Ladies and gentlemen, welcome to the first voestalpine AG publication first half of the business year 2026/2027 conference call. I am Moira, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Dino Malkic, Head of IR. Please go ahead.
Welcome, ladies and gentlemen. Here is Dino Malkic, Head of Investor Relations of voestalpine AG. Thank you very much for participating today. We are here to give you an update about the figures of the first half of business year 2026/2027, and the management will also provide you with an updated outlook. After the management remarks, you will be able to ask your questions. And with me today is Herbert Eibensteiner, our CEO, and Gerald Mayer, our CFO. I want to hand over to you, Herbert. The stage is yours.
Thank you, Dino. Good afternoon, ladies and gentlemen. We are pleased to present our results for the first half of our financial year. I just jump directly to the executive summary. When we start on the left-hand side, despite this challenging market condition, we were able to achieve a solid result. Turnover remained virtually unchanged compared with the last same period last year. EBIT and EBITDA were above prior year's figures. When we look at our positive parts of our portfolio, as the last time, Railway Systems, very good. Aerospace & Power Industries is still strong with a very good order book and also Warehouse & Rack Solutions is still very solid, long order book, far into next year.
When you look at the steel market update, we think that the EU safeguard measures and CBAM turned out positive as a trade measure and o n the negative side, especially with our Tubes & Sections business, was this additional U.S. duties which were impacting this business most recently. When we look at our reorganization activities, High Performance Metals is well on track, and all these measures are almost completed. We see this first positive results out of that. The reorganization in automotive body parts is on track. There are some activities to do till the end of the year, and we will come after that also that we see that some additional measures we will have to implement it. greentec steel, it is as last time, everything is on time, on budget, and we will ramp up these first two electric arc furnaces in the first half of 2027.
And we have adjusted our guidance due to increased energy and logistic costs, as well as additional tariffs in Tubulars, as I mentioned before. We had some logistic problems in Steel, and we have lowered the upper limit of the outlook whilst leaving the lower limit unchanged. So what is the macro view on our markets? I start with Europe. Mentioned before, these logistic costs and in particular high energy cost. Since August, we see low water levels around our factories, and we have received these new tariffs and additional duties in Tubulars and t he positive thing in Europe is that we have these new safeguard measures in place with all the positive effects around it.
On the left-hand side, second biggest market, North America. Investments in technology and digitalization is driving economy. And e ven for us as a local supplier and producer for steel products, we had negative effects by this very strict tariff regime, and we were affected in summer with a steel shortage and s o far, it's not fully over. I would say, w e are still struggling in some areas, and I think you know that in that context, the prices in the U.S. has increased rapidly.
In China, you know that the stable growth mostly supported by exports all over the world, but with a weak domestic economy. When you look at Brazil, it's, I would say, very low growth rates, high interest rates and a lso deliveries from South America to the U.S. are difficult. They have the same tariff regime as we in Europe, and the economy is impacted by Chinese imports. greentec steel, again, on time, on budget. Everything is so far prepared for startup. Just to remind you, we will have this commissioning of the electric arc furnace in Linz and in Donawitz. It's an investment of EUR 1.5 billion, and we are more or less on track.
At the end of this next year, we will deliver green steel, greener steel to our customers. Let's jump to our divisions. Strong performance in Steel Division. We had some cost inflations, energy costs, logistic cost driven by this Middle East conflict. For us, it's mostly gas which has influenced our results and these higher logistic costs. From August onward, we had these difficulties with low water levels and some constraints in outbound logistics. The outlook for Steel Division is that we see these higher costs, and when it comes to heavy plate, further postponement of energy projects in the Middle East.
Safeguards, CBAM is positive. This price trend is supported by these activities, and we have a positive outlook in prices. Why? We see a normalization of inventories, European inventories in the next weeks and months to come, and we have positive signals for the negotiations in January 2027. High Performance Metals, it's a tooling business, is a worldwide business. It's more or less mixed development across the region, but improving. We have a very robust demand in Food & Beverage and MedT ech and Mining, which are smaller parts of this business and w e have this very positive trend, especially in Aerospace, with a good order book and a good performance of our production.
