Dear guests, my name is Dino Malkic. I am Head of Investor Relations at voestalpine AG. I am very happy to have you here. Welcome to the Capital Markets Day 2026 here in Berlin. Also, thank you very much for the people who are attending online via the live stream. Let me say just a few words about Berlin. We are here alongside the InnoTrans, and the InnoTrans is the largest trade fair for transport technology worldwide and also the largest trade fair in Berlin ever held. Let me also say just a couple of sentences about this special and historic venue here in Berlin. If you look outside, you can see the motorway, a German motorway, and a few decades ago it was a racing circuit. It was actually one of the most dangerous ones and one of the fastest ones.
In 1959 there was even a Grand Prix in Germany, a Formula One Grand Prix, and a guy whose name is Tony Brooks won this. Tony Brooks is a guy from U.K., and it is easy to find out who won the race, but you cannot easily find out about things about the engineers, the mechanics, and all the cockpit crew, the sponsors. There are a lot of people who helped for this victory, and so I also want to say thank you for the people who helped us organizing this event, also to my team, and everybody who supported it. Now let me come to the people who you are more interested in, I guess. The today speakers line up.
I am here with our CEO, Herbert Eibensteiner, joined by Gerald Mayer, our CFO, Franz Kainersdorfer, who is a board member of voestalpine AG and simultaneously heading the Metal Engineering Division. I am also very happy that Günter Neureiter will join us. He can give us direct information from the ground. He is close to the markets, close to the clients. He is heading our Railway Systems business. Shortly, you will hear the CEO and CFO presentation, and after the presentation, there will be a dedicated timeframe for questions. So we will have a Q&A session. All people who are attending online, they will also have the possibility to ask the questions. Just put them in the chat and there is a moderator, and I will be the one who will bring the questions to the room.
After this Q&A session, we will have a lunch break, max 30 minutes, and after the lunch break, there will be the second part of the management presentation. Franz Kainersdorfer and Günter Neureiter will present basically the Railway Systems business. After that, we will have again a Q&A session. For those who are attending online, the Capital Markets Day will end here. For the people who are in person attending, we will start with the afternoon program. So we will go to the InnoTrans Fair trade, and we will have the chance to see a product presentation from our experts, to put hands on the products and to listen to the life stories. After that, we will have a guided trade fair tour. So we will also have the possibility to see how huge this trade fair actually is.
And I am especially happy that so many of you will join our dinner event at the Mina restaurant. My team, myself and Daniel, who is heading the treasury department, will be there at 7:00 P.M. ready to welcome you. I am looking forward to insightful day, and I will hand over to Mr. Eibensteiner.
Yeah, ladies and gentlemen, welcome to our Capital Markets Day here. Today we will give you an overview of voestalpine as a group. Then we take a closer look to our railway business segment. But finally, or at the beginning, I would start with the question: Who are we as voestalpine? Most of you know it, that we are still a technology group, with a special combination of material and processing expertise. Roughly half of our business is steel and metal production, while the other half is focused on engineering, processing, and value-added downstream activities. We operate in five continents, in around 15 countries, with approximately 500 companies and locations. I would say after the last year's restructuring, maybe a bit less than 500, but it is still a valid figure when you said already 500.
In the last business year we generated, and I know that you are well aware of our figures, an EBITDA of around EUR 1.5 billion, EUR 15 billion in revenue and EUR 540 million in free cash flow. We organize our group in four divisions and 12 business unit. It seems a bit complicated, but is for our From our view, the best way to do that and to keep this decentralized organization, which is very vivid and quick when it comes to be close to the markets. Steel Division is mainly focused of flat steel and heavy plate material. Metal Engineering includes railway systems, which is the biggest part of that division, and also industrial systems with welding consumables, railway technology, and OCTG tubes. High-performance metal seems to be the most complex structure, but is easy to explain.
It includes tool steel, which is the biggest part, and then special materials for industrial applications like for medical technology, food and beverage industry, aerospace, oil and gas, and other very demanding niche applications, titanium, for instance. Metal forming covers automotive body parts, special tubes and special sections, precision strip products for tool steel knives and other topics, and also high bay warehouse systems, storage systems. I would like to start with this video.
Production of steel and high-performance metals. Focus on high quality and specialization. Processing of metal parts and components. Innovation and technology. Engineering and system solutions. We are voestalpine, a global steel and technology group producing high-quality steel and special materials, and processing and engineering innovative technology products. From flat steel for car panels to automotive parts and components. From highly durable rails to cutting-edge digital track management systems. From special materials for airplanes to forgings. We are a leading partner for high-tech industries with high entry barriers. Through continuous specialization and focus on highest grades, we strive to be one step ahead when it comes to materials production. Using our engineering expertise, we develop innovative solutions that offer our customers competitive advantages, relying on our own materials base as well as from third parties.
We are one group with two core businesses and four divisions, diversified by markets, products, and regions. This creates financial resilience, leading to a stable and strong performance with lower volatility and reduced cyclicity.
voestalpine, one step ahead.
That should give you a few impressions what products we are talking about. I go on with how we see our markets, and I think you're all well aware that we are in a very complex environment worldwide at the moment. We have so many moving parts and a high level of uncertainty. That's good that we have a widespread portfolio worldwide. I would start with Europe, our biggest market, is in the middle of the slide. Nothing has changed. We have this subdued economic growth and pressure from U.S. tariffs. A weak industrial production at the moment with positive impacts of EU regulation so far when it comes to steel. In Europe, I would say, when you ask me afterwards, there is a slight tailwind, what we can see coming from all those, despite these tariffs.
When I look on the left-hand side, North America and the U.S.A., we have a solid economic development. We know this is highly driven by these investments in AI and technology, and the normal industry is a bit weaker. Asia and China, stable economic performance. We have to say growth is driven by exports and also affected by these new tariffs, more imports into Europe. But seen with a weaker domestic economy. When I look at South America, still high interest rates, strong competition from Chinese imports. But positive for us because they have a free trade zone with Chinese, so it's a bit compensated, and they are also affected by the U.S. tariffs. So there are some positive aspects and negative aspect.
I would say nothing has really changed, and we have, for all those activities and threats, found an answer this year, and I think we can do that in the years to come as well. Why do we believe voestalpine is an investment case? What's special for voestalpine or what is the core DNA of our group? There are six reasons. Our market positioning, our focus on innovation and quality, and why we think that our business is gaining resilience out of that. We have a clear, consistent strategy. We do active manage our portfolio and restructure our business, and the last point is our clear capital allocation. When you look at the left-hand side, we are world market leader in railway systems and special sections. You will see that at the fair when you come with us afterwards.
We are global leader in warehouse and rack solutions. This hybrid warehouse, this business will also grow in the future. You have seen it from the size of the market, we are a leading partner in automotive and also in aerospace, very demanding. It's not easy to access that market. We are in mechanical engineering and energy, and this focus on this high-quality, technologically demanding products in this industry means for us, we have a stronger pricing power. We are not really exposed by spot markets. We have longer-term contracts, and we have very, very long-lasting customer relationships, even in areas where this is very difficult, and that leads all to a very high utilization rate in all our plants. When I talk about high-quality products, I think R&D is key in our business model. We continuously protect our position, our products, our processes with new patents.
You see that there's more than 3,000 patents and our R&D spending is more than EUR 200 million a year. This also means, and when you look at the chart on the right-hand side, is that we have a higher research and development intensity than that of many of our competitors. I can give you only a few example what we are meaning with R&D. It's more development. We do not basic research. We do development in our processes and products. For instance, in aerospace, this landing gear is, together with the customer, optimized product of complex titanium forging. You know titanium forging is not so easy and very complex, so it was a very to the edge developed product. We got an order, a long-term order because of that, and this is supporting our revenues there.
A new project is that we developed a patented new alloy for Invar. Invar is a temperature-resistant alloy for high strengths for these high power cables, which is new because it is very temperature-resistant, it is not easy to produce that. We can do that with a very high efficiency and a high material yield, which is unusual and will bring us in the future new volume. We have AI implemented within our products and processes, defect detection in our production. This is normal business for us. It is not only to get the view on your quality, it increases also the yield and also the speed of the production. Predictive maintenance in our processes, but also you will hear that afterwards in railway systems as a service together with our digital turnouts. When you talk about quality, we have highly automated testing centers only in Linz.
We tested 85,000 tests per month. You put it to the testing center, then everything is done by robots. This is also the reason maybe why we get a complaint rate from 1 part per million of a Bavarian OEM, which is really a big one. I think that is quite a figure to explain why we do that, it is positive for this quality we always talk about and see it as a decisive element of our business model. Diversification. We are geographically worldwide active, but we have a diversification across different markets. This is a decisive element when we talk about a more stable business and a more resilient business. Automotive, our biggest part, I think it is good as it is. Energy railway systems with roughly 15%, covers the second place, I would say.
Construction, mechanical engineering, aerospace, only 4%, but you will hear it afterwards, should grow. White end consumer goods, then a lot of other special niches. I think that is together with this geographically widespread footprint is that very important for us. When you look at the volatility of our business, on the right-hand side, you see our EBITDA development. It is not totally flat, but compared to our peers, we see that we have a reduced cyclicality because of these different businesses compared to some others. I think we have reduced debts. That is clear. Free cash flow is very important for us. When you look, this focus on this free cash flow is delivering the results in the course of the last years. When you look the last year, it is in average around EUR 500 million-EUR 600 million per year free cash flow.
