Mm-hmm.
What is your thinking about how this is impacting the competitiveness of voestalpine and globally? In Europe and also globally. Are there any efforts you're seeing at the moment that the European Commission is acting in any way to keep the industries on a level playing field with other parts of the world?
Good question. Should I be open or not? No, let's start with your first question. I think when it comes to European markets, we can say that we have passed on the higher prices to the market. This, you can see that we in this first quarter and when you add this contract structure we have in most of our businesses, we can say, yes, we have a lever where we have passed this on to the market. Second thing, US has also higher gas and higher energy prices, but nothing comparable to Europe.
We cannot pass all these higher energy prices to the market. This, in a similar situation, is China, where we give up or have to give up a part of our margin, because we cannot pass this higher cost to the market. Europe, yes. US, not full. China difficult. That's our view. You know, most of our business in China is local business, is multi-domestic. When it comes to railway systems or car business, I think it's less complex.
When it comes to high-performance metals, I think it's a margin squeeze there. When we look at the level playing field in Europe, I think there are a lot of efforts ongoing that the industry gets some compensation for the higher energy pricing. Electricity compensation in Germany and also is now discussed in Austria. I think the level playing field in Europe will at least improve from voestalpine's point of perspective. To your question, European Commission and politicians, you know, we get a lot of.
We hear a lot of discussion how to save energy and so on, but the world competitiveness, I think was not part of this actual discussion. At the moment there's not really room in the political discussion to fight for this level playing field. I think that at the moment we are in the middle of a war between Russia and Ukraine with all the negative aspects for Europe as well. I think this is the main focus so far. Competitiveness is not in the focus so far, but should be.
All right. Yeah. Okay. Okay, fantastic. Thanks for clarifying this. Thanks.
Thank you.
Thank you. We will take our next question. Please go ahead, caller. Your line is open.
Hi. Thanks for taking my questions. Moses Ola here from J.P. Morgan. I just wanted to understand more on the free cash flow expectations for the year.
With the positive free cash flow estimate, how could you just walk us through that? Because if you're expecting a release of about EUR 200-400 million in Q2, should we expect an even greater release of working capital into the back end of the year? With obviously cash flow from operations that declined due to reducing profits, how do you expect to get to that positive free cash flow number by the end of the year?
Thank you very much for the question. I think we are now moving into, I mean, we're still in the middle of summer, but we're moving into the winter quarters. I would expect a bit of a working capital release now in Q2, but not a lot in Q3. December quarter, on the one hand is the balance sheet date of most of our customers and suppliers for our working capital by end of December.
Traditionally, it looks a bit worse than it actually is, and traditionally, we have a strong release in our March quarter, and I would expect it this time again, I would say even in an amplified way.
We have now from the volume side, unless we see a quick release of this tightness in logistics and the war, which I don't envisage that this might happen. I think stock levels will stay high over winter, and we will see a release from stock levels in the March quarter, the biggest release in the March quarter. I think the release from value has already started. Yeah. I think this has already started. Coking coal has come down from $600 to around $200. Iron ore was down at $100. Scrap is down.
I think we can expect a gradual relaxation, I would say, over the next quarters. Volume-wise, I agree the biggest step will be in the fourth quarter.
Just to be clear, you expect a complete reversal of the Q1 build by Q4?
No, we cannot. Well, that's very much depending on your own expectation on where raw materials are going.
Raw materials and energy. I think energy will be high, and this is also part of the cost driver. I agree that the lower raw material prices will bring down the volumes as well. As Peter mentioned, the room to improve our factoring activities is also there. I think that's our measures and for the time being, and it's exactly at the end of this quarter.
We have the highest prices and lowest factoring and you know not the best constellation, but it is as it is. Yeah. With a release in the course of the business year.
Yeah. A full release would mean gas supply completely secured. We will just make use of our worst gas storage. A full release would mean supply chains completely intact and logistics completely intact. War ended, we can go back to our old suppliers. I think this is not very realistic, to be honest.
I think we will have in a good environment we might still have a year-over-year working capital build of around EUR 300-500 million, but that would mean a substantial release from here. This is to a large extent depending on what raw material prices are doing. It's the value effect of the working capital. This is also hard to track from here.
Yeah.
A complete reversal is not in our plan today. A large release of working capital-
Yeah.
Should happen, I would say.
Okay, thank you.
Thank you. We will take our next question. Please go ahead, caller. Your line is open.