The outlook is soft positive signals across all segments. Reorganization is almost completed, as I mentioned before, and the result is that we see positive earnings, also operational earnings development. In Metal Engineering, Railway Systems, very good, strong order book also for next years. Again, these U.S. duties were impacting especially our OCTG business in Austria, and the outlook is that all those duties will remain and affecting this Tubulars business. We have reacted with a reduction of shifts and 150 less FTEs till March and also w ire is confronted with a very weak demand in automotive business, and railway will stay very well.
We promised you that we look a bit closer to Railway Systems. The largest segment in railway is turnout, and again, we see a lot of positive development across regions, in EU, Germany, in U.S., Class I, but also new activity in Canada and also in China. We are in discussion for new high-speed projects. Most of you know that the basis or the core of our business model there is replace and maintenance. This is good, this is the basics, but there are some projects in the future for us as well, and especially our signaling segment is very strong. Signaling is all these sensors and digitalization we do around the turnout system, and axle counting, and the detection of problems of the rail cars.
This is a growing business for us, and as I mentioned before, order book is good, and China and the U.S. will also improving in the future. Metal Forming, difficult, I have to say. We are in the middle of the reorganization of Automotive Components. It is good, on track, on plan, with positive effects, but there is a way to go. We have to reduce another 150 FTEs till the end of the business year. This was the plan. Everything is so far on plan, but due to the even lower than expected demand, we plan an additional project with another 500 people till 2028 to make redundant, and then we think we can achieve this 4%-5% EBIT in that area.
Tubes & Sections is a bit weaker than the years before. Some operational issues with this temporary steel shortage in North America, and some complaints around new activities of new projects. But Warehouse & Rack Solutions, very good performance, good results, high return on capital employed, and good order book and w hen you look at the outlook, so we stick to these reorganization measures in automotive, and we are sure that we can stabilize this Tubes & Sections business, and we have measures in place. So now I would like to hand over to Gerald for his presentation.
Thank you, Herbert. I would like to give you now some insight to our half-year performance and perhaps also add some guidance information to you. So revenue, as Herbert mentioned before, we are roughly at the level of prior year. Going into a little bit more detail, you see that in particular, HPM Division is strongly above prior year. The main reason there is that we had sharp increase in some alloying metals, so means raw material price increases drove, in particular, higher revenue, although the mix was positive.
And in general, I will talk about this perhaps not just now, but repeat it so that we see some slight tailwinds there in HPM Division in general. Metal Forming was also good, in particular in Warehouse & Rack Solutions. We see higher revenues in Steel. We are slightly below prior year. The main reason is less heavy plate projects, and we discussed about Middle East and energy projects there, which are postponed, so t his is what we are seeing there. On the other side, we saw positive impacts from CBAM and from safeguards.
And of course, and this was also mentioned in the presentation of Herbert, we had dry weather here in Austria, and the water level of the River of Danube was fairly low, and so we have been suffering and still suffering in terms of logistical challenges, I would say, regarding outbound logistics, in particular for heavy plates. Profitability is fairly solid, EUR 846 million, +17%. Of course, this includes this one-off effect we reported in first quarter. It is unchanged, so roughly EUR 100 million+ in our HPM Division.
Going into a little bit more detail regarding profitability, you see that Steel Division is at or slightly above prior year level HPM. Also, on the one side, we had this one-off effect, but there were additional operational positive elements there so that we outperformed last year significantly. We are behind prior year in Metal Engineering. The main reason is Tubulars, and Herbert talked about anti-dumping and countervailing before and so t his is how we came up with EUR 846 million.
Free cash flow performance, EUR 24 million. Of course, in Q2, it was negative. One main driver that it was negative in Q2 was again the River of Danube. So there are thousands of tons where we were not able to ship it to our customers. This buildup, they were produced, we built up stock there, and this had a significant impact in our working capital and so t his is one of the reasons. On the other side, we have these high investments in our greentec steel projects. We are totally on track there. So we invested roughly or paid for the investment cash flow for capital was roughly EUR 530 million in the first half.