When it comes to strategy, it is easy to explain. In 1995, at our IPO, we were a steel mill with only 20% of downstream business, then we decided to do not more in steel but more out of steel. This leads to this figure around 50, more than 45% last year. The goal is clear that we want to achieve this 50% or more than 50% in the years to come. Also, steel and metal production is very important in our strategy. As I said before, no more volume, more out of steel. Decarbonization, it is a part of our strategy, because these transformation projects, most of you are well aware of what we are doing in 2027. We will ramp up the first two electric arc furnaces. The transformation is we have five blast furnaces, it is to transform them into greener technology.
The first two out of 10 will then be replaced. Investment is EUR 1.5 billion. Then we will close down two of 10 in 2029. We will have achieved then this 30% reduction in CO2. We have already decided for the second step in Donawitz. We will spend EUR 100 million again in this project, and then in 2030 latest, you will find there electrical steel mill and not a blast furnace steel mill. The second step in Linz is not yet finally decided. We will see when we start the second part. Gerald. I would like to hand over to Gerald Mayer.
Yeah. Thank you, Herbert. For me, I would like to share with you now actually two chapters here. First of all, of course, we are taking care of our portfolio. We are reorganizing it. The second part of myself will be capital allocation. Number one, this active management of our portfolio and actively reorganize and restructuring business, I think it is absolutely key. Times are changing dramatically. I think we are here in Germany, where you see how OEM business is developing. To the right, you see our metal forming division on this chart. I think it was absolutely necessary to start the big reorganization program there. We started it actually two years ago or even three years ago. We took out structural cost there of roughly EUR 70 million since the beginning, or let us say, since mid of 2024. We are well on track.
We closed one plant in Birkenfeld, as you know, starting, let us say, in the business year 2024-2025. We reduced our workforce by 1,200 FTEs since March 2023. If you compare now the EUR 70 million to this 1,200, you see this does not exactly fit because this EUR 70 million refer actually to a restructuring project which we started in 2024, and 1,200 was the starting point March 2023. We started even earlier to take out people there in Manning. Without that, it would be not good. Right now we are improving there dramatically, I would say, in this Metal Forming Division part in automotive components business. We are well on track. An additional reduction of roughly 250- 300 people until end of this business year is yet to come. We will see more there until end of the year.
What we do right now is we are talking internally about our strategy. Are we well-prepared now for the future, yes or no? If there is something necessary to do in addition to that, we will definitely update you. But at the moment, I think we are well on track, and it is a success, so we deliver as promised. To the left, high-performance metals industry. You see here that we reduced structural cost by EUR 150 million roughly. This is a reduction of 1,100 FTE, and this number fits now exactly to this EUR 150 million. We reduced loads of warehouse locations. 20%, roughly, from more than 100 to roughly 80 something. We also consolidated the rest of the group dramatically. This is a way stronger, I would say, cost structure we have at the moment, a robust one.
And we are absolutely convinced it was also necessary. We are well on track. What I shared with you, or what we shared with you when we published our Q1 numbers, I think it is promising, and we see some signs also of improvement there in the markets. So it pays off. With this EUR 150 million reduction, I think the right decision was made, and we deliver on that. If you look here, divisional EBITDA EUR 216 million last year. Our target, 2028- 2029. I can confirm that it is still the case, and I would say highly realistic, that we will end up at EUR 400 million EBITDA 2028- 2029. To the right in Metal Forming, the EBITDA was similar, 2025- 2026, same level, EUR 218 million. The clear target there is EUR 400 million as well. We are also well on track there. So we reiterate that.
Next chapter, capital allocation. We shared with you one year ago exactly on our Capital Markets Day last year our capital allocation philosophy and policy. We published it one year ago. I think the main pillars, I would like to repeat that here. I think it is important to understand how we think, and we walk the talk in this regard. First of all, in our opinion, it is absolutely necessary to have and provide and base everything as a good foundation, to have an optimized capital structure. Why is this the case? You know that we are an unrated group. What we have to make sure that there is, that we have and provide an investment, a great profile at least. So this implied credit rating is a very important one, and is key for us, and we really strictly follow this path.
What we do regularly, we have Moody's tools in place internally. We look to the other rating agency, how they would rate us. We do it internally, regularly, and our clear target is there. We want to stay, in particular, would like to maintain this investment grade profile. This is very much of importance for us. An optimized capital structure also comes with value. I think this is also clear. So we are constantly looking at the sweet spot of our capital structure, which minimizes actually our weighted average cost of capital. So this is also an exercise we do. Then we look also to market expectations and have a clear look there, what our peers are doing there, and how they present their capital structure and what capital structure they maintain. So these are the three pillars within optimized capital structure.
An ongoing exercise, in particular done by the team of Daniel. Value-enhancing growth, of course, I think we here at InnoTrans and Railway System is one of our most important growth areas, and we want to deliver and when we do something with growth and with value-added growth, of course. So our targets are absolutely stable to what we said last year. We have to achieve on a group level 12% plus in terms of return on capital employed. This is the clear target there, and the margin target is 14%. We all understand that margin targets are sometimes difficult because one time you have higher raw material cost, next year you have lower raw material cost. With similar profitability, sometimes this has an impact on margins.
But the truth here is absolutely and stable is a return on capital employed, and this is what we want to achieve, and we are committed to that. Talking about gradual decarbonization, Herbert shared with you this slide, with our greentec steel projects. He also shared with you that we committed and approved the second step in Donawitz plant. I think, also Franz will give you some input there. What I can share with you here is, first of all, we carefully look at legal requirements and customer requirements, in particular, what is necessary to do is done. And that's it. The status of our existing projects, what I would like to share with you here is, by the end of this business year, we expect that 90% of our CapEx is done for these two projects, minimum 90%.
We are well on track in terms of budget, and we are well on track in terms of timing in both projects, in Donawitz and in Linz. Return to shareholders, our fourth pillar here in our capital allocation. Payout target, 30% is the clear payout target there, and we also offer a defined minimum dividend of EUR 0.40 per share. In addition, and this is not mentioned here, it also includes a mechanism which secures and should support us in securing our investment grade profile. So in case we would exceed a debt level of 2x EBITDA, we would cut the dividend. But we are far away of that, so 30% also for the next period of payout ratio is the realistic one. In terms of capital allocation, let's have a look how we performed last year.
If I translate now these four pillars to our business year 2025- 2026, I do not want to bore you too long with these old numbers. But in terms of dividend, top right, it was roughly EUR 120 million. We invested in growth, EUR 170 million. We decarbonized, you know our projects, EUR 380 million, and we optimized our capital structure by roughly EUR 400 million. And this was a very, I would say, disciplined also working capital management and not just driven by lower prices. It was in particular also by reduced volumes and I talked some moments ago and before about, for example, this reduction of warehouses. Reduced number of warehouses also come with reduced working capital needs. And I think also here, it proves that we walk the talk in this regard. Next one, growth. As I said before, we are in InnoTrans in Berlin today.
Railway systems, this growth path, you know that from the past. It's exactly the same what we presented to you last year. We want to grow from EUR 2.2 billion -EUR 3.0 billion until the year 2030-2031. For me, also for you to differentiate, if you read our slides here, when we say 2030+ target, and it's the year 2030-2031, when we talk about target strategy 2030 +, our internal wording there means this is our strategy where we talk more about the year 2035. So always strategy 2030 +, including strategy, then it's more 2035. And when we talk about 2030+ target, the EUR 3 billion is exactly in four years from now, roughly, yeah. The average return on capital employed, we not just expect, I also think it's very realistic in average. It's a cyclical thing.
It depends a little bit when our projects are coming. It's at 20% return on capital employed, we expect. This means if it would be a steady growth, more than 20% compound annual growth rate. Of course, we understand this comes only together with M&A and organic growth, and it will be somehow going up there perhaps in steps. This is, again, M&A plus organic growth in railway system. To the right, aerospace, also a defined growth area. I think we published a lot of interesting also contracts this year. We took good progress there. We have a strong team in aerospace. We are at the moment at about EUR 600 million of turnover in this business. We want to grow there by EUR 200 million organically.
This is, in our opinion, where it does not make sense to do M&A, and therefore, our path there is an organic growth path. To the right, warehouse and rack solution, tubes and section. There is one thing I don't know, it's hidden somewhere because normally it should say it's organic and M&A. I think we will check this in our slides, which we put online this morning so that it's there properly. In this case, it's both, and we want to grow there by roughly EUR 1 billion. At the moment, it's a business of EUR 1.5 billion. We always say, and I mentioned it before, for us, it only makes sense to grow if it also comes with additional value. Therefore, what we did is, first of all, we try, of course, to minimize our group WACC.
