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Edited Transcript of VOE.VA earnings conference call or presentation 3-Jun-20 11:00am GMT

Full Year 2020 voestalpine AG Earnings Call

Linz Jun 3, 2020 (Thomson StreetEvents) -- Edited Transcript of voestalpine AG earnings conference call or presentation Wednesday, June 3, 2020 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Franz Kainersdorfer

Voestalpine AG - Head of the Metal Engineering Division & Member of the Management Board

* Franz Rotter

Voestalpine AG - Head of the High Performance Metals Division & Member of Management Board

* Herbert Eibensteiner

Voestalpine AG - Chairman of Management Board & CEO

* Hubert Zajicek

Voestalpine AG - Head of the Steel Division & Member of the Management Board

* Peter Fleischer

Voestalpine AG - Head of IR

* Peter Schwab

Voestalpine AG - Head of the Metal Forming Division & Member of the Management Board

* Robert Ottel

Voestalpine AG - CFO & Member of Management Board

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Conference Call Participants

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* Alain Gabriel

Morgan Stanley, Research Division - Equity Analyst

* Alan Henri Spence

Jefferies LLC, Research Division - Equity Analyst

* Bastian Synagowitz

Deutsche Bank AG, Research Division - Research Analyst

* Carsten Riek

Crédit Suisse AG, Research Division - Director & Co-Head of the European Steel & Mining Research

* Christian Obst

Baader-Helvea Equity Research - Analyst

* Krishan M. Agarwal

Citigroup Inc, Research Division - VP & Analyst

* Michael Marschallinger

Erste Group Bank AG, Research Division - Research Analyst

* Rochus Brauneiser

Kepler Cheuvreux, Research Division - Head of Steel Research

* Seth R. Rosenfeld

Exane BNP Paribas, Research Division - Research Analyst

* Xiaofei Du

BofA Merrill Lynch, Research Division - Analyst

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Presentation

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Peter Fleischer, Voestalpine AG - Head of IR [1]

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Good afternoon, ladies and gentlemen, and a warm welcome to our today's business year '19/'20 presentation, and format, which is new for us as we don't have an auditorium here in the room, but I think which you are quite familiar with. This meeting today is a complete virtual meeting, meaning it is broadcasted via webcast. So you can see us and hear us. Additionally, this meeting is also transmitted via a telephone conference call. And you can find the numbers in right here. Thank you very much. You need to dial into the call if you want to raise questions because the webcast is 1 way transmission. And questions can only be asked via the telephone conference call. So if you want to ask a question, please dial into the call. And from an organizational point of view, we will start with the presentation of the management. I think you are well familiar with our management team, who will give you an overview about the last business year and an outlook as far as we can see today, and that will take around 20 to 30 minutes. And afterwards, we will be very happy to ask your questions. So far from my side, thank you very much. And I would like to hand over to Mr. Eibensteiner.

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [2]

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Good afternoon, ladies and gentlemen. Welcome to today's virtual investors and analysts meeting about our business year 2019/'20, as we had unplanned token announcement during this year. The earnings should not be very surprising to you. Therefore, I would like to start with an update on the most recent developments before coming to the result of last business year.

The lockdown had a major impact on our lives. And consequently, on the demand of almost all our market segments we are in. Today, we are running many of our production facilities on reduced output levels. In fact, we have, this week, the first time all of our facilities up and running. Again, in the steel division, we had to shut down blast furnace #5, which is a small blast furnace with an annual capacity of 800,000 tonnes, and it's -- this is around 20% of our production of pig iron and at the moment, our output is around 60%, 60% plus, and we changed our feedstock to the 2 remaining other blast furnace and to adopt to the actual demand levels. Blast furnaces of the High Performance Metals Division can be adjusted to the demand more easily than a blast furnace based steel operation. Also in many other industrial plants, we -- such as automotive components or roll-forming plants, we all these facilities adapt to the output -- to adapt the output to reduced demand levels and the cost side, we were managing very active already before the spread of COVID-19. And additional measures are implemented in April to adapt to the actual situation. We used these short-time work measures in Austria, which is good to bad. And we have currently 10,000 employees working in this scheme, and internationally around 5,000 people in similar systems in other countries. And the measure is very helpful in a foreseeable limited period of reduced workload. However, in the areas where we expect the downturn to be not short time, but structural will -- will take longer, I think it's not the right tool. So we have also to think about restructurings in the classical way. And as you can see from the provisions for restructuring in '19/'20, we have already started doing that.

At the end of April, beginning of May, the automotive industry restarted production after the shutdown of several weeks in Europe and North America. In China, the automotive industry ramped up already in March. And I would say, is today back to almost normal level. The ramp-up there was quite smooth and not only production, but also sales is now doing better than the weeks before. And I would say China is doing quite well so far. Does that mean that the Chinese people are back to consuming and spending money? Yes, I think so. And I think after the end of the lockdown, which has now put a lot of money into the Chinese economy, I think that's clearly helping at the moment.

In general, for -- in -- our Chinese business is doing quite well at the moment, we are near to 100% levels. And for me, it's very good to see and hear that the demand for railway infrastructures is still solid and not only in China, also in Europe. And the low frequency of trains used to maintenance, and therefore, our railway infrastructure business continued to perform quite well also during the spread of COVID, still working during the lockdown.

As the life was locked down, people switched to digital life and continued working and shopping there. And as a result, the already booming e-commerce business got an extra push. That means for our Warehouse & Rack Solutions business that we are currently experiencing a high level -- a very high level of order intake, and we produce on full production.