If you add this up, multiply it by two, you add roughly our guidance of EUR 1,150 so t his is still unchanged and so we are on track there. On the positive side, we had EUR 150 million cash in from the sale of BÖHLER Profil. Our guidance in free cash flow stays at EUR 250 million. So we reiterate what we said three months ago. Of course, we have to do something and have to prove, but we have many good reasons there, and I am optimistic that we will end up at this EUR 250 million.
On the one side, I talked about the river of Danube, more than EUR 100 million perhaps impact, negative impact in the first half to our working capital. On the other side, we are in the middle of projects or reorganizational projects in HPM. So they reduced throughput times, for example a nd we have these tailwinds from the market where we are confident that we gain there, again, ground. In addition to that, we had a realignment, a major maintenance activity in Donawitz from one of our blast furnaces and t here we also had to build up stock during the year, and we will consume the stock until end of the year. So there are some good reasons there, but happy also to answer the questions if there is something left in the Q&A session.
Let us talk a little bit about the bridge. EUR 722 million was the prior year first half. Now we are at EUR 846 million and o f course, we had higher price levels. I said in HPM, it was driven in particular by higher raw material prices, but we also saw higher price levels in Steel Division. I also mentioned the reasons there. In raw materials, we also had positive FX effects in there and so t he gross margin increase was EUR 100 million, mainly referring to Steel Division and HPM Division. Mix and volume is negative at EUR 122 million. I would say roughly EUR 70 million+ refers to a weaker mix. The rest is lower volumes. The miscellaneous, you see mainly two major effects. One is the EUR 100 million one-off, and I also mentioned it here at the comments.
On the other side, you all know and you are aware that we have big reorganization measures. We reduced full-time equivalents, excluding now this BÖHLER Profil transaction of roughly 850 people and so of course t his comes with a positive impact also there. The second bridge here, I would like to present to you the deviations from our segments. You see again this 135 strong plus in HPM, but you also see there is that we had, in addition to this EUR 135 million+ there, this is tailwinds optimized cost structure, of course, with a significant impact there and so w e are really doing well there, I would say.
In Steel Division, EUR +10 million, so at the level of our prior year and I mentioned these energy projects before, which are not accessible for us at the moment with the war in Middle East. On the other side, we had very positive developments also in our Steel Division and o f course, there is still this higher logistic cost, which we are, of course, facing like all the other players, I would say, out there. In Metal Engineering, EUR -15 million, mainly driven this reduction by Tubulars. The rest is plus-minus stable. In Metal Forming, you see a slightly better profitability there.
I have to say, we expected a little bit more there, but from there, we were suffering a little bit in the U.S., and Herbert mentioned it before, from the steel shortage situation. We had a weaker market when we talk about roll forming business, and we also have some internal issues in some projects. We were not, let's say, we had some issues which we had to solve. This is how we end up at EUR 846 million. I would like to share with you, and some of you saw this slide or in a similar form during our Capital Markets Day some weeks ago. In HPM Division, High Performance Metals Division, we reduced the cost structure or optimized the cost structure substantially by EUR 150 million.
This is one of the reasons why we are doing better this year. We completed more or less this warehouse consolidation activity. So until end of this business year, the bulk is done, and we do not expect additional reorganization measures necessary. So we are very confident that we will end up 2028, 2029 at this, means clean at this EUR 400 million, because this year will not be far away, including this one-off. In Metal Forming Division, you see a EUR 70 million impact, also a substantial cost reduction impact. Structural costs are dramatically down there.
On the other side, of course, we all understand that the market and the situation for our customers is not easy, and this is also the reason why there is still something to do for us. Herbert mentioned some 500 people roughly before in his presentation. Until end of this year, we expect 250, but this is the old plan, this ordinary plan that we are anyhow working on, and we are still confident to have this EUR 400 million by end of 2028, 2029. My last slide is our cash flow capital allocation bridge. Funds from operations were at EUR 565 million, and then we had this negative impact from net working capital.