I talked before about our capital structure and so on. We defined certain hurdle rates. We defined a minimum target for our group return on capital employed of 12%. This is the target where we want to go and what we want to achieve also in our strategy and in our internal plans. Then, of course, it needs, because of our complex structure with 12 business units, four division, we also need individual return on capital employed targets in all our divisions, in all our business units, which we carefully monitor. This is what this chart actually is showing, and it's just illustrative where we say, and this is actually how we manage also our group, and follow this up annually. How does this translate again into the numbers of last year and into this development path we are promising there?
You see the profitability, of course, was a little bit difficult in this last years. I think, yeah, the environment was not very chubby. It also came with some impairments on our side, which was not ideal, but I think we are on a good path there. Last year we were at EUR 700 something million in terms of EBIT. First of all, of course, profitability has to go up. This is clear. Is this realistic? I think I showed before, we are working in two divisions on a restructuring program, reorganizational program, that we are quite far, and we made progress there, so we will have support there for sure from these two divisions. We are at InnoTrans again, railway systems is a growing business. This also should also come with additional profitability.
And also we do not stand still on the other parts of our business. So it is, in my opinion, a highly realistic target. If you look at our capital employed, which is stable or even declining from roughly EUR 10 billion, EUR 11 billion to roughly EUR 10 billion now, that we deliver EUR 1.2 billion of EBIT. So it is a realistic one. Of course, there are always things and hurdles which we have in front of us on our day-to-day business. Let's look now at natural gas prices of EUR 80, for example, and so on. The globe is moving. Things are moving, and we always have not just to We react, and we have our strategy. We are constantly developing ourselves. But this is for sure, this is our path, which we constantly are walking. In terms of capital employed, I think we achieved a lot there.
Because please bear in mind that we invested tremendously in the last years, always above depreciation. And the capital employed number declined. This also has to do with working capital. So we took out roughly EUR 800 million of working capital in two years. Of course, this is something you cannot do indefinitely and continue indefinitely, but believe me, we will stay strict there, all of us, and carefully monitor that and try to have the optimum level. Not always the minimum is not the optimum. So, this is what we are working on, and therefore, I am convinced that this is a realistic target which we should achieve in the next years. Last but not least, dividend policy. I think I mentioned it before, 30% payout ratio, minimum dividend, and this mechanism to secure our investment grade profile, very important. The dividend track record, so we walk the talk.
We paid our dividend all the times every year since our IPO, more than EUR 4 billion. Free cash flow yield. In the last, we took here 15 years, you can, of course, choose whatever you want. We do not cherry-pick there. It's 8.4% in average since 2011, last 15 years. And total shareholder return, okay, since our IPO, more than 1,000% or 8.5K here. To summarize everything, the six reasons why to invest in voestalpine. So market positioning, I think Herbert Eibensteiner talked about that. Again, here at InnoTrans, you will see our showcase where we are number one, for example, in turnouts. You will see this when you tour through the show. Innovation and quality I think is key for us. So it's our DNA, quality and innovation. Quality, Herbert Eibensteiner mentioned this 1 PPM for this one OEM, which is just fantastic.
You could even argue we are too expensive in terms of producing because we have such a small PPM, let's say, scrap rate there or issue rate. In terms of R&D, we spent more than EUR 240 million. This is also what Herbert Eibensteiner shared with you, but this is core. We are in the heart of Europe. We have to come with innovation and innovative products and then we have a prosperous future. In terms of resilient business, our 12 business units, I think this is clear. It reduces our cyclicality. The consistent strategy, so stability. We are in a long-term business. If you look what we built and what we have on our big sites all over the world, you see this is long-term, and you need a long-term and a consistent strategy there. Active management, I shared with you reorganization. We also took off sites.
We sold things which had to be sold. This one site, I did not explicitly mention it, in Germany, which we sold beginning of last year, where we knew it changed to a commodity type of business. It is not innovation anymore. High cost, so we had to get rid of that. We do that. Sometimes it is difficult, but you do, and we walk the talk. In terms of capital allocation, I think I shared with you our thinking there. Believe me, this is actually how we act. This was it now from my side. I think Herbert and I, we are ready to do the Q&A with you, ready to answer your questions. Thanks. Thank you.
Perfect. Thank you. This is Alain Gabriel from Morgan Stanley, and thank you for hosting us today. Couple of questions. One is on the HPM and metal forming. This drives your biggest upside in terms of profits. Do you mind giving us a sense of a bridge? How do we go from EUR 200 million and change to around EUR 400 million by 2030 by division? That is the first question.
You mean a year-by-year bridge?
Well, I would say from now until then, not necessarily year by year.
No, you will see.
Cumulative.
First of all, I think we published our Q1 numbers. You saw some improvements there. Take out this one-off we had this year. Take it out and you will see it is already there, that we are in this direction. We, of course, need a little bit of market. But what we see, and this is what I mentioned before, that there is some support of the markets at the moment. So order intake is quite okay. I would say it is not there where it was, but it is definitely better than it was. And with this reduced cost structure, you will see this is not a big step. So we are constantly moving there. And therefore, I said for me, highly realistic. In terms of Metal Forming Division, I would say you saw this EUR 200 million something end of last year. You saw that we took out cost there.
You see there are improvements for the division. It is not just automotive, it is the division in total. So we need some improvements there and some growth from Ware house and Rack Solution, for example, also from tubes and section business. We need stability in our smallest business unit there, which we call precision strip. And then we need stability in automotive components business. What we did there is we reduced actually the volume of our auto business from roughly EUR 1.6 billion to a break-even level at the moment of EUR 1.2 something billion. So this is what we did. The idea was to achieve at EUR 1.4 billion, a 6%, roughly 5%- 6% EBIT margin. So this was the original case. We are now, in terms of markets, a little bit below. So there are two ways now.
Number one is to believe and wait for these tailwinds from the market because we need some improvements or to do additional things there. And this is what we are actually working on. But it is also, we took out this cost number, and therefore if you add this from this EUR 220 million roughly, you cannot add the EUR 70 million because a part also was last year, but there is something in addition to come. I would say we would be in a steady state type of number, having everything stable at the moment, more at EUR 250 million than somewhere else. We will see how this will develop this year.
Thank you.
But there are some meters to go there. Some water is flowing down the river of Danube at the moment.
Thank you. That is clear. The second question is that Linz and Donawitz, you are rolling out the EAFs, which is a very different technology than what you have done in the past. How does the cost structure compare of the EAFs versus the blast furnace, and would you realize an upside in your margin on a like-for-like basis? That is one. Then two, I think the EAFs typically have lower maintenance costs. Would that lead to a lower sustainable maintenance cost for the group because of the EAF rollout?
Yeah. The business rationale of the second step of Donawitz is very clear. We invest now, this first one, startup is next year. The second blast furnace is decisive because in 2030, you can take out the second blast furnace and the sinter plant, which is highly maintenance intensive, and it is also a reduction in people. This is the business case beside the questions of some of our customers, railway and others, they ask for CO2-reduced steel as well, but this is additional positive sentiment. The business case is more or less the reduction, less CO2 costs, less maintenance costs, and less people.
Is there a way we can quantify a little bit the OpEx change or at least the maintenance change at the group level? Or is it too early?
I actually think it's a little bit too early, and there are so many assumptions in there. On the one side, it's the number of CO2 in particular, in steel division, it has to do with this green premium. How does this develop? Then of course, we also need electricity, and so there are so many different things we have to consider there. I think it is not wise to come now with numbers. But in total, it has a clear reason why we said that we want to go for the step two in Donawitz, for example, as we are convinced that it makes sense economically.
Thank you.
But for the steel mill, the reduction of people is around, Franz, 200, 300, 350.
In Donawitz.
Donawitz.
Okay. Thank you.
Thank you.
Thank you. Andy Jones from UBS. I just had a question about the warehouse business, and from what I can see, from probably an ignorant perspective, it looks quite similar to warehouses in terms of the structure, the rack, this racking. Maybe you could educate us on what some of the key differences are, given the fact that obviously that's a huge growing demand center. Nucor keep talking constantly about their exposure to data centers and the demand drivers behind that. Can you pivot the business to capture some of that potential demand or are they completely different businesses? Can you talk about maybe the opportunity that you could have in the future, if not now, in the data center dome?
Yeah. Data center, it is very interesting. It is mostly driven in our markets in the U.S. What we see is, or even in Europe, it is cable trays. Cable trays is such a product we deliver to that business, and we have a very interesting change in the market, and this is turbines, gas turbines. So when you deliver gas turbine for energy supply of such data centers, in the American market, there is no India, no China tech, and that is the reason why we deliver to this market as well, and this is a very long-lasting business. Gas turbines, there are not so much supplier, but this is a very positive aspect coming from these data centers, especially in the U.S. market, but also in the European market, where gas is not so prominent, I have to say.
And just another area of potential demand. You obviously have decent expertise on sour gas and things like that. Now, we do not know what is going to happen with the Middle East, but given the idea about replacing infrastructure on the oil and gas side there, can you talk about how much of a demand opportunity that could be for that part of the business?
I think, yes, there are a lot of sour gases, more offshore business. So we know that in that area, very often onshore is affected, but this is also heavy plates business, but more offshore. And what we know from our customers there, the plans are the plans. They are only postponed. And this will be a market in the future as well. But so far there is first signs in OCTG and some projects. I think it is not quiet enough to start big projects, but the projects are still valid and everybody is committed that they will come. But 2027- 2028, I am not really sure because there is a lot of uncertainty. But we have specification of those projects in the market, but at the moment on hold.