So far to the -- so far about the actual situation on group level, you will get the information that is more detailed from my colleagues from the Steel Division.

And now back to the original purpose of today's meeting the business year 2019/'20. It was quite challenging from the beginning even before the spread of COVID-19. The escalation of the trade war was -- slowed down the global economy. The European industry was hit first and having a strong international export footprint, it was -- suffered considerably. In addition, the long-lasting upward trend in the automotive industry came to its end, and we see a reduction in production rates in this industry. Also, the low oil price put pressure on the equipment manufacturers globally. On top of that, the U.S. market, which is 1 of our most important market for OCTG business was hard to access after the implementation of the Section 232 measures by the U.S. government.

On the positive side, again, railway infrastructure market developed quite well over the whole year '19/'20 and a particular difficult situation was the price cost squeeze in the European steel industry, we got squeezed between the shrinking demand and falling steel prices. On the other hand, the rising costs from iron ore, driven by the Chinese -- by the Chinese demand. Just that we experienced improving market dynamics in the fourth quarter, the spread of COVID-19 coming from China over Europe to the U.S. and now to Brazil and South America breaks the economy globally.

In this economic environment and after a period of growth, we focused on cost cutting. We had clear plans for our capital -- working capital management and cash generation was our focus and also the deleveraging of our balance sheet. You know the plan, and you know the measures. Today, we are now able to report some success. Also, we had this difficult environment. We achieved an EBITDA of close to EUR 1.2 billion. We generated the free cash flow of close to EUR 600 million, and coming from a cash flow from operations above EUR 1.2 -- EUR 1.3 billion, which is more than last year. This comes to a high extent from the working capital release of around EUR 430 million, which was a very positive effect and was clearly above our goal.

We spent less capital. And so our goal to come down to EUR 800 million was achieved. And I can say that our next year or this year's CapEx will be down planned to EUR 600 million.

We also reduced the total headcount of the group by more than 4%. And as you will hear today that some structural measures are ahead. So it can be that you see a higher figure at the end of the year coming from the environment we are in.

At the end of the year, we piled up cash and -- which is good to start in a new business year is that we have liquidity available close to EUR 1.7 billion.

The gearing ratios went up in this year in comparison to last year, and it's 67%, you remember coming from the figures in Q3. So this was a big coming from 80%, this was a big improvement in the -- done in the last quarter of our business year. This ratio was heavily influenced by 2 things: the call of the hybrid bond, which meant the swap of equity to debt of around EUR 500 million. And net debt increased additionally by EUR 440 million from the change of the IFRS 16 standard.

On the liquidity side, we had to subtract also dividend payments to our shareholders last year.

Although, there is some way to go. We think this was the right direction. So as you know, from the ad-hoc announcements in December and April, the earnings figures are heavily impacted by this one-offs. After the summer, it becomes visible that the old pattern of globalization and free trade was not only disrupted for a limited period of time. And this was the time to conduct a strategic analysis and the impact of those analysis was that in some specific areas, we had to adapt our long term assumptions, and consequently, we have to revalue certain assets in those business areas.

As I mentioned before, we started restructuring some businesses as well, and we had to pick up provisions for this efforts on top. In total, we saw a negative effect of our EBITDA of around EUR 85 million and the EBIT of minus EUR 485 million. So far, my remarks on group level. And now I would like to hand over to my colleagues from the division.

And Hubert, I think you will start.

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Hubert Zajicek, Voestalpine AG - Head of the Steel Division & Member of the Management Board [3]

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Thank you, Herbert. Valued ladies and gentlemen. May I introduce myself with a few words because I'm new in the Board. My name is Hubert Zajicek. As already mentioned, I'm the successor of Hebert Eibensteiner, as Head of the Steel Division. And I have a technical background, studied technical physics and earned my Master degree in Business Administration at the Rotman School of Management in Toronto. In the past 27 years, I held several management positions, here at Voestalpine. To name one, I was Managing Director for 1 of our business units in cold rolling and coating, where I had intensive contact to our customers, especially the customers, the car making OEMs. And before I was appointed to this position, I was the CTO of the Steel Division for 5 years. Yes, I'm married, 1 daughter.

Now I want to give you a brief overview of the business development of the steel division and also an outlook.

The last business year was a difficult year for the whole steel industry and also a challenging year for the Steel Division of Voestalpine. We saw a slowing demand at the very early stage of the business here from our automotive and also from a mechanical engineering industry, kind of sluggish energy and white goods industry development. And only the building and construction industry was more or less robust in the last business year. It has been very difficult -- market conditions. On the 1 hand side, we saw the slowing demand from our customer side, and combined with the rising raw material price level, especially the iron ore price, what is very important to my division, sky rocketed in the first half of the last calendar year, and it doubled its price from the beginning of the year, January to summer. That led to a kind of margin squeeze, and it was also difficult after very successful first quarter for our HBI plant in Texas. It was a very difficult second half of the year because of this squeeze we saw. That led, in the end, also to the impairments on the 1 hand side at our HBI plant in Texas as well as in our foundry group.

Yes, we saw in the last quarter of the business year and the first calendar year quarter, we saw some improvement. We saw rising prices. We saw falling raw material costs, but this was stopped by the spread of the COVID-19 in the latest phase of March. We reacted very, very quickly. We shut down 1 small blast furnace end of March. And we keep it that way until we see increasing demand from the market side, and we are now operating 1 big, our big blast furnace and 1 small. And so we are very flexible in adopting to the market demand. So we can follow a utilization rate between 50% and 80% very easily, and we will decide depending on the development of the market conditions when we will restart our third blast furnace.