I explained to you that I am confident that we will improve that dramatically until year-end for good reasons. One is the River of Danube. The others are these projects which are in place and where we walked the talk also in the last months. In HPM Division in particular, we had this blast furnace relining in Donawitz, where we will reduce inventory and t hen there is another important one, this is Tubulars. As we started and went into this hibernation mode for Tubulars in particular, and with more power after this anti-dumping and CVD news for us, we also reduced their inventory. So we are confident that we will end up and go back, perhaps not to zero net working capital change until year-end, but nearly.
So, and this again brings us then mainly to this EUR 250 million. Maintenance CapEx EUR 260, I would say a normal level for us. Disposal EUR 158 million, this was BÖHLER Profil sale in Q1 and w e had some growth CapEx. There are minor, many small projects in decarbonization. I mentioned that we are on time, on budget there. I expect EUR 400 until year-end in decarbonization projects, and I reiterate this EUR 150 million for capital expenditures or invest in cash flow, cash outs until year-end and s o the free cash flow now is at EUR 24 million+ , and we expect around EUR 250 million until year-end. So this was it with my presentation, and I hand over to Herbert for the outlook. Thank you.
The last slide is the outlook. I think we have already presented everything around it. So when you look at the positive factors, safeguards, CBAM, stock reduction is ongoing in the steel sector. We have this positive developments in Railway technology, Warehouse technology, and also in the Aerospace business on the other hand and t he self-help measures are more or less on plan. But we have also these negative aspects, higher energy prices, higher logistic costs, bottlenecks in logistic, and the waterway, it is not finally solved, I have to say. And also these additional tariffs are working against it and w e have now a revised forecast with this lower upper end of the guidance, and we have left the lower limit unchanged. That is the guidance. Thank you for your attention, and we are glad to answer your questions.
We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Tristan Gresser from BNP Paribas. Please go ahead.
Yes, hi. Thank you for taking my questions. The first one is on your cost performance within the Steel Division. Now if we look at your results, it looks pretty good. I mean, you had weaker shipments, negative mix effects, but you still managed to keep EBITDA per ton stable quarter-on-quarter, despite the energy and logistical costs you flagged. So, wondering if you could discuss that, and also maybe it comes down to those energy and logistical costs not being really present in Q2 and more into Q3. So, if you could also touch a bit on the bridge for the Steel Division into Q3, that would be helpful. I will start there.
I think, Tristan, I try to give you perhaps a little bit more insight there. So, I would say first quarter was excellent, second quarter in steel, so we had a fantastic production level. Unfortunately for us, the main issue was shipments. I would say outbound logistics was really difficult, so we tried to optimize that. But it was still a strong Q2 if you would compare it to prior periods, and capacity utilization was very high. In Q3, I would say, it will be, this is our take, and it is normal as it is also for us the Christmas quarter, it should be weaker than Q2 a nd there are these two reasons.
First of all, it is the seasonal low, and the other side, and you mentioned cost inflation, the prices for natural gas started to increase sharply during Q2, and of course, this has then an impact in the following quarter in particular. Our main, I would say, and this is unchanged, normally we have a very good ability to pass on a higher cost to our customers, but always with a time lag, and this is what you will see there, and this is one of the reasons we have there that we are a little bit perhaps below some of the expectations from you guys. So, this is how it is. And in Q4, we expect another solid and good quarter for our Steel Division.
So in general, I would say the demands from the markets are healthy and okay, and this throughout. Everything which was positive stays positive, perhaps here and there some positive signs, but not bad. Healthy, I would say and so t his is more or less the direction we are going with a lot of uncertainty. No one knows how long this war takes. I hope this helps a little bit.
That's really helpful, but I will just follow up on that. Would you say the energy and logistical additional costs you saw in Q2, was that already the full run rate and you expect those costs to be relatively steady, or you had only 50% of that in Q2 and 100% we'll see that in Q3, just to calibrate the cost inflation for the next quarter? Also, given the shipments, would you expect shipments for the full fiscal year to be down for the Steel Division?