Sure. Thank you.
Hello. Dominic O'Kane from JPMorgan. Within the pack, the chart that I think is possibly the most interesting is the bubble chart with the ROCE by division and segments. Against the group target for a 12% ROCE, I guess two questions. Firstly, there is a big spread in the variance on the individual component ROCEs. Does your 12% target assume that all of those businesses remain core over the period, or are individual segments potentially considered non-core?
What we do at the moment is our, as I said, the strategy review. Up to now, everything is core what is in there. This is what I can share with you there. In terms of ROCE, of course, there is a wide range there, talking about warehouse business, which is more a project type of business, where we have advanced payments and so on. So they have very high return on capital employed and others, which are capital intensive. I think this is clear to you. So we have everything in there. Therefore, this process in aligning, in setting the targets, and then carefully gap, this is an important one for this capital allocation policy we have.
Okay. Then, within, I assume business A, steel production, we are currently in a quite a volatile market where prices are trending up. Could you maybe help us just unpack some of the assumptions that you embed within maybe pricing and also costs for steel production over the coming years?
Yes.
Let's start with this year and next year.
Yeah. I think it is clear. In fact, nothing has changed. We have all this environment in. We have safeguards. We have CBAM. We have this buying in advance with high stock levels. We have in addition now at least the discussion in the European Parliament to add additional 400-something products to support that or reduce imports by CBAM. All of that is positive. The expectation is again, relatively clear. After the summer period, we have to turn out these higher stock levels. Just an example, we heard from our steel department, surprisingly some of our yearly contractors are asking for earlier negotiation for the next year. I think that is a good sign that a sentiment is in the market that more or less the stock will reduce. Maybe you as well, you talked about this plus EUR 100 beginning from January.
Okay, maybe it is February, March, but it will come.
Perhaps one thing to add, I think we talked about this when we published Q1. We saw these, let us say these forecasts from CRU and MEPS and so on, how things and prices would develop. What we saw is, in these curves, a slight downturn from September beginning, and then a recovery until end of this year. What our people shared with us also this week, we do not see this dip down. There is for us also no real reason, so it should be a stable development there. This is what we see.
We have this contract issue where we have always a time lag to the quarterly business.
Hi there, folks. Ryan Hart here from Bank of America. Thanks for the presentation. You made a very interesting point about reducing the cyclicality of the business longer term. I guess a simple question. Once the strategy has been executed, what percentage of your overall group earnings will be from auto?
From auto.
Auto, not more than 30%. Auto will reduce, especially when it comes to body parts. Gerald mentioned that we had already EUR 1.6 billion. Now we reduce it to EUR 1.2 billion. I think here with the additional measures that EUR 1 point something between EUR 1 billion and EUR 1.2 billion is break even. Then with the additional measure, we get this positive EBIT, what we expect, not more than 5%, max 6% in that business. I think a turnover goal is not really in our mind, so we have to be profitable and the businesses have to deliver margins and results, and this is decisive. With this is a certain reduction and this 30%, especially in steel, which is very stable because this is a different approach. We always think it is 12 million cars in Europe, and we deliver to all those car parts.
I don't know when one OEM is struggling and another OEM is taking advantage of that, we're taking advantage of that because we can take this volume. We think in a very stable development, although we have this German car issue and Chinese car, as long as they produce in Europe, they are highly welcome.
It is profitable, and we are fully booked in steel in terms of orders.
Yeah.
This is stable. It is important for us. We want to stay there.
Yep. No, I appreciate that. You made the very clear point about trade protection in Europe seems to be moving downstream. Are you involved in any kind of advocacy efforts to see tariffs maybe implemented all the way down to auto?
Yeah, we are always in contact. I think there are a lot of things to do where we are not happy with all those things, ETS, free allocation, and also we think that CBAM has still loopholes and we have not a final regulation for export. There is a lot of work to do. What is positive is that the EU is listening. I am not sure if they always understand us fully.
Presume that will continue. Maybe just a last question. We have got one thematic in the world of steel at the moment is regionalization, and another one seems to be electrical steels, and that is a business you are very familiar with here in Europe. In the U.S., those two thematics are kind of coming together. Would you consider allocating more capital to electrical steel in the U.S.?
No. I think there is a lot of uncertainty. We know that the American steel mills have invested in additional capacity, which filled the gap between imports and local production. Five years ago, it was 30 million tons. Now we are back to, I do not know, you know it better, but it is maybe only 20 or even less, which has to be imported. I think that is not a business case to do that. Our steel production in flat steel in particular is a European part with some chances to export here and there, but it is dedicated to the European market.
Brilliant. Understood. Thank you.
Hello. Patrick Steiner, ODDO BHF. Thank you very much for the invitation. Two questions from my side so far. Firstly, you highlighted the more than 12% ROACE target by 2030. What is your internal hurdle rate for new capital to be deployed? At which level would you rather buy back own shares instead of investing in organic growth or M&A?
First of all, I think what we said, and I showcased a little bit the systematic. We have hurdle rates which are everywhere above just 12% because at the end it has to add up, and then we have, of course, also our administration centralized to a certain extent. Our business units have to contribute more than this 12%, and those are our hurdle rates. What was the second question? Was share buyback?
2026.
Yeah. At the moment, I think we have ideas how to develop, and if we run out of ideas, then we will inform you. No, it's not something which we have in mind right now because our idea is to grow and develop our group. Yeah, this is our strategy.
Okay. Thank you.
It is an option, so if we run out of ideas.
Yeah. Okay. Perfect. Makes sense, yeah. The second question, you have addressed the successful restructurings of HPM and metal forming. Apart from this, which other business parts are lagging in terms of capital returns, and what would have to be done to change that?
I think it is also no secret. We have, for example, in Metal Engineering Division, but I think Franz Kainersdorfer could elaborate on that also in a moment in his presentation perhaps a bit. But you have Railway Systems in there, super stable, absolutely positive. We have welding, super stable, I would say, on track. Then at the moment, we are reorganizing a little bit in wire, where we do not have the returns we want to see. And in tubeless, OCTG business is anyhow something which stands out at the moment because of tariffs in the U.S. and of the war in Middle East. So this is absolutely also something where we are not where we should be, of course, but it is a separate, I would say, issue and exercise to do that. We talked about HPM. We are well on track.
There are still some miles to go, but I think it is realistic, as you asked, to be there in two years where we want to be. And if you look in metal forming, I think it is more a regional thing. When you look at the States at the moment, you have some headwinds there when we talk about tubes and sections in our rollforming business. On the other side, I think it is a business unit where we still earn good money in total, if you look at that. But it is more regional, as we have many, many plants there. One part regionally which is also not doing so well in tubes and section is U.K., where we also have a plant there. I think the last PMI was a little bit better than the one before. We were below 40, at 38.
This is not what we consider as being a positive tailwind there. I think if you look to our group as a whole, there are some really well progressing, very positive areas. Then, of course, when you have 12 business units, you also have some construction sites as well, and we are carefully working on that.
Perfect. Thank you.
Thanks. Tommaso Castello, Jefferies. Thanks for the presentation. I would like to link back to Alain's question on your decarbonization plans. You are saying EUR 1.5 billion to basically replace two blast furnaces with two EAFs in Linz and Donawitz. What about the second step? Is it going to be roughly the same amount, like EUR 1.5 billion also for the second step? Have you quantified that yet? And if you are receiving support from Austria.
The second step in Donawitz is EUR 100 million.
EUR 100 million.
It is EUR 100 million. Then there are electrical steel mill. The calculation for a next step in Linz would be around EUR 500 million. Because in D1, we have already invested energy infrastructure, energy supply, and so on. This is not that you can multiply that by electric arc furnaces. These are rough figure. The EUR 100 million are clear because they are approved, also by the board. Linz is, from today's perspective, roughly EUR 500 million.
That is great. Do you find Austria is on board to help with some subsidies? We have seen many companies receiving subsidies from the government.
We are working on that.
Okay.
Yes.
There's no-
It's not comparable to what Germany has paid. For the first step, we have got EUR 90 million. I think that was the figure, EUR 90 million, and we are working on a similar figure for the next steps.
Thanks.
We also have to compare apples to apples there. If you look what other countries sometimes subsidize-
Yeah
-the system DRI or HBI plants. We do not want to build something in Central Europe that, as we think, it does not make sense commercially for us. Economically, this will not pay off. Therefore, we have another strategy there, and we do this low-risk approach step by step. This is number one I would like to add. Number two is, as we said, Donawitz is done. Makes sense. A different exercise, I think, compared to Linz. In Linz, we clearly have to wait what the European Union is at the end telling us in terms of regulations, what our customers need, and we carefully look at that. When and if we do what. It's not approved.
No, that makes sense.
For now.
Yeah. That takes me to my final question, which is on the carbon credits. Like ETS, you touched on this. If you could give us an update there, if you see a postponement, how is that going to play out?