So we are now -- we do see and we're affected by the shutdown, especially of the car industry. We did see a decreasing volume to our market by more than 40% in April, but we do also see a cautious recovery May, June and July and kind of improving situation in the next month. Thank you.

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Franz Rotter, Voestalpine AG - Head of the High Performance Metals Division & Member of Management Board [4]

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Good afternoon, ladies and gentlemen I will give you a brief information about the High Performance Metals Division of Voestalpine. High Performance Metals division is built on 2 pillars of different product families. The bigger 1 with about 50% of the turnover is the 2 steel material product family And the second 1 is the assumption of oil and gas business is round about 10% of turnover. Aircraft is round about 10% of turnover and 15% of turnover is delivered into the market of consumables. Due to the segmentation, tool steel business, especially with the backup market, which is heavily linked to the automotive industry had through the whole business year 2019/'20, very challenging environment in different geographic markets. Especially in Europe, the drop of the automotive industry had a strong impact into the business of tool steel. But besides of that, also the restrictive activities of the United States markets with antidumping and the tool we do and in a smaller assumption, the situation with antidumping cases in China was a break in the development of the market of the tool steel business.

Special materials and components targeting the aerospace market in the oil and gas industry had basically in the first half of the last year, a quite solid market environment, but slowed down, especially in the fourth quarter of the business year. The reason for that were, on the 1 hand side, the development of the Boeing 737 aeroplane starting in the third quarter of last year. And last but not least, the oil price for the oil and gas industry. The most important or the most difficult market generally was the German market, as I told you in the automotive business.

In China, we were facing from the February and especially also in March, a deep downturn linked to the COVID-19 lockdown of China, but we were also facing a weak recovery in the end of this quarter and in the end of the last business year. So what was the impact into our revenues? We had a lower revenue of around about 8% in comparison to the year before. But due to the situation that we put in place, after the first half of the last business year, strong cost reduction programs and improvement programs for operational excellence, we could achieve quite an acceptable EBITDA result of EUR 276 million. The EBIT was influenced by restructuring costs, basically, which we had to put in place, especially in Germany in our company of Buderus. Our steel work basis on the technology of electric arc furnace gives us a quite flexible situation to react in our output to the alignment of the market demand. And so we were able to react flexible to the reduced and volatile demand volume-based to the market. Thank you.

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Franz Kainersdorfer, Voestalpine AG - Head of the Metal Engineering Division & Member of the Management Board [5]

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Good afternoon, ladies and gentlemen. It is a pleasure to inform you about the business development of the Metal Engineering Division. In the business year 2019/'20. And I would like to start with the railway systems business unit, which incorporates since the business year 2019/'20, all of the railway infrastructure activities of the Metal Engineering Division. The business unit, which represents half of the division had a sound development of the turnout segment in most of its worldwide markets. The rail segment had a good demand in its core market region Europe, and the business unit could finalize 2 acquisition projects in internal segment, 1 in France and 1 in China, which represents the second joint venture in China and will be dedicated to serve the metro and the transit segment. Overall, the Railway Systems business unit has not been impacted very much by COVID-19 so far. A more mixed picture showed the second business unit, the industrial systems, which stands for the wire, the tubulars and the welding business of the Metal Engineering Division. In the business year 2019/'20, the tubulars and especially there, the OCTG segment was impacted by a softening oil and gas sector and Section 232, the U.S. import tariffs, and up from second half of the business year 2019/'20 by an additional slump in oil price at the end of the business year caused by COVID-19.

The wire business was confronted overall by lower demand from automotive, which seemed to recover at the beginning of the fourth quarter but was then also hit by COVID-19 end of March in volume significantly. The welding consumables segment showed a stable development within the business year 2019/'20 and could finalize the acquisition of Selco, an Italian welling equipment manufacturer, which makes the welding segment now to a full-service provider in the welding business. So far my report about Metal Engineering Division. Thank you.

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Peter Schwab, Voestalpine AG - Head of the Metal Forming Division & Member of the Management Board [6]

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Ladies and gentlemen, the Metal Forming Division had a challenging business year 2019 2020. We ended with a revenue of EUR 2.84 billion, which is EUR 100 million, or 3.4% below last business year. EBITDA ended by EUR 203 million, which is EUR 10 million or 4.7% below last business year. EBIT was heavily affected by extraordinary effects. That's why the EBIT ended with only EUR 9 million, which is EUR 85 million below last business year.

If I look on the different business units, in the business unit, automotive components, the decline in car production over most of a 2019/2020 affected this business. We saw quite some structural improvements in our U.S. plant in Cartersville. In China, as already mentioned, we had a strong year also despite the declining car production in China, our production was quite high because of the delivery to German premium capital producers. We were affected heavy then in January 2020 because of the Chinese New Year and afterwards, the COVID-19 lockdown. This lasted for several weeks. And then we had a ramp-up, and this ramp-up was rather steep so that in April, we already overachieved our budgeted level in revenue.

In Europe, in South Africa and in North America, we saw a complete shutdown of the automotive industry at the end of March, which lasted into April and also started -- we started to ramp up only in May. So the ramp-up is now going on, and we are now producing at a level in Europe and North America of approximately 40% to 45%.

In Tubes & Sections business, we saw a mixed picture construction machinery, material handling, renewable energy and commercial Vehicles segment was solid most over the business here.

Construction in Great Britain was at the end of business year 2019 affected by Brexit effect, and we saw a steep decline in the construction industry in Great Britain. Material handling and renewable energy, renewable energy means solar industry for the Metal Forming Division performed above budgeted levels.