Good morning, Günter Eckert from ECKERT, I have two questions one is about
Yes. To your... We have our greentec Steel project where we replaced a blast furnace with electric arc furnace with electric arc technology. This is the first step. Will be the start up time should be 2027. We will decide in the next year for this first project, reduction of 30% of our CO2 emissions and also 2.5 million tons of green steel. This is our greentec project in very brief. Then after 2030, we think of next steps in a similar way.
We expect a further reduction of CO2 in the course of the years to net zero or climate neutral till the end of 2050. This is our plan, and this will be the new generation of furnaces. I think our business exposure in Russia was, I would say, around EUR 40 million. We have stopped our businesses. We fulfill some or we have fulfilled some old orders, but we have no new activities in Russia.
Thank you.
We get gas from Russia via our deliveries. That's clear.
Okay.
That's the remaining part.
Thank you.
You're welcome.
Thank you. Again, as a reminder, if you wish to ask a question, press star one on your telephone keypad. We will now take our next question. Please go ahead, caller. Your line is open.
Yes, good afternoon. Mr. Eibensteiner, I have two more questions, please. Can I please come back on the obstacles which you're facing on your logistics and then also gas supply? I guess you've done a very good job on that front, but you obviously always need the customer to take the material to and basically to keep up production at the end as well.
You talked about some logistical impact on the steel volumes. Can you please quantify that? At this point, are there, at least today, any tangible signs where you have seen or where you foresee that clients have to cut back on production? That is my first question.
I think I hope I have the figures in mind. We deliver normally to the customers and into their storage, I would say. I think we have some troubles at the end of June to get all those capacities to deliver it to the customer. This is nothing unusual, I would say. It was around 30,000-40,000 tons, I guess.
The effect of higher logistics costs, I think it's the logistics costs are. We have normally long-term contracts with our supplier, and it's. They speak to that's very positive. Also we see some pressure to increase the prices. So far, I think it's we have to negotiate the logistics costs and yes.
I would say normal on an elevated level because the transport costs are higher. Also, we see especially when it comes to this China, Brazil logistics route, we will see a slight decrease of this cost. So far we have in the Steel Division, we have not reduced production.
All our blast furnaces are up and running. What we have in August now, end of August, beginning of September, a revamping of a blast furnace in our Metal Engineering Division. You will see less production in this one and a half months or so. We have prepared, unfortunately, with working capital to overcome this revamping of the blast furnace, which is also EUR 50 million in working capital to cope with that.
Got you. Thank you. If I may follow up on that briefly. Is there any cost effect also associated with that revamp of the blast furnace in ME? In the first quarter.
No. Only a few million EUR. Nothing decisive, I would say.
Understood. Okay. Thank you. Secondly, coming back on guidance, and I understand that you obviously want to be conservative in this environment, but I still find it hard to reconcile, at least with the building blocks which you're giving us. You're basically saying that volumes are stable, pretty much shipments around 4.9 million at the end of the year. That is basically implying a pickup in volumes.
Then obviously the major price hit, you're now taking in the second quarter, and most of your prices will be largely stable until the end of the year. Probably there's a good, at least a good chance that you may not have to give too much away on the January contract prices as well. At least if auto rebounds, which is what your volume guidance implies. Then of course, costs will go up.
I appreciate that, but it's still very difficult to get to EBITDA run rates of EUR 250 million a quarter, which you're suggesting. You said that you did not bake in a major disruption from the current event risk, but is it fair to say that there is still quite a material risk discount reflected in the EUR 2 billion number you're guiding for?
Yeah. This is always a question you can say. Look, I think yesterday I have read in a paper that the capital market is expecting a mild recession. What is mild? Yeah. I think we know that what is the reduction in general demand. We think that at the moment we fully utilized, we have all the prices passed on to the market. Most of the prices are still elevated. We have this high contract structure with high prices, which is very positive for us.
On the other hand, we have quarterly business. We have businesses which are more short-term, and we see that the order intakes here and there are lower. This is why we think that we will see pressure on our prices when we are in quarterly business. We also think that volume is also lower.
You basically guide for 4.9 million tons of steel shipments, which obviously implies quite a material pickup from here. That's basically what I just cannot square together. I totally subscribe to the conservatism in the guidance. Probably it's the right thing to do. I just, I mean, you seem to be seeing still like a reasonably good demand, and you basically underline that with your volume guidance. Hence I'm just a little bit surprised by that.
Yeah. Obviously. You know, voestalpine consists not only of our flat steel business. There are other businesses as well in all the other divisions. It's also a question of mix, to be very honest. This is what we can say. Yeah. Normally, I know that everything is about steel at the moment, but it's not. Steel is not everything in voestalpine.