At the moment, we have a proposal from the union, which is a bit better than before. It's not zero free allocations. It's not 34, it's now 38, which is a certain step in the right direction. I would say it's not enough, and there are some discussions about, this is very complex, hot metal benchmarks, and all those things which are against this positive effect, which is a negative effect for us. I think it's a first proposal which has now to be discussed in the trilogue. I think it will not be decided quickly, from my perspective. Let's see what the next months are bringing. I would say very diplomatic first step. Okay. There is a lot to discuss.
Thank you.
[Non-English content] Michael Marschallinger, Erste Group. One question on your EBITDA margin target. What drivers would you say are needed to achieve this 14%, especially from cyclical end markets? Which kind of support do you need? To put it another way, should we see this 14% as a peak cycle level under perfect market conditions, or could it become more sustainable now that you take cyclicality out of your business model?
I don't think so. It's, I would say also possible in a sustaining manner as the peak in the past was even higher. As we said before, I think the two levers are, first of all, we have to successfully finish off these restructurings, and I'm convinced this will come. We have some other homework to do, as we just discussed before. Of course, you also need a little bit the market, which are not in good shape. I would say, not even in steel they're in good shape. If this happens, I'm convinced we will be there or above. For me, this is a realistic one and not something where we look into this blue sky.
We have also two questions from the online audience. Bastian Synagowitz from Deutsche Bank: Given the tailwinds in the steel industry and your conviction in both growth and earnings targets in HPM metal engineering and metal forming, is the 12% ROCE level not way too conservative?
He said the 12% too conservative?
Yeah. Bastian is asking.
What should I say? Bastian, we always like you and appreciate your questions, and you know us, we have to walk the talk, and I think, let us deliver this 12%. There are so many headwinds, I think, all around us, and simply look, in the chat before we discussed, for example, simply the gas price developments. Look at that, and this is big headwind and headache for us, and we are fighting to push these prices to our customers. I think there are so many things which always come, a lot of black swans all around us on an annual basis. I think 12%, we have to achieve that, and then we celebrate, and then we go for perhaps 13, I don't know.
Okay, thank you. Another one to Herbert: When you look at Europe, the steel sector is very fragmented and needs consolidation. Is there any scenario where you would consider taking the steel division separately on the market?
No, I think I have shown in our strategy that we are not interested in more volume, so that we are not a consolidator of something in Europe. When you look how we see steel as a boutique steel mill compared to some others with very positive development. So far not, but maybe the question is, should we consider, like thyssenkrupp, going public or so? No plans.
Are there any other areas where you would consider to release further capital employed?
I think if I take these questions, I answered it before. As we said, at the moment, we do our annual review. There are no signs to redefine what is core and non-core.
Thank you very much. We have extended the time already because of the many questions. Thank you for the interest. We are done with the first management presentation and with the Q&A session. I would like to ask you to shorten the break from 30 minutes to around 12 minutes.
Around.
Yeah. Just grab something to eat. You can eat it also on the table. We will have to shorten it a little bit due to time constraints. Thanks.
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[Break]
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Dear guests, I would like to ask you to come back to your tables and take a seat. We will shortly begin with the second presentation of today, where Mr. Kainersdorfer and Mr. Neureiter will present the business unit railway systems. In 10 seconds, we will start with the second management presentation. I am handing over to Franz Kainersdorfer, member of voestalpine's board and the Head of Metal Engineering Division.
Ladies and gentlemen, it is a pleasure for me and Günter Neureiter to present you in this second part, the voestalpine railway system. Let me start here with an intro. I think we are. Now we are there. We start with an intro.
voestalpine Metal Engineering Division is a global supplier of tailormade product and system solutions from our own steel base for demanding applications. Our facilities span every continent, serving customers across the energy, railway, automotive, and construction sectors. We focus on extending the value chain, continuous material and system development, and the smart digitization of products. Our steel serves as the foundation for highly specialized solutions. Today through the proven LD process and increasingly through electric arc furnace technologies. Building on this, intelligent systems emerge along the entire value chain. Digitally enhanced solutions for railway infrastructure that create future-proof networks and maximize track service life. Conventional and automated full welding solutions which integrate consumables, equipment, accessories, and PPE, ensuring the perfect weld seam. High precision wire rod and drawn wire products powering demanding applications such as rolling bearings for automotive and aerospace industries.
Seamless tubular solutions connecting the world, from oil and gas operations to industrial applications and forward-looking energy sectors like hydrogen and geothermal. We continuously push development forward. In our research centers, material expertise meets smart digitalization, creating solutions designed not just to perform but to shape the future. voestalpine, one step ahead.
Starting with Metal Engineering Division, just to introduce it a little bit and then directly stepping over to Railway Systems. You see here our main figures out of the business year 2025-2026, and we are not with every business unit, but with two, with three business units, a global supplier of tailor-made product and system solutions. Very important with our own steel base. And of course, we are also in commodities, but we try to be as much out of commodities and solving demanding tasks of our customers and offering them good applications. We always have a focus on extending the value chain, and on continuous material and system development, and you will see, and especially Günter Neureiter will introduce you to that, then to digitize our products. Just a word regarding Metal Engineering, how has this more or less evolved?
Very easy to explain out of this chart. You have the other part, which is the industrial systems, is the steel donor, which the wire technology, the tubular and the welding. This is the so-called metal part. Then we have the Railway Systems, which is the engineering part. I think now the name of the division speaks for itself. It is really two worlds. Even of course, within Railway Systems, we process a lot of steel. But in the industrial systems, we are much more also traditional steel producer, even we are processing steel there further. But not to the extent we do in the Railway Systems, because here we do really engineering up to software development and AI applications.
We are having a composition of our revenue per region, where you can see that we of course are having a core of our revenue still in Europe, but we are also in the U.S., we are in Asia, we are in the rest of world, we have a little bit in South America. How is it spread from the customer segment side? We have approximately already 55% within Railway Systems. Then the next major segment is energy. This is a little bit divided between the business units, between the tubulars and the wire and the welding. Then we have automotive, which is more or less wire. Then we have the other segments with minor shares of our revenue. A few words to greentec steel. My colleagues already have informed you about that in detail.
In Donawitz, actually we have two blast furnaces, two small blast furnaces comparable to the two small blast furnaces in Linz. We have a sinter plant. We have our own power plant, which is utilizing the top gas of the two blast furnaces, and then we have a traditional BF or BOF, which means converter oxygen bottom blowing steel plant with two converters, and further on, secondary metallurgy and two casters, two bloom casters. What we are doing now is, in the first phase, to ramp up our two electric arc furnaces. It is a kind of twin concept in the new electric arc furnace steel plant in April next year. Till 2028, we will take out the first blast furnace, and till 2030, we will then take out the second blast furnace.
The additional investment of the EUR 100 million is for the second phase between the take out of the first and the take out of the second, and it is not regarding the core investment, which we have done now, more or less till April. It is regarding additionally capacity on the electricity supply side and additional capacity on the secondary metallurgy side. Now with the first bigger part, with the EUR 460 million investment, we already have more or less all the core equipment in place up from April next year. You may understand that we cannot, for example, just switch off a blast furnace and the converter and step over to electric arc furnace. There is a two, three years transformation step over with the customers to do this. For that, we have splitted the investment in Donawitz into these two phases.
By 2030, we completely more or less electric arc furnace-based, and we will achieve a reduction of the CO2 of 90%, which means for Donawitz, approximately 2.5 million tons CO2 less. You also have asked a few questions regarding cost. Colleagues already have mentioned the transformation is really to create out of Donawitz a mini steel plant. Still, of course, with our rolling mills, but the steel plant itself really shrinks significantly, and that also demands a reduction of the workforce of minimum 350 people, which is one of the payoffs. The second, of course, is the significantly less CO2 costs, latest 2030, and of course, with a ramp up on the reduction of the cost till 2030. An introduction to railway systems.
We connect people worldwide. Modern railway infrastructure is a key factor in mobility for today and tomorrow. Efficient, high speed, and sustainable. From solutions for urban traffic and mixed-use rail to high speed and freight transport, demand is growing. As the only system provider of its kind worldwide, voestalpine offers everything from a single source. From high-tech rails and turnouts to signaling and monitoring systems, from hardware to software, customized solutions for the entire life cycle. As the global market leader, voestalpine Railway Systems is adding new chapters to its success story. For the high-speed Koralmbahn between Graz and Klagenfurt, 290 km of ultra-long premium rails, 233 high-tech turnouts, and cutting-edge safety technology from voestalpine have been installed. At its heart is the 33-kilometer-long Koralm Tunnel, the sixth longest railway tunnel in the world.
Continuing a longstanding partnership with Swiss Federal Railways, SBB. A multi-year framework agreement was concluded for the supply of digital axle counting systems. New high-speed lines in Spain are to be completed by 2032, with over 1,000 km of rail, high-speed turnouts, and innovative solutions for digitalizing rail traffic. Rail Baltica. For this European flagship project, spanning roughly 900 km, voestalpine Railway Systems is supplying a comprehensive package of rails, turnouts, track sleepers, and modern control and monitoring systems. voestalpine Railway Systems. Success for the rail systems of tomorrow. Connected, digital, safe, worldwide. voestalpine, one step ahead.