I would say the shipments, I would expect, always the assumption is that we have a positive development there regarding the water levels at the river of Danube. This is very important for us now. It is still not good. So given that we see a recovery there, we should have a better second half in terms of volume than first half in terms of volume for our Steel Division, so w e should catch up a little bit from what we lost in the first half, so t his is with regard to volume. In terms of cost, of course, we saw the costs sharply increasing, in particular in energy, during the second quarter, and so it means that we have a higher impact there what we expect in Q3.
This is simply the fact what we are facing at the moment. You all understand that we do some hedging, that we have a storage facility. This softens this effect a little bit, the storage facility for natural gas, I mean. But we are still affected to some cost inflation there, in particular for Q3. Perhaps one reason is also that our customers still had fairly high stock levels at the beginning of this quarter, and of course, things are normalizing there. This is also what we see. Things are improving, but it takes some time. So this is how I would summarize everything.
Okay. No, that is clear. My second question is on contracts. I think a year ago, it was a bit similar than today. There was some optimism initially, but when contracts eventually settled in December and January, they probably settled a bit lower than the initial expectation. Do you think the situation today is different from a year ago from that perspective? And would you say a triple-digit increase in contracts is very ambitious or is doable?
Who is coming?
I think that is a relevant question. Last January, it was more or less driven by this expectation of CBAM and safeguards, I would say. Now we see that the energy prices are higher, and the pressure from the market, the positive momentum is here, but the pressure on the market is maybe a bit less, so it is mixed. But when you look at the higher energy prices and t here is a clear plan to enlarge the margin, everybody have to go for these figures you mentioned.
Okay. That is clear. Thank you.
You know, that is the plan. That is not the result so far.
Okay. No, then that is clear. Thank you.
The next question comes from the line of Dominic OKane from J.P. Morgan. Please go ahead.
Hello. Just two quick questions on my side. The first, just trying to differentiate between what is seasonal, cyclical, and structural, specifically on the cost side. So given that we have seen this big step-up in energy prices, in particular gas prices, in the last one month, can you just talk to us about how you are positioned in terms as we look into calendar 2027 for energy pricing? Are you required to start negotiating longer-term energy contracts at current market prices, or do you have flexibility to delay some of those conversations?
And then my second question, just with regards to the working capital build, and specifically heavy plate during the period. I noticed that you will not have a force majeure in place. Can you talk us through how you will clear the inventory as we look forward? Will you be selling at the market price, or is there any risk to some lower revaluations as you look to clear those inventories in the next one to two quarters?
Hi, Dominic. Regarding our energy, I think you said supply and how this, regarding cost. In energy supply, just to give you a rough number, for us, it takes roughly a little bit more than 6 TWh per annum, what we have to need to feed our plants. The bulk, of course, is here, where we are at the moment here in Linz, for our Linz plant. The second biggest consumer is then in Styria in Donawitz. What we have on the one side, if we have supply contracts, we have fixed and secured supply, and the pricing is then a different animal. In pricing, our strategy is, number one, that we actually add price deviations to give it to our customers, number one.
So we have some smaller contracts where we have actually pricing is, where the energy price is a part of, or an element also of our sales contracts. The bulk, in particular here in Linz, is that we normally manage, and this is historically proven, that we manage to hand over cost inflation here for energy contracts with a time lag to our customers. Therefore, we also have some derivatives, but not too many. Now in addition to that, we have our gas storage facility, as every megawatt-hour, every kilowatt-hour, or cubic meter we use from and consume at our sites, at first, we take it out from the storage. On the other side, this cubic meter goes again into a storage at the new price, so i t helps us for some weeks to soften effects. So tis is roughly as it is.
Yeah, supply is secured, pricing is flexible, and we have to adjust for the bulk, the prices, and add it to our customers, and hand it over to our customers. Back-to-back, of course, is our preferred method anyhow, so this is something, of course, we do. Working capital built in heavy plate. I think we sit roughly 80,000 tons more than expected in heavy plates here on our site in Linz. This is a rough number at the moment. Our clear target there is to reduce this down dramatically until year-end, and we do not expect negative impact there. It's not just voestalpine which is affected by this situation. Also many of our competitors and market players there, and market participants and so w e are, of course, in talks with our customers.