Commercial vehicles, trucks and buses performed very well while trailers were behind our expectations. And as already mentioned, the passenger car related business also in the Tubes & Sections business was very challenging. Precision Strip, after 2 excellent years, had now due to their weakening a common more back to normal, but still a quite promising business year.

Warehouse & Rack Solutions saw a high demand for automated warehouses, driven by the trend to e-commerce and to same-day delivery, which makes it necessary to have a lot of additional automated warehouses. And we got additional push from e-commerce after the COVID lockdown. And in April, we have had the strongest weather intake ever in the Warehouse & Racks Solutions business.

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [7]

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I will give you now the financial overview about the business year 2019/'20 results. As you can see on that chart, in comparison to the last business year, the revenue decreased quite sharply by approximately EUR 850 million. By 3 quarters, that was due to decreased volumes, sales by 1 quarter, it was due to the reduced price. If you look at the EBITDA development, it went down EUR 380 million. That's exactly the same figure like the -- which was caused by the volume decrease, that was also EUR 380 million of EBITDA decrease. Additional to that, like it was already mentioned by my colleagues, the price decreased -- decrease was not offset by a purchase price decrease. So the gross margin itself caused -- had a squeeze, and that caused for the whole group, a reduction of EBITDA of EUR 214 million -- 2-1-4.

If you compare the one-offs of the 2 business years, more or less the same. In the last year, we had the problems in the automotive production in U.S. This year in different locations, restructuring provisions and also for antitrust issues. So that is in comparison 0. So that we haven't been hurt by the EUR 380 million of volume effect and the gross margin of EUR 200 million is due to the operational improvements we could do in this year, which approximately have been EUR 160 million. But additional to the very bad economical situation in '19/'20, which caused the EBITDA decrease. We had to take impairment losses of over EUR 400 million in 2 steps. The first step was after the strategic analysis, we had finished in December. And the second step was then a little bit related to the very special situation we had to face end of March at the end of our business year due to the turmoil on the financial markets. And also the foreseen shutdown, mainly in automotive industry in April and ongoing. So we had to write-off in total in the business year over EUR 400 million, and that is together with the decrease of EBITDA more or less the change of the EBIT, which turned to be negative, therefore, in this year.

The interest in comparison of these 2 business years, more or less the same. Last year, we had some benefits from financial assets that decreased the interest rates. But this year is more or less flat and also which will go on for the ongoing business year, more or less flat. Obviously, if you have to take losses before tax, then under IFRS, you can account for deferred taxes. So that therefore, is the difference between profit before tax and after tax, not that big. So we had a net loss of EUR 216 million this year.

In the walk between the last business year and this business year, you see that we started in last business year with EUR 780 million. The gross margin, so the difference between price and raw materials was net minus EUR 213 million. That is the figure I mentioned beforehand. So gross margin pressure, that was mainly in the Steel Division, which had an effect of isolated minus EUR 250 million. That was partly offset by the High Performance Metals Division, which could increase the gross margin year-by-year by EUR 67 million.

The next big block negative is the volume and mix effect of EUR 380 million. There, the High Performance Metals Division was hurt most with minus EUR 240 million, but also the Metal Engineering Division especially obviously, the wire business and the tubulars business, together with minus EUR 80 million and also Steel division, not only by the gross margin, but also by the volume was hurt by EUR 40 million. One improvement compared to the last business year is the miscellaneous, but please take -- bear in mind that in last year, we had also to put a provision for the cartel case in the heavy plate business, which this year is not the case. So that is an improvement year by year. But also the operational improvements, especially in Cartersville in the automotive company in U.S. and others are included in that improvement.

Then you have the nonrecurring items. I see at the moment that the block is starting at the wrong level. It's starting a bit the lower level of the 208 block, it should start at the upper level. So we have nonrecurring items of EUR 480 million, which is, as already mentioned, partly the big part of the EUR 400 million of impairment losses. A smaller amount of that have been goodwill impairment, the bigger amount is asset impairment. And by approximately EUR 80 million restructuring provisions and other provisions. And that led to the EUR 90 million EBIT loss.

To be honest, starting from August, but the focus of the group was not on improving EBIT alone. But the focus was more on generating free cash flow. We had, as you remember, for sure, a quite steep need for liquidity in the first quarter due to buildup of working capital. Then we also knew that due to IFRS 16, so the accounting for leasing would change and would increase the net debt by EUR 436 million due to a change in IFRS reporting standards. And then third effect, which we already knew was that we thought of, but not new, thought of calling the hybrid bond in October of EUR 500 million, which, again, would change our ratings or our rating financials. So in having all of these effects we discussed in summer to redirect and to focus very much on releasing free cash flow. And those efforts paid off in -- especially in the fourth business quarter in -- especially in February and March. Which resulted to the free cash flow in the fourth quarter.

So what we see more or less here on that chart is the change or the comparison of the cash flow in these 2 business years. The cash flow from results decreased more or less the same reasons like the decrease in the EBITDA. But then due to the efforts we started in August and September, the working capital could turn around. And came to the release of working capital and free cash flow in the fourth quarter. The EUR 434 million by the highest portion of over EUR 400 million due to decrease of stock. So no -- almost no factoring or anything else in that figure. So that resulted in, although we had that economically decrease and an increase of cash flow from operating activities. Comparably like we decided to work heavily on working capital decrease, we also decided to cut investing already in the '19/'20 business year, but also in the '20, '21 business year, that is the decrease that you can see from over $1 billion to $700 million. And that resulted in then these 2 efforts in a free cash flow of EUR 590 million.