So that should have given you already a first impression about Railway Systems and what are we. We are a leading global provider of system solutions for railway infrastructure, and we offer comprehensive railway infrastructure systems designed for maximum service life performance. These two headlines are really the core of our aim of Railway Systems. We have a portfolio where we actually already are capable to offer to the customers complete high-performance track systems, and high-performance and already also intelligent turnout systems. Not only a handful, but a wide area of digital monitoring solutions, not only for the track, but also for the rolling stock. You will hear later on how this is now also combined, because the information out of that can be used quite impressive also on the maintenance side.
Our main target, what we try to offer and what we try to bring to the customer is optimized lifecycle costs and maximum availability. As you can see in Germany here, that once you don't take care enough about your track, you run really into a disaster, because then your availability goes down, your lifecycle costs goes up. We, with all our power, are working against this. We have a motto, which is: Think global, act local. You can see we are worldwide set-up. We have 79 locations. Of that are 52 production sites on four continents. This motto, "Think global, act local," is necessary because you have to have, as a railway systems infrastructure provider, close to the customer.
You have to be close to the customer because just of the weight of your products, but also regarding the service level and the logistics which we have to offer to our customers. How has this been created? In 2018, we have within a strategic review, thought about how can we bring these, at that time, separated activities within the railway infrastructure side together. Out of that, the Railway Systems idea has been created. We have it also established organizationally. The aim was really to bring all the forces, all the capabilities together, to realign the R&D, for example, to realign the sales, to realign the technical experts. Consistently up from that time, we have added from the technological side, for example, with the establishment of the Railway Infrastructure Design Institute on the Graz University of Technology, technologically wise, new aspects to the company.
We have grown the company with some acquisitions, which not only have widened our market access and our market share, but also added on additional products we have been not in charge before. For example, the acquisition of Plastwil, a Polish producer of fastening systems in 2022, definitely was the last step into the full product portfolio, which we can offer now. Then you can see further on, we have added in that way, 'Think Global, Act Local', additionally, turnout production plants and facilities on various continents. We have grown from the 1.4 million to the 2.2 million units. What you can see here with one picture is everything that we offer to the market. In the first area here, you can see the track, the system. It looks simple, it's not simple, I can tell you.
I will show you a little bit on the next slides, or one of the next slides, how much technology is even in that. But the real complex part of our business is the turnout system, not only with the hardware but also with the switch drives, with the movements, with the actors, but with all the sensors which are in to really have safe and well-maintained systems in place. Whatever you see here is produced within voestalpine, even the software with which we do the asset management for these two systems. How is it split organizationally? We have these four profit centers. We have turnout systems, which is nearly 60% of railway systems, then the track systems with the rail. Now the additional approach regarding the track, the complete track, but with all the logistics.
We have the signaling, a very fast-growing segment with a lot of digital products and systems for the monitoring, but also for the turnout, where we need, as I mentioned, the actuators, the switch drives to move the turnout. Finally, last but not least, we have the fixations, and this is not only the clips like Vossloh and Pandrol on the clip side are doing, we also have within that this profit center, the sleepers, the concrete sleepers. We are doing turnout bearers, and we are doing standard track sleepers, and we are extending that business consistently and ongoing. Now, to show you a little bit, the track is not simple. What you can see here is how a track really behaves. It is not that it is running smooth over. What you see here is a little bit, let me say, overstated.
In real, it is not that huge bending of the rail. But what you can see is it is really movement. This is also the reason why the gravel under it is really getting devastated because the bearers are working into the gravel. Every one of the components gets deteriorated over time. It is just a question what axel load and what speed is on the track. If we go, let me first make one final comment here. What you will see on the booth then is that, and that was also the reason for this implementation of this one department at the Graz University of Technology. What we could create out of that now is a complete development cycle because we can now design new products. We can simulate with software how they behave. This is what you can see here.
Then with these capabilities out of the institute, we can put that into the track, the new systems, we can measure that, and this is the uniqueness that the institute has developed together with us. Then we really can measure if the behavior of the new component is the same like in the simulation. With that, we have a closed development cycle, and nobody else beside us is actually capable to do this, and this gives us a lot of advantage, at least for the next years. For example, you can see with this new so-called high availability track, we should be able to reduce the life cycle costs by 30%, which is really significant. We are working and active in these five customer segments, high speed, mixed traffic, freight traffic, urban traffic, tram, and metro, and they are differentiated very simply.
This is up to already, I would assume, China, 400 km/h with an axel load of max 18 tons. Here you have 22.5 in Europe, and a speed of max approximately 250. Freight is up to 48 tons with maximum 80, 100 km/h , not with the 48, it is less. Then we have the urban traffic on the tram side, which is a very specific rail profile, which is used there to be implemented in the inner part of the cities. Then we have the underground systems, which is also a specific system approach where we have 12.5 tons per axel and a speed up to 100 km/h That on the kinematic and the dynamic side of that physical parameters is really more or less categorizing these segments. We are in all, and we have the technology to serve all.
My last chart is now what we wanted to show you also is that we are with the customer from the beginning till not the end, but when it is put in service. We are already servicizing our customers with consulting, engineering, and training when he starts to think, for example, to renew a track or turnouts. Then when he has awarded us, we provide him with all the goods, with all the sensoric, with all the software, and we do the logistics, and we do initial service by implementing our products. Then we are with him in the field of maintenance and recycling. When he wants to ask us, or when he asks us also to take over old equipment, we do that. We do not only scrap, but we also renew it to a certain extent.
We are always with the customer within the whole life cycle by looking about how we can optimize the track he has got from us in place. This is my last chart. I would like to hand over now to Günter Neureiter, CEO of Railway Systems. I really have to say, Günter Neureiter is the father of the further development of Railway Systems. Without his contribution to the company, Railway Systems would not be what they are now.
Thank you.
Günter.
Thank you very much. I am very glad to be here today and have the opportunity to give you a little bit more insight about Railway Systems. It is more than when you look at the railway, you see rusty parts in the track. Sometimes when you run, for example, in New York City on the Metro, you see a lot of dirt in the train, but the trains are running, and it is a tremendous traffic what the guys do there. To start off, about six years, almost exactly six years back from today, the former CEO of German Railway made a statement at the opening of the InnoTrans. There is always a big gathering on the morning. He said, "You know what? The problem for the railway started when the turnout got invented." Can you imagine? That was, I would say, a knock on our head, no doubt.
That is when we said, "Guys, we have a much better solution for you." As you know, railways are very conservative because of safety-related topics and highest C level, very bureaucratic, slow-changing in topics. Like in Germany, every change on the inspection mode has to be approved by EBA, Eisenbahn-Bundesamt, which takes at least three to five years. Can you imagine? It is a big, big job, and you have to be very consistent to bring the message across. We have a solution, and the turnout, as you have seen, is the most critical part in an infrastructure track because the discontinuity, the train changes from one direction to another direction, and we still work like in the Stone Age. We have a lot of paper, a lot of regulations, and so on and so forth. How can you maintain these tracks?
How can you achieve your goals? What our railways in Europe have, for example, Central Europe, high-density train track. Means doubling traffic on the same track. Things need to be changed. One of the critical items is the turnout, and we have a strong solution.
In a world where progress never stops, where movement is vital, and where connections pave the way for growth, there lies a dynamic and transformative force, the railway system. We believe that the future of efficient, safe, and modern railway systems can be found at the crossroads of cutting-edge technology and the limitless capabilities of the human mind. Having been a driving force inside the railway ecosystem for more than 100 years, we believe that it is our purpose to transfer this experience and leadership into the world of digitalization, software development, and data management, taking the traditional railway assets to the next level. Our solutions are based on vast amounts of data, technologies, and the holistic digitalization of critical assets to make data a relevant and intelligent management tool for creating sustainable, profitable, safe, and flexible railway ecosystems.
We focus on creating solutions that look and feel alive, using the speed, flexibility, and interoperability of our ecosystem to transform traditional assets into modern digital versions that seem alive and human. We aim to lead the transformation of reactive legacy systems to proactive, predictive, and prescriptive ecosystems that enable efficient and modern management of railway tracks. Solving actual problems. Everything we do is making sure that our customers are able to create and manage the most efficient, reliable, and high-performing railways in the world in the smartest way possible. Welcome to zentrak, the intelligent ecosystem of railway systems. voestalpine, one step ahead.
This is the intelligent solution, what we have for our customers. With zentrak, with our platform, it's all about gathering data, but it's not only gathering data. A lot of other people can do that in specific things, but provide information at the end. Provide information out of this system, not only wayside monitoring what we do on the infrastructure side, but also information from the rolling stock, which train at which load and which traffic and in which condition of the wheels run over the track and the turnout specifically, and what does this mean for my asset and maintenance management regime. Still today, many turnouts, many railways don't really know which asset do they have installed on which place.
Also, this helps you where exactly located where, which product at which level, what maintenance has to be done on there in order to predict what will happen in the future. That helps you to increase the speed, to increase the traffic on your track because you can predict what needs to be done at a certain stage. And that definitely helps you to optimize the cost, helps you to optimize the revenue because you run more traffic on the track, and it's a long and sustainable growth topic for us and for our products because this helps us also to bring in our entire system solution, our hard goods, which we definitely also, on the other side, can use this data to optimize on the R&D side to further optimize the products in terms of robustness, maintainability, and in regard to the inspection side.