It is not funny because we are a well-accepted and well-known supplier where delivery performance is one of our top priorities. So what we are actually doing at the moment, not just at the moment, we also did this in the past, we try to have other routes available, other ways and means how to transport, in particular, this very heavy stuff to our customers. We can do it to a certain extent by train using specialty equipment there. But the pity is that at the same moment when the river was very dry or is very dry, also we have these construction sites, in particular northbound through Germany at the moment for the main train tracks. Yeah, but we are working on that, but we do not expect, to make it short now, here major negative impact.
Just ask on the gas storage, because what is the current level of gas storage—
700—
—you have?
750 GWh, 0.75 TW.
Okay.
Next question comes from the line of Krishan Agarwal from Citigroup. Please go ahead.
Hi. Thanks a lot for taking my question. Couple of them have been answered, but a follow-up question on the guidance cut. Is it a better way to understand that EUR 150 million cut in the guidance from EUR 1.85 billion- EUR 1.7 billion at the upper end, that EUR 50 million of incremental cost is already being seen into the Q2 of the business year, and then incremental EUR 100 million cost actually comes into the December quarter? Would that be a fair assessment to look at the guidance cut?
I didn't think about it that way, but it does not look the same for me. At first glance, it doesn't look too wrong. A part of it is definitely also part of our first half, for sure the case, yes. I mentioned in my presentation that we expected, for example, more in Metal Forming, and so on, and this is definitely the case there. Yeah. Not too wrong.
Understand. Thanks a lot. And then does it mean that if the energy cost stays persistently high, then March quarter probably will also be impacted from those higher level of energy cost, in addition to the guidance cut which you have taken?
I think, as we mentioned before, our business model is that we have to hand over higher energy costs to our customers, as significant contracts are renegotiated quarterly or yearly contracts. We do everything now to negotiate that into these contracts, and we should not be affected, perhaps a little bit. As long as prices are rising, of course, this always is tricky. When they stay flat at this level, as it is now, I would say our clear target is that we have to hand this over to our customers.
Understand. Yeah.
But, you know, we have most of these negotiations in January, and this is the time lag, what we have normally in that context.
Okay, thanks a lot. And then a quick follow-up on working capital. So you are saying there is a lot of heavy plate inventory to be released in Q3 and Q4. So, how should we look at the full year working capital picture? Is it going to be a flat working capital or some kind of investment and t hen consequently, does that change your free cash flow expectations for the business year 2027?
We roughly, let's say, added net working capital of EUR 170 million, or EUR 250, I would say, in the, I think it was Q2, from this one. It should be, as I mentioned also before in my bridge, in my last slide in the bridge, we should go down to the direction zero, so that it is flat again compared to start of the year. So this is our intention there with these projects and with these initiatives, and simply with these facts, I tried to explain, like normalizing water levels, which should support us there. So it should be perhaps slightly negative compared to 1st of April, but not too bad. The EUR 60 million expectation and free cash flow means this is one of the reasons why we are also confident that we will reach this EUR 250 million performance for this business year.
Okay.
It was also, we also needed it, I think, two years ago, three years, one year ago. We had this strong rebound then in second half. It is not unrealistic.
Okay. Understand. Thanks a lot.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Next question comes from the line of Bastian Synagowitz from Deutsche Bank. Please go ahead.
Yes, good afternoon, and thanks for taking my questions, so a couple left. Maybe firstly, following up on energy cost, can I please follow up on the gas situation? Maybe could you please give us a bit more detail on how the price level in that reserve compares to the current gas price, and how much benefit from this, if anything, is reflected in the current guidance and updated guidance? And then the second question, just on restructuring, where I think you are basically indicating that you are stepping up your efforts a little bit in seamless and also Metal Forming. Is there anything we should be budgeting for in terms of restructuring provisions in FY 2027 and 2028?