That chart is the long-term development of the gearing ratio. So a comparison between net debt and equity of the Voestalpine group. You see the deleveraging in beginning of the 2000s with a very good economy, then the increase due to the Böhler-Uddeholm acquisition in 2007-08. At the same time, we already took aboard the EUR 1 billion of hybrid financing. We repaid or called in, you see that in the change in 2013/'14 and '14/'15, 1/2 of that hybrid and the second 1 was called in this business year, which is a main driver for the decrease of the equity of over EUR 1 billion. So what EUR 500 million of that is changing financing structure from hybrid to senior debt. Secondly, obviously, we had to pay dividend in EUR 240 million and thirdly, the net result of EUR 260 million decreased also the equity. Also the other comprehensive income due to the situations on the 31st of March. So our balance date were negative and also influenced equity negative. On the other side, the net debt increased, again, EUR 500 million hybrid to senior, EUR 436 million, IFRS 16, and also to EUR 240 million dividend. But that could be partly offset by the free cash flow of EUR 590 million. So we increased the gearing ratio. Yes, but if you -- and we don't do that, but if you take out the hybrid and the IFRS, so put it more operationally, although we had a very bad condition economically, we would have been able to decrease the gearing to 46%.

If you look at the outlook of Voestalpine and also at the financial ratios, you would obviously question what is with financing of Voestalpine? That the answer is partly included in that chart. You see that we have in business year to 2021, very small redemptions to pay off. The next bigger portion is in end of calendar year 2021, the EUR 400 million bond, which is outstanding there.

So almost no refinancing. Actually, secondly, I have to state and those who know our company longer, know that already that in our financing structure and our financing instruments, we don't have any financial covenants that would lead to a break of the financial instruments. So no financial covenants. And then thirdly, we run already starting at end of the business year, '19/'20, a quite high liquidity because we did the refinancing of the hybrid already in the beginning of the last business year and also took on board some other financings, although we had already, at that time, quite high liquidity reserve. So together with the free cash flow, especially of the February and March at 31st of March, we had a liquidity of EUR 1.7 billion. So from our point of view, enough to weather off the situation what we have today. The reason for that is and let me give you a very rough overview about my personal liquidity thoughts. I think we are at the moment at the very low levels in automotive industry, the shutdowns and the low in the main facilities in Linz and also in others. We have a cash burn rate of approximately EUR 50 million, 5-0 million per month. That is, for the moment, offset more or less by the opportunity we have in Austria to defer taxes and social security payments, which is as well, approximately EUR 50 million. so that is plus. We have to pay them then at the end of the calendar year, yes. But that is an opportunity we took because at the moment, we saw that the shutdown of the automotive industry, especially due to COVID-19 that we would have a very high liquidity need, especially in the first business year quarter of 2021. So we took that chance. So that is more or less balancing of the cash burn rate that we would have at the very low levels, we have -- we had in April.

Then additionally to that, we have, and you know that a year-end contraction of approximately EUR 100 million, so which is an inflow in March, and an outflow in April. So for April, we are then at minus EUR 100 million. And then thirdly, we have -- what we see is, of course, that due to the fact that to the shutdown of the automotive industry, the revenues decreased sharply. So also the financing instrument of factoring is decreasing, and that is in April, approximately EUR 250 million. So in April, over the thumb, we would need and need EUR 350 million. The year-end contraction and the factoring, the downturn issue are not ongoing for the next month. So we stay for the next month somewhere around the 0. My personal estimation would be that this is staying until August. And then due to the improving economy, also the cash flows would improve. What we then see at the end of the calendar year, the payback of the deferred payments to the authorities. And then again, in the fourth business year quarter an improvement of free cash flow. But I think due to the fact what we see from the scenarios, what we do and what we run that we wouldn't be able to have a positive free cash flow in this business year firstly. Secondly, that in that scenario I tried to give you, the peak cash need is approximately EUR 550 million, and that compares to the EUR 800 million cash in hand or to the EUR 1.7 billion of total liquidity. So from my point of view, we are doing very well. Thanks to the hard work of my operational colleagues, decreasing investments, working very hard on working capital management, on stock. So in explaining you to that, I -- in my present scenario, I don't foresee any bigger measures needed besides the operational management of cash flow and liquidity.

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [8]

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Thank you, Robert. Now we finally come to the outlook at least as far as we can see it from now on. And as you -- as we mentioned before, we have already impacts of COVID-19 in last business year. But Q1, as mentioned before, is the quarter we are affected most. And we see that, especially in these 3 months, were affected by the lockdowns and the measures. Also, we think that we see some easing of measures in some country so far. But it's still difficult to see the a clear view on the economic -- in development in the next months as Robert mentioned before, we are assuming a recovery after summer. And knowing that we are in a very volatile environment. And there are so many uncertainties. And we manage -- to manage the crisis is now essential, and we do focus on our cost cutting, and we work on our capital -- working capital management. We have goals for them. So we think we did a lot in the last quarter of the business year. And cash flow generation is still on focus. So we reduced capital expenditure. And putting all things together, knowing that we are in a very volatile economic environment, we expect EBITDA, and this is our guidance in a wider range compared to last year in between EUR 600 million and EUR 1 billion. So -- so far, my remarks. And we are now happy to answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Peter Fleischer, Voestalpine AG - Head of IR [2]

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Thank you. Thank you very much, gentlemen, for your remarks. We are now happy to answer your questions. As Mr. Eibensteiner mentioned, once again, if you want to ask a question, please dial into the call and follow the instructions of the operator once the operator opens up your line, you are directly in the conference, so please start asking your questions right away. Just one remark, we do answer the questions by first come first serve basis. Thank you very much.