Okay. Understood. Thank you.
Thank you.
You're welcome.
We will take our next question. Please go ahead, caller. Your line is open.
Hello. Christian Obst from Baader Bank. I have a question concerning the ongoing discussion in the EU Made in Austria to support steel industry when it comes to carbon neutrality. Do you think that there will come out some decisions in the next months? Do you have some kind of a timetable? What kind of support do you expect here? This is the first question.
Yeah. I know this discussion. In Austria, there is a discussion of this transformation fund, where money should be given to those companies who invest in CO2 reduction and so it's a discussion, and it's not finally decided. I expect that in the course of this calendar year. The EU support is also very minor, I would say, because there is a EU Innovation Fund, where for the whole industry is EUR 10 billion reserved, which is by far too low. This is the situation.
I think it's what we can expect that a green steel market will build up in the upcoming years. Also the market has to digest this higher costs for carbon neutral steel as well. I think at the moment we are in discussion with the politicians, but nothing is decided so far. To your question, in Austria, there is a discussion about this transformation fund. I think so far expectation in the course of autumn, December, where we see a final decision.
Okay. In the end, you don't expect too much support, be it on a CapEx side or an OpEx side, for this kind of transformation, right?
You know, at the end, I think we should prepare our own business case.
Yeah. Okay. Do you see some kind of meaningful change in the competitive landscape, having seen that Russia is going out of the market, we have the decline in Ukraine, China has just decided to also reduce further the production volume in the second half of this year. Do you see any major change here? On the other side, we see some kind of investment in the U.S.
You know, I think you refer on the steel market in Europe.
Yeah.
I think there are lacking deliveries from Russia and others, but they are replaced. So far, we see the normal, I would say, the normal level of imports into Europe or no change. You know, there was this short-term change of this rerouting heavy plates topic, which is replaced now by Indian plate and others. I think that was clear from the beginning.
This was only a short peak and I think normal deliveries to Europe. You know, we have these safeguard measures and when we look at the quotas, normal imports to Europe.
Okay. Thank you.
Since, you know, normally, yeah, the U.S. investment. I think they are normally for the U.S. market. We do not see bigger imports from the U.S. into Europe, I would say.
Okay. Thank you. The last one is on your CapEx plans. Besides the green steel investment, what are your main CapEx plans in the next three years? Where do you mostly invest? In addition to that, you say you have now a low gearing ratio. Free cash flow, despite all the discussions we just had also on this call, is not that bad. Also going forward, we wouldn't expect. Do you have some deeper negotiations to go into M&A?
Yeah, we have clarity. That is, that's part of our story. With the given balance sheet, we can afford decarbonization and also growth. Part of our activities is also M&A. We have recently acquired a small company for sleeper fixings in the Railway Systems. This is a good example because it's Railway Systems is a very important part of our growth story. We have also picked up a joint venture with the Egyptian railway industry. This is step-by-step improvement of our downstream activity, let's say this.
It's processing, the processing part of voestalpine. I think that's what we are doing. It's not only, you know, we always compare with other steel producers. We have not only the green tech story, we have also a part which is processing with our processing part. This processing part should grow in the next years.
Okay, an additional last one. Sorry for that. It's about Buderus activities in Germany. There's a long history of losses and transformation, and current situation is that re-improving is going to be more difficult, especially when it comes to the cost situation. Have you thought about, really, to close these activities down?
Sorry, I didn't understand the beginning of the question.
You have a long history at Buderus in Germany.
At Buderus.
Yeah. A long history of transformation and losses and situations going worse when it comes to the cost side, especially electricity. Have you ever thought about closing these activities down?
No, not closing, but we are working on a more longer-term activity there. You know, we have this steel production, and we have also a forging activity there. We are at the moment thinking how we can make the best out of that compound, I would say. We have not finalized our discussions.
Okay. Thank you very much and all the best.
Okay. Thank you.
Thank you. Again, as a reminder, if you would like to ask a question, press star one on your telephone keypad. We have no further questions at this time, so I'll hand the call back to our speakers for any additional closing remarks.
Okay. Thank you very much for your interesting question. It's a difficult time for all of us. A lot of uncertainty and also challenging topics ahead of us. Hope we see and hear us again. Thank you very much for your questions.
Thank you very much also from my side. If there turn out any further questions, please feel free to give either Gerald or myself a call. Yeah, have a good day.
Goodbye.
Thank you.
Bye-bye.
This concludes today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.