Regarding our natural gas reserve of 750 GWh, of course, everything what we saw and is also part of our guidance. So there is nothing as reserve left, otherwise it would be part of our guidance and so on. How it works is actually, normally we take out one kilowatt-hour from the storage, and on the other side, we fill this new cubic meters into the storage, so t his is how it works and so we consume at an average price, and this average price goes up in an increasing market and goes down step by step in a decreasing or falling market.
The effect what we have there, as I said before, we have a little bit more than 6 TWh we need annually for our operation, 750 GWh is in there. I would say roughly half a quarter is what we can do with our gas storage facility. This is also how we soften a little bit the impact for one quarter. This is how it works f rom the—
You are basically filling up again, basically.
We always. The idea is, the reason that we have this gas storage is in particular secured supply. We built it and we bought it during the time when the war in the Ukraine started, as we are normally, we have direct lines and supply via Ukraine to Austria. And in order to be safe there, we decided to build a bigger gas storage facility at this time. It was 1.5 TW in the past. And with the things developing there and getting terminals for LNG in Europe and so on and so forth, we decided, I think one and a half years ago, roughly, to reduce this 1.5 TW to 750 GWh.
The main reason is still unchanged. It is secured supply. If something happened, then that we have at least something on our side, b ut of course, we also use it to soften such effects, and technically and also for accounting, it works that we always take the first out the kilowatt-hours from the storage and refill it with new ones, because until we do a new decision regarding secured supply. So this is the reason why we have it and how we do it. It is in, of course, it is in our guidance, yeah. Yeah, restructuring was the second question you asked for in Metal Forming. There is 250 people, FTEs left being reduced from our original projects.
This brings us then from annual improved structural cost EUR 70 million to roughly EUR 90 million, so t his is number one. And what we added in this presentation that we assume that there will be something necessary in particular in addition to that, because the need from our customers is even lower and so o ur expectation is that we have to further reduce step by step, roughly up to 500 FTEs. It's an estimation. It's an estimate now. In the next two business years then, not this year, in the next two business years, step by step, using fluctuation, pensions, and so on. No big extra restructuring is foreseen at the moment there. Perhaps a little bit.
And in seamless tubes, what we did there is we announced this week, two, three days ago, right after we were informed last week or one and a half weeks ago by the authorities in the U.S. about the level of anti-dumping, in addition to countervailing. For us, it was clear that we have to do something there. We decided to reduce to exactly two shifts, - 150 additional people until year end. Of course, we are negotiating there a plan with our employees. We started that. We have experienced the same situation one year ago where we took out, I think, 190 people roughly, or 70 people roughly and I think this will not be a big significant amount you have to expect, and is also part of our guidance. This was one of the reasons why we took down the upper level so t his is one of the reasons.
Understood. Okay, thanks. Thanks for that. Then maybe just staying on the topic of seamless tubes, I appreciate I asked that question already in the last call, but I think with the tariffs now, you definitely face another layer of headwinds for your U.S. exposure, and I think you've generally lowered that already. But firstly, on the performance of Tubulars, are you still around break-even or are you losing money already? Maybe you can—
Thank you.
—give us the outlook on what the
Thank you for this question. I wanted to add this in my presentation. Our clear target is we are confident that we will end up this business year at the free cash flow level of around zero. So the clear target there is not to burn money, and we are confident doing that this year. How are we doing that? Of course, operationally, simply looking at an EBIT number, EBITDA number, EBIT number. We are not positive at the moment. We expect a negative impact there. This is part of our guidance.
On the other side, as we reduced also business there, we will reduce inventories and so on, and we will have positive impact there. And of course, we cut every type of and question every type of investment to do there and so on, the normal stuff you are doing in being a fire brigade. But we are in a clear hibernation mode situation there and t he pity is that the original plan for us this year was to shift more to other markets. But you know that the war situation in the Middle East, of course, is not really helpful for this strategy and w e are super confident that there is a bright future there for us. There are big projects in front of the door, but this war has to end. No one knows when this ends.