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Operator [3]

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(Operator Instructions) We will take our first question from Seth Rosenfeld from Exane BNP.

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Seth R. Rosenfeld, Exane BNP Paribas, Research Division - Research Analyst [4]

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Questions today. If I can ask 2, please, first, with regards to automotive steel demand, and second, the outlook for the first fiscal quarter. When it comes to the demand side, can you just give a little bit more color on how you've seen demand progress over recent weeks as the European OEMs have begun to restart? It seems like we're over a month into this restart process, how robust has that been our understanding is that auto steel procurement is still at perhaps as low as 30% to 40% than normal, is that in line with what you're currently seeing? And then secondly, when it comes to the outlook for the coming year, I -- we fully appreciate the visibility is very low right now. For the first fiscal quarter, recognizing we're more than 2/3 of the way done, can you give us some improved color on what we could expect at least kicking off the year for Q1 for a range of expected EBITDA?

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [5]

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Yes. The automotive steel demand at the moment is, as you know, most of the automotive companies have already started their plants in the last weeks. So the ramp-up is slowly. And I think your figure at the moment with 50% relative to the normal level is close to what we experienced, but we see this is an actual figure. And their plans are higher. As far as we know. And I think, Peter, you can give more color on this question.

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Peter Schwab, Voestalpine AG - Head of the Metal Forming Division & Member of the Management Board [6]

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Okay. You have to do a divide between different regions. In the European Union. April was the first month where we saw overall a demand of only 15%, which now increases sharply to 40%, 45%. And in June, we expect levels much higher because the call-offs from our customers are nearly at previous levels. We think that it will be a little bit lower because the supply chain is not as stable as it should be, but we should be in June, close to 80%, 90%. And then we will see where it will stabilize. It can -- could go down again because nowadays these cars, which are already sold, they have to build, which are already sold. But at the end of the business year and in the last quarter, we expect sales up to 90% of previous levels.

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Seth R. Rosenfeld, Exane BNP Paribas, Research Division - Research Analyst [7]

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And can somebody please give a little bit of color to my second question with regard to the Q1 earnings outlook, please?

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [8]

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Yes, this is difficult to say. We have only the first month, and this was during April in the lockdown -- in the lockdown month. So it can only be a rough estimate. But our depreciation is around EUR 80 million. So the first quarter was negative, and we expect second quarter maybe a bit better. So it's difficult to give a final guidance.

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [9]

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Although we haven't got the figures for the first quarter. Obviously, I think we will be EBITDA more or less around EUR 100 million. So approximately, unfortunately, the EBITDA, normally, we would have in 1 month we would have in 1 quarter.

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Operator [10]

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We will now take our next question from Krishan Agarwal from Citi.

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Krishan M. Agarwal, Citigroup Inc, Research Division - VP & Analyst [11]

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First, on the fourth quarter, I mean, I can see the shipments recovered nicely by around [15%] last quarter but the revenues are up only like 4%. I mean, the implication is that, okay, the pricing would have gone down significantly. So with that background, I mean, what should we expect in terms of pricing for the first quarter? Should we expect a further deceleration of the pricing from the current level? Or kind of a stable pricing environment in the first quarter in this sector?

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [12]

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If you allow me a quick remark, Krishan, was -- were you referring to the Steel Division or to the group as a whole?

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Krishan M. Agarwal, Citigroup Inc, Research Division - VP & Analyst [13]

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Group level.

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [14]

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Because I think we have to answer the question, division wise because there is no clear trend for the whole group. So may I ask -- may I ask the gentleman of the divisions, maybe to give a brief overview of what happened in the March quarter, volume-wise, revenue-wise and price-wise.

As an indication, as you know, we are not able to speak too deep into details here in this conference price-wise.

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Hubert Zajicek, Voestalpine AG - Head of the Steel Division & Member of the Management Board [15]

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Yes. What we did see in the Steel Division I tried to -- to say it in my presentation already that we saw a kind of a recovery in the difficult business year '19/'20 in the last quarter. That means, if I understood you correctly, that's right that the revenues were going up a bit in this quarter. And that had the effect that also by lower shipments, the results were better in this quarter. That's correct. But your second part of the question for the Steel Division, does that mean that prices were going up again in the future. That's not what we see because we are in the middle of the COVID crisis. We are at the end of the lockdown of our customers, and we do see some pressure on our prices right now.

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [16]

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That's for the Steel Division. For the Special Steel division, what you can see is we had this year stronger shift from the third quarter to the fourth quarter due to longer Christmas holidays in a lot of our customer segment. This is 1 input. The second input is that the material structure was quite different, a little bit from the quarters -- quarter 2 and quarter 3, but there is definitely no price increase. It's the other way around, the price and the competitiveness of the market is still increasing in the fourth quarter in most of our markets.

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Franz Kainersdorfer, Voestalpine AG - Head of the Metal Engineering Division & Member of the Management Board [17]

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Regarding Metal Engineering Division, we did not have rather revenues going up nor price going up in wire and tubules so far.

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Peter Schwab, Voestalpine AG - Head of the Metal Forming Division & Member of the Management Board [18]

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In the Metal Forming Division. We are processing materials, and so we only sell the value add, and this is stable for the whole year.

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Krishan M. Agarwal, Citigroup Inc, Research Division - VP & Analyst [19]

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I mean that's pretty clear. My second question is basically on your guidance. So The EUR 600 million to EUR 1 billion is a very broad range of the guidance. Would you be able to help us the underlying assumption, particularly on the volume side, which underpins the lower end and the higher end of the guidance versus the last year?