Zentrak is the core center where all the information, all the data, and all the software solution do come together. And again, here on the digital side is the predictive maintenance structure. Like what I said before, the former CEO, this is the solution for him because this helps you to predict how does your product perform, what kind of maintenance you have to do. You can reduce your maintenance cost, you can increase your availability, and you can increase your lifetime. You extend your lifetime of your product. And this helps you to better structure and plan your maintenance and inspection regime. For sure, this will take some effort, and as I told you, in Germany, this has taken some years. But we are on the way. We are on the way also in many other countries and customers to get this going.
And did you see that it pays off already? Rail Baltica, it is this lighthouse project as you all know what we have in Europe. We would have never been successful if we would not have been the entire solution together with what I just described to you before. For sure, robust products, great products, great delivery times, quality, no question anymore, but the entire solution, as you can see here, with the entire product range and also what we see more and more our customers do understand, even the German railway. It takes some time. Even the German railway says, "Okay, guys, you cannot buy all components." Do you buy a car like this and you say, "I buy the wheels, I buy the axle and the motor and I put it together myself at the end?" No, you buy a system.
And the system provider is the responsible party to give you the solution and the worry-free product that you can run your trains. Market environment and dynamics, you are for sure very much interested what drives the rail infrastructure. As you have heard also from the board of voestalpine, like 80% is renewal. It is repair and maintenance. It is replacement of products. So this will continue, and also, even so, German railway, I would say that alarmed the industry. German railway for 20 years, they had their renewal cycles turned down. They knew that they ran into a problem. You can do that for a couple of years, but you cannot do that for a couple of decades. Invest less what is necessary, then you get into disaster what Franz Kainersdorfer just mentioned. So that is an alarm also for other railway infrastructure companies.
So guys, we have to get our renewal rate up. We need to go. Once you are in this circle, you are dead. Digitalization, AI definitely is going to be a driver. Then again, drive on the corridor, freight corridor side, what we see in India, what we see in China, and for sure, higher speed projects coming up further, not only in Europe. We see that in Vietnam. We see that again coming up in Central Eastern Asia. Etihad Rail is going to build a new high-speed line. And China for sure will continue, and you will see that later on that side. And the pinning themes for our side is for sure have great products, premium products, smart system solution, provide the digitalization to that, and provide also predictive maintenance information. So that is absolutely the topic. So it is our job to not provide you data.
We have done that for a couple of years. But we have recognized that the customer collects data but cannot do anything with the data. What they need is information, and what they need is a work order. What do we need to do out in the track to avoid a problem coming up? So that is the main thing. On the market side, you can see here we have more or less EUR 11 billion relevant market accessible for us. Out of that EUR 11 billion, it is about EUR 5.5 billion fixation. Fixation means concrete barriers, bars, the ties. It means the clips, it means the plastic components on that side, EUR 3.8 million is the turnout side, about EUR 800 million on signaling side, the relevant signaling side for us, and about EUR 1.7 accessible market for the rail side. The landscape, we are the only full system provider in that part.
In the infrastructure segment, we seamlessly integrate track turnouts, signaling, and fastening system. We do a lot and have done a lot on that side on the R&D to see how this in simulation side, now the technology allows you to simulate. We do the data, take actual data from the track to measure, simulate that, and see what happens out on the track to the different product and under certain traffic conditions. At the end, this is the positioning as we see it when you look where we are with looking at the entire system. That's the line up and the line on the right side, who is on the global player. Railway Systems definitely is the global player. We are far advanced on the entire system side, and close to us is definitely Vossloh Progress Rail. Siemens is in a very different league.
They are more on the interlocking side, and also you see they will have more pressure because with the EULYNX initiatives in Europe, where predefined interfaces between the field elements and the interlocking system definitely helps us going forward. We have invested, and we have developed our own object controller, which allows to build in field elements like the drive system, the locking system, and position detector, or the extra counting system to integrate into the interlocking system. So their advantage to also dominate the field element side of a turnout, for example, is disappearing. This is going to take on and be neutralized with the EULYNX interface.
We are the ones which have been developing a market-ready product, and we display it tomorrow on the show here with the object controller, which allows to interface the field elements on the signaling side into the interlocking station, be it from Siemens, Bombardier, Alstom, or whoever. Organic growth regions, you might be also very interested on that side. We see the strongest growth coming up in India. Absolutely new renewal, mainly on the signaling side and electrification, freight corridors, metro side and also very important, high speed. We are working already very hard on that side. India builds already one high-speed line built by Japanese, which does not fit the Indian topography at all, which they recognize now.
We do also a very hard job to convince them that they need to go the European way in terms of how to define their lines, how to define their traffic going forward. So there's a big opportunity coming up. We see China still a good market for us, especially in high speed side. The rate of new build is definitely not where it has been before COVID time. Steady growth in high speed, we will continue seeing. We see also a move there on the automation side. Europe absolutely strong market. Network renewal will be strong, as I mentioned before, will be up. Means lots of products. Digitalization is on the move because otherwise you will not be able to fulfill your goals, doubling the traffic on certain lines. Modal shift, decarbonization, as you all know, is a big thing.
Military mobility, we see with the war in Ukraine, starts to play a big role because we have recognized and the politics have recognized you only can transport goods once your country is traveling by rail. So make sure your rail infrastructure is in good condition. Rest of Asia, Southeast Asia, we do see investments going forward. That was after COVID time was very slow. Now we see it is going to pick up again. High speed is not anymore on the radar. They had projects there. South America will continue on a lower pace on the mining side, on the heavy haul side. Africa is absolutely also continuing growing. Metros are growing, and we are very lucky and very happy to be in Egypt, which is the strongest growing market at the current time and the strongest investment, as you have seen on the presentation from Franz Kainersdorfer.
We continued to be with a local organization, with a local factory. Also in Egypt, we have a joint venture with the Egyptian railway and manufacture parts of turnouts and assemble turnouts and supply other products from other countries and other factories into the country. Growth opportunity in Europe, I mentioned Germany. Absolutely, they have to catch up. They have to renew. There is no doubt. They will not do that with the speed, what they have originally thought they can do, but they will continue working hard to get it up, and we will try to support them as best we can. We have already with the lines there. For sure Poland is the strongest growing region in Europe. They have good projects with the fourth largest railway market in Europe is 18,000 km.
They have good projects out, high speed on the high-speed side, CPK, Rail Baltica is up there, and they are also going to upgrade their lines because also of the war topics and the digitalization of railway infrastructure is on their radar. We are very well positioned with our company in Poland because certain segments of the digitalization area, we have already in our hands. Italy, fifth largest market. We have no local presence in Italy, so we see there a great opportunity to move in there. They have very good plans on the high-speed side, on the urban traffic side. We supply already quite some big projects there, like in Bologna, on the tram side, if you might have seen.
Also there, digitalization will come, not quite there yet, but they have started that is to think about what do they need to do to get the traffic up. For us, very important to be local. Local footprint is in our business, the essential to get into the market. Then you can work up the pyramid in terms of be there, supply your products, then cross-sell it up to the pyramid to get into a system level once you have the customer developed. But in order to develop the customer, you need to be there to better understand, and you need to build, as you know, in all areas, close ties to the customer. Growth opportunity in India, I mentioned already high speed, signaling upgrade, great corridors, freight corridors are coming up.
But we also see lots of opportunities like other companies do to materialize the strengths of the Indian economy and the Indian know-how and people power there. So we will further increase the local presence. We just have established an engineering center, Asia in India, where we localize a lot of engineering for local, for Asia, but also for global. It is the biggest high-speed project market looking up, besides China and on the signaling side. The growth opportunities we also see in Central Asia, we had not had yet so much focus on Central Asia, have to be said, Kazakhstan, Uzbekistan, Turkmenistan, there are projects underway. They want to get a little bit more independent from Russia. For sure, they have some local companies there, but it is a great opportunity as well for us.
On the high speed side, you can see here high speed connections between Tashkent and Samarkand, for example. The middle corridor in Kazakhstan is finally to be realized. So it is good growth opportunities for us, but we need to work hard to be local. So pretty much, in short, in fast words, to give you an overview, thank you very much for your attention and looking forward to welcome you, or hopefully all of you, at our booth. To give you also an impression about the trade show, and maybe also we have also prepared some insights of some of our competitor playing in the same field. Hopefully you have a great overview and a great time on our show. It is the biggest event, as you can imagine. Every second year, we have to show what we do and in which direction we go.
Thank you very much for listening. Thank you.
Hello. So I have two quick questions. The first is, you have laid out, again, your revenue target for railway systems. I am just curious, do you have legacy contracts that are rolling off that will give you positive momentum as we look towards the end of this decade and beyond, where you can move to a higher pricing contract structure?
Yeah. No, absolutely, we have legacy contracts, as you know, with Swiss Federal Railways, with Austrian railway. The newest addition which is on top is the step, again, localization, Canada. The situation now, Canada, U.S. definitely helps us, and we have taken the window of opportunity to get a long-term contract with Canadian National Railway. They have never given any long-term contract to anybody. We got a 10-year contract with Canadian National Railway for 10 years to supply not only in Canada, but as you all know, Canadian National Railway is running lines down to the Gulf of Mexico, including the entire supply of turnouts. And we do have the Rail Baltica project, HS2, as mid to long-term projects on hand.