So the strategy now is reduce OCTG volumes, which are shipped to the States until end of this year to a level of more or less zero. So this is our strategy. Substitute smaller volumes in other markets, and therefore it is necessary to reduce our manning there. This is - 150 people. We are confident that we can achieve that and y eah, we are working hard. People were actually anyhow preparing themselves a little bit for this situation. The outcome was even more severe than we expected. This is what we have to say with this anti-dumping number.
And I suppose you have been really caught a little bit off guard and by surprise by, I guess, the magnitude of these tariffs. But I guess when you talk about a negative EBITDA run rate this year, assuming everything just stays as it is, no relief, continuation of war, how far can you cut that loss into next year just by containment measures and whatever is in your control?
No, we are confident. So this will definitely not be a negative EBITDA. For sure not.
Okay, thank you.
Next question comes from the line of Patrick Steiner from ODDO BHF. Please go ahead.
Good afternoon. Basically one question left from my side. You mentioned that the bulk of the reorganization measures at HPM are done by the end of the business year, so if I understood this correctly. Should we then expect the full benefits to be reflected firstly in the first quarter of 2027/2028?
For full benefits, you also need market. Part of market is there.
No, I think it's normal that when you finish such a program and you have seen the figure of EUR 150 million cost reduction, we will benefit from then. That's clear that this is coming gradually over the year. But yes, that's the case, and that's the reason why we see so far good results from HPM. Otherwise, it would be loss-making.
Okay, perfect. Thank you very much.
The next question comes from the line of Dominic OKane from JPMorgan. Please go ahead.
Hello. I think my question's actually already been asked. I guess my question was on the OCTG and the tariffs. When you've spoken about this previously, you were guiding at, back in March with the Q4 release, that the products exposed to tariffs represented about, I think, 5% of Metal Forming sales. I think from memory, that was around about $250 million. Are those numbers still broadly accurate?
Even less. It is even less., so we are talking about our total numbers. I would say OCTG business is perhaps 1% of our total group-wide revenue. It was reduced throughout the year already.
Thank you. That is what I thought. Thank you.
You are welcome.
The next question comes from the line of Tristan Gresser from BNP Paribas. Please go ahead. Mr. Gresser, your line is open.
Sorry, I was on mute. Thank you for taking the follow-up. Just on the OCTG business, would you expect, given the headwind, that the Metal Engineering Division H2 EBIT would be better than H1?
I was now on mute. I don't think so that it's doing operationally better and in terms of results H2 than H1.
Sorry, H2 will be not as good as H1?
Not better than H1.
Okay. That is clear. Just on the heavy plate business.
Not 5A, I would say, huh?
Yes. Okay. No, that is clear. On the heavy plate business, if we were to think of a best-case scenario, when this business could come back, I guess the lead times are also maybe long, so I do not know. Is that something you would contemplate at some point in fiscal 2028 to come back, or this could take longer? Any thought there?
These projects and heavy plate is normally, when it comes to energy business, it is a project business, so a ll those projects we know and we would have expected in the last year are still available. They are just postponed. They are frozen because of the situation in this Middle East area. So it is always a question of financing, but there is no change in these projects as far as we know. So it is not that we have to wait one or two years. As soon as we, or we do expect, as soon as we see a solution of this situation, I think within a year or in the course of a year, we can see a pickup in this scenario. I think that nothing has canceled. That is the good news in this bad situation, I would say.
Okay. That is clear. And maybe last question on Metal Forming. It came a bit below, I think, what we had in Q2. You mentioned that the market has been weaker than anticipated, need for more restructuring. SoiIf we look at the sequence into Q3 and to Q4, we should still expect some gradual improvement quarter- over- quarter, or is there anything else to flag on the outlook for that division?
This is our expectation. So we expect some improvements here throughout the year, for the rest of the year.
And normally, we think that Q4, as always, will be the best quarter, even for Metal Forming.
Okay. That is very clear. Thank you.
Any further questions, please press star and one on your telephone. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Dino Malkic for any closing remarks.
Thank you, ladies and gentlemen, for the questions and for the fruitful discussion and s hould you have any further questions left, please feel free to contact us, and have a nice day. Thank you very much.
Thank you. Bye-bye.