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [20]

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May I try to answer your question -- otherwise, it's not really an answer. The problem is, and I hope you accept that answer that we cannot foresee for -- especially for the second, third and fourth quarter of the business year, how that will develop. We have, obviously, like already described by my colleagues a situation in Asia, where we are in the Metal Forming and in the High Performance Metals Division even in revenues over the budget we have on the other side, because of the COVID situation in Brazil at the moment, very deteriorating figures, so we have geographically a global, very different situation. Secondly, I think no one of us can foresee how the economic development, especially of the second half of our business here will go on. So that is -- all these together is the reason for the very wide range of the EBITDA guidance. In general, and that is very much different for the single parts of the group, and you have seen the very good economy in the Railway Systems business or in the warehouse business, which is connected to Amazon's and others. So in total, for the whole group, that scenario that we have presented in our outlook is more or less a swoosh scenario for our ongoing business year. So we -- and I personally, that is not the group view, but I personally and I tried to give you that view also in my liquidity sentence, I think that we will have more or less compared to May, June, so better than April, but more or less compared for the whole group until August, and then improvement in September and ongoing. But how big that improvement will be? I cannot tell you. So in having an outlook for the first quarter of EBITDA of EUR 100 million, around somewhere if we have that second, if we would have that situation for the full year, that would account for EUR 400 million and I don't believe in that scenario. So that is what I have meant with the swoosh, especially in the second half of the year. So -- but sorry for not being able to answer that question exactly for the underlying volumes for the whole group, sorry for that.

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Krishan M. Agarwal, Citigroup Inc, Research Division - VP & Analyst [21]

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Thanks a lot. I understand that. But your answer is quite comprehensive. Final question from my side is on the CapEx. I mean, EUR 600 million for this year is quite low. And it's sort of compared to the previous levels where you have operated in a fiscal year '10 or fiscal year '11. My question is slightly longer-term as in -- I mean, do you still believe that EUR 850 million to EUR 900 million is the right level for the longer-term CapEx? Or you can sort of structurally cut down the CapEx to something like EUR 800 million or EUR 750 million in the -- on a normalized basis?

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [22]

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I think this CapEx of EUR 600 million is quite low, as you mentioned, this comes close to the repair and maintenance budget, there is 1 single item in and this is the special steel mill in Kapfenberg. This is a project. We are still working on. What is sustaining CapEx level? It's, I think, EUR 600 million is so high because we think that the actual situation is -- it's necessary to lower capital expenditures. And in the next upcoming years when we think about growth and have new ideas. I think a figure of EUR 800 million or around depreciation level or even above in -- when we are back to normal level is possible.

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Operator [23]

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We will now take our next question from Alain Gabriel from Morgan Stanley.

We'd like to go to the next question. We will now take our next question from Alan Spence from Jefferies.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [24]

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I'm just wondering if you could give a sense of working capital expectations for the full year? If you could give us any quantitative targets? And do you think the potential scale of release?

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [25]

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Thank sorry, Alan, could you please repeat the question? We could hardly understand you?

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [26]

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Yes, I'm sorry. It's about working capital for your next fiscal year and expectations around the potential to release capital from that? Thank you very much.

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [27]

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Although we are -- especially my colleagues, are working very hard on the release on working capital. What you have seen and what I described for the April situation. So the year-end contraction of EUR 100 million and the EUR 250 million of downturn due to factoring because of the decreased sales volume is a working capital effect. So we will see in the first quarter an increase of working capital, most probably. I think for the whole business year that we will not be able to have a steep decrease of working capital like we had in this business year. But that, for sure, depends very much on the economical scenario, which you underlay under that estimation because very much dependent on when that ramp-up of the economy will be, you will have, for sure, some need of expenditure in working capital. But -- so that is then to give you an answer for the exact or an estimation for the quarter ending or year-end of working capital is very hard. So personally, I think we will not have a comparable working capital decrease what we have had in '19/'20 Although we are working very hard on that. So -- but that exactly depends very much on the outcome, depends very much on the economical scenario yield underlay. So not in the same amount like last year, for sure, a need for working capital increase in Q1, but then again, seasonally also a release in Q4 and more or less in between flat, but that is my personal estimation. So full year, more or less flat.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [28]

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That's very helpful. And my second question is around the performance of HBI. With iron ore prices remaining relatively robust and scrap relatively weaker, I imagine that facility is struggling right now. But if you could give us a sense of where that performance level is and potential burn rates from that?

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [29]

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Yes. The performance of the HBI plant was improved significantly when it comes to technical figures. So we could improve the availability of this line by nearly 10% in the last business year. But as you already mentioned, it's always difficult when iron ore prices are going up, like it is doing right now. We reached a level above $100 per ton again. And when at the same time, scrap price levels are going down, and this leads to a margin squeeze for this business model in Texas. So at the very beginning of the last business year in the first quarter was a very successful and profitable first quarter. But due to the changing spread between the scrap price and the iron ore price, it was a very difficult second half of the business year with a bit of relief in the last quarter of the business year, but the actual development of the spread between iron ore and scrap is difficult again. So we do see margin squeezes again. And the only market at the moment, which is attractive for HBI is in Asia where we can ship quantities from Texas to China.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [30]

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Is it fair to assume that HBI will be EBITDA negative in your fiscal Q1?.

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [31]

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I do not expect a negative EBITDA in Q1.

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Operator [32]

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And we will take our next question from Olivia Du from Bank of America.