Thanks. My second question is, I thought it was a really good presentation of the competitive advantages you have and the growth opportunities by geography. But I wonder if you could maybe give us a sense about some of those barriers to entry that you either benefit from or are a disadvantage for you in certain markets. Again, your presentation clearly lays out that you are through the full value chain. So does that translate into pricing benefits, or how does it manifest itself versus different competitors through the tender process?
At the end, it definitely brings you into a pricing advantage because you're not getting into this commodity trap. You're not in this commodity trap. Our biggest advantage is be local in the market. I know we have heard logistic is a topic, transport is a topic, yes, but the biggest topic is be close to the technical experts of the railways. Every railway is specific, and they like to be specific, and we help them to be specific because you see it is to our advantage. This is the topic. Be there. Know what they need, look at them, what they might need. They might not know it. So we also have not known that we need an iPhone. So they see now that they need the digitalization because otherwise they will not get it done. So be there. This is a big advantage, to be there.
EULYNX, as I mentioned, will help us on the system side because this was a disadvantage because the big guys, as you can imagine, as Siemens or Alstom, they didn't want to let you in. And we started with our drive systems, we got right into their field because they like to supply the drive system on their own. So now we were able in many customers to switch the interface from the drive system being part of the interlocking system to become the drive system, to become a part of the turnout system. Because this is where you have a problem. As you probably have heard many times when you travel in Germany by rail, you hear so many times the reason for delays is a turnout problem.
Everybody thinks, "Oh, the problem is rail was breaking at the crossing." But no, the problem might be in the interlocking. The problem might be on the drive system. It is all Siemens topic. It is not a turnout topic. You know what? The CEO of the German railway calls Mr. Eibensteiner and says, "You guys have a problem.
" Barriers at the border. We have to go local, and our entrance is our technology, because they want to have our technology, and with that we can localize.
Yeah. Thank you. Does this answer your question? Thank you.
Thank you. Just a couple questions on the growth trajectory. You obviously talk about this target by 2030. A large part of your offering is being able to do the whole value chain, but you are not looking at expanding the rail mill itself, as far as I am aware. Do you see that holding you back in terms of achieving your sales targets? Is there going to be a point at which you need to expand that mill at some point? Out of curiosity, what are you seeing from some of your competitors on the actual rail side? British Steel obviously has well-documented issues. I do not hear ArcelorMittal investing in rail. Where are you seeing the growth in rail volumes to actually keep up with this?
On the rail volume side, we do not see a growth. On the rail volume side, we see a replacement of standard grade rail to a certain degree to premium rail, so it gives a price advantage. We do not see a growth on the rail mill side. Where we do see growth is on the turnout side, and on the signaling side, and on the fixation side. That is where we see the growth. Where we see also a possibility to indicate, to grow internally to a certain level, and we have discussed this in length internally, in which region, in which country, which customer, we do see potential. For sure, you need always a little bit, a tailwind, there is no question. That is where the growth internally will come from.
And then for sure, as also Mr. Mayer mentioned, we have to invest in certain other targets to either step into the market to be local, like in Poland or in Italy, for example, in Europe, or in India advance. That will help us to further grow up to the target what we had, what Mr. Mayer was showing you.
Yeah. Okay. Just on the raw material mix with the rail system, as you switch at Donawitz to the electric arc route and pig iron is no longer part of the mix, what's your plan for the ultimate mix in terms of the melt? You've got some of the HBI coming in from Texas, I believe. But you were talking about using pig iron in the interim with the EAF. So what's the plan when that's shut off, and what's going to be the ultimate sort of mix in terms of raw materials?
It's very easy. The ultimate mix up from 2030 when we have closed the second blast furnace will be approximately 80/20, 80% scrap, 20% HBI. The sourcing of both is well on track. In the meantime, we still have pig iron available. But we're not going to put that too much into the electric arc furnace, which is possible. But as long as we have one blast furnace running, we are running one converter line. So we use the pig iron, the converter, and 2030, that's done, and then we are purely on EAF and 80/20.
There's no loss of functionality or quality in the actual rail?
That is a good question. On that, we are working already for years. We have, thanks to the first turbine, been able to invest into a small steel plant in Donawitz where we can produce 3 tons units for all the three rolling mills. We are working already years on the transformation and the preparation of our customers, really then to utilize electric arc furnace. We are delivering them actually already electric arc furnace steel to make the tests, to make the samples. It is not easy going. Will not be easy going, but we will manage. We good on the way.
Okay. Thank you.
Maybe one quick question from the audience online. Gregor Koppensteiner from Raiffeisen Bank International is asking, you are targeting railway systems revenue of around EUR 3 billion by 2030 with more than 7% CAGR and an average ROCE of roughly 20%. Given the strong market backdrop and the recovering aftermarket exposure, what is currently the main constraint to grow faster? Market access, localization, internal capacity, or suitable M&A targets?
For sure, on the M&A targets, we have to work. Absolutely will be a big part of it. On the other side is, it takes time to get into certain markets and convince customer, as I have mentioned before, move into the system side. That is, I wouldn't say a constraint, but is a topic which we deal with, what we are working on. But we see that we are on a good path for the millions, for the growth, what we need to bring from the internal growth side. It has to be consumed by the organization. By all means, I think EUR 3 billion, 2030, it is a good target, and it is a reasonable target. But we should not overeat us. But I think, as you know, Franz, I think we have a very good setup.
We have shown a very good path on the growth side in the history, and we have a great organization set up, completely different change the organization has set up over the last seven years. We are ready. I would say we are ready to grow and do. It's not an easy work, absolutely not, and our people are keen, and keen to do so, and we are ready. We see also a good support from the shareholder side and from the owner side, from our side, and we are very happy about that.
Thanks.
Thanks. As a follow-up to that question on growth and M&A, what are the criteria you're using for looking at the M&A options that you have? Is it size? Is it geography? Is it product? Is it all of the above? What should we expect?
If I may answer that, we are not going for size. This has never been our recipe. You might not know, but the railway systems today did grow over 30 years. Small acquisitions. Major thing is to get into the market. What access do we get to the market? What is the geographically fit to us too? What might be a complementary fit to us? What is the specific knowhow, and for sure, what is the potential to grow with our strengths, what we bring to the market? That's pretty much how we look at the targets.
Thank you. Another top-down or strategy question on the railway systems, which is probably one of the higher quality businesses within the group. How is management thinking about unlocking value? Because the market doesn't seem to reward you enough for that business. Are you having any conversations on any strategic options, on how do you plan to sharpen the market's focus on that business?
For the time being, it stays where it is. We want to keep it as an, let's say, self-standing business unit within voestalpine as it is, and we want to develop it on our own. I think it will pay off and give us some time. We have a plan.
Thank you.
Another question from the online audience, Bastian Synagowitz again from Deutsche Bank is asking, how far are you able to pass on inflation to your rail customers in long-term contracts? What are your refreshed margins targets, and how much of the improvement will be driven by mixed pricing versus cost improvement?
We do have, with most of our customers, price escalation clauses in place, also with the long-term contracts. This is definitely the basis to pass on any increase on the raw material side or any increase on the energy side, in portion also of the salary side, employee costs.
One change is this 20% return on capital employed, which we have to achieve on the long term, and this is unchanged.
Okay, thanks. Second question from Bastian. 50% of the accessible market is fixation, and you are underrepresented with just 5% of your sales in this business unit. How can you grow and expand market share here and capture more of this profitable part of the market? Are there any obvious gaps in the portfolio in railway systems?
So far we have worked very hard, as you have seen over the last five years. We do not have a gap in the portfolio anymore. We have made very good developments of new products, better performing products. From that side, absolutely a good step forward. On the side, it is a question of further growing the market, in terms of adding on turnout where we have turnout factories in place, adding on factories for the sleeper, for the turnout sleeper side. What we have, for example, done in Germany, or we have done in Romania, or what we have done in North America and in Austria. That is the next step we go. In other markets, like we work in Egypt on a similar setup. That is a big topic.
We have not done yet the step to go into big volume businesses, like the volume business is on a running track. You have seen also from Mr. Kainersdorfer in his presentation, the track is going to be on top. Therefore, track sleepers, which is volume, is going to be a topic. Also here we have new developments for the track. What is the? I do not know the English term at the moment.
Distortion.
Yeah. So you have-
Buckling.
-Track buckling. Thank you. Track buckling. Because of temperature, track start, and then you cannot run it or you have to slow down the speed. This is also a topic, how do we The track, what you have seen from Mr. Kainersdorfer, what input can we bring? We have developed new products to absorb more forces of the rails, more forces out of the temperature to avoid this buckling. There is great potential out there. For sure, we have to invest in also further machinery and equipment. We have done the step in Romania, where we have invested further in their location there also for the running track. This is the way to go.
Thank you very much for the presentation, for the Q&A session. For those of you who are attending this Capital Markets Day online, the Capital Markets Day is finished.