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Xiaofei Du, BofA Merrill Lynch, Research Division - Analyst [33]

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My questions. So I have 2 follow-ups on the previous discussions, please. The first 1 is on CapEx. So even if we think about around EUR 800 million as a more sustainable level for the years beyond this year, which is a bit unusual, but it still appears very low compared to your history? So can you give us a bit of color on how do you manage this? And also for the year FY 21/'22 should we expect part of your low CapEx for this business year to be pushed into it?

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [34]

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You noticed -- I agree that actual -- this actual year is a special year. And last year, we had this CapEx reduction to EUR 800 million -- to EUR 800 million and also working on a big project in Kapfenberg for this special steel mill. I think it's a question what will happen in FY '21 and '22. And on the other hand, we are aware that our balance sheet structure is still important to improve. So we will decide in the next upcoming years, what is a CapEx level, just sticking to our balance sheet structure as well, and it depends on the economy as well. And when we are back to normal level, so we have more room to maneuver.

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Xiaofei Du, BofA Merrill Lynch, Research Division - Analyst [35]

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And my next question, also a follow-up on the liquidity situation point. Can you give us a bit more details on the working capital release? Because I think most of our base cases is that you will have a demand recovering across all key end markets, let's say, from summer onwards? And then should we expect the working capital to reverse as a result? And then in your estimates, when you have the highest cash need of EUR 550 million. What is the working capital level that should factor into this scenario, please?

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [36]

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I'm totally sure whether I did understand your answer correctly, so please give me then a hint if I understand it incorrectly. If we talk at the working capital development of '20, '21 years and the liquidity need for that. Basically, what we see in every year is that we have a reverse situation in April than we had in March. So that has been over now. The secondly is, in the downturn, we see a working capital need because factoring is decreasing. So the sales of receivables, thank you, is decreasing. That is due to the downturn of the revenues we had sharply from March to April. So what you described obviously is, if I understood you correctly, that in an upturn, we would need working capital, more or less, the working capital we have released in the fourth business quarter of the last business year. But that release is not due to the economical downturn. That release was triggered by the work we started in September, October. And that is quite a lot of effort from my colleagues, but that is not related to the downturn. In fact, we have -- with factoring and the second bill of exchange financing, we have 2 instruments which are in economically changing situations, balancing out the operational needs. So in a downturn, we have to repay the factoring and also bill of Exchange. In an upturn, we get more financing out of them. So this upturn downturn of economical situation has not that much influence on the working capital side.

So what the working capital level at the end of 2021 will be? I cannot foresee. But it will be more or less like we have it today. So after the -- that is what I meant, more or less. It will be not possible to release working capital. But it will also not, in an economical upturn, need much working capital. So that release of the quarter last business year was not economically triggered, but work triggered. Does that answer a little bit your question?

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Xiaofei Du, BofA Merrill Lynch, Research Division - Analyst [37]

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Yes.

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Operator [38]

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We will take our next question from [Marcus Remus] from RCP.

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Unidentified Analyst, [39]

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A few questions, please. Firstly, related to the auto contracts, which are up for renegotiations in June. Can you provide us some granularity on what you expect in terms of pricing. That would be the first one. Secondly, related to 2 questions for high performance metals, please. If you could provide us an update regarding the construction of the special steel site in Kapfenberg, and to which extent, lower business activity impact your ramp up plans? And also on the aerospace business, which is small in volume terms, but certainly fine in terms of margins, how you currently see the call-offs of the aircraft makers? We're hearing a lot about building rates getting lower I think Airbus mentioned something this morning. So yes, any color on that would be very helpful.

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [40]

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If I may start with the auto contract question. We've had a very long-lasting and good relationships to the auto segment. And maybe you know that we have -- we're running 40%, approximately 40% yearly contracts, 20% half year and 40% quarterly contracts. That means that only a part of our volume will be negotiated now in June. And we do expect our customers seldomly not to say never break existing contracts. But for sure, there will be some pressure on the price side, especially when it comes to the quarterly contract, we expect a slight downturn in the price level.

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [41]

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The first question was the ramp-up and the influence of the economic environment to the construction on the steelwork equipment in Kapfenberg. I mean, if you remember, the target of the investment was not to increase the volume. It was 100% focus to the target to improve significantly the operational excellence and the cost and the productivity, the cost reduction, the productivity increase. And so we are not depending so heavily to the increase of the volume, basically not depending to that. The current situation is that we will have a delay in the product -- in the ramp-up of round about 3 to 6 months due to the COVID situation, but that doesn't end up in an increase of the cost of the construction. So if you compare that, what we estimate in the ramp-up of the general business in tool steel, automotive, oil and gas and the other ones, it shouldn't be a problem from this point of view, that we cannot perform in a good way in the ramp-up of the construction. And it will definitely be a benchmark globally in technology and in cost structure of electric arc furnace workshops.

The second question is the aerospace. The aerospace business of our aerospace platform is in a much bigger portion of focus to the single-aisle engines, and we believe there is a shorter re-coverage on the single-aisle aircraft market than on the double-aisle aircraft because the single-aisle aircraft market is more focused on the continental and national air transport. And so even there, we have done a lot of investment into digitalization and more flexibility and more operational excellence, we can -- we have to be aware that this will be a tough situation for the next 12 to 18 months. But at the end of the day, we believe, and this is what definitely proven there is an ongoing growing market in the aircraft with a certain downturn now for the period I have explained before. Is that the answer to your question?

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Unidentified Analyst, [42]

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Yes. 2 follow-ups, please on Kapfenberg, what does it mean now for the new facility, when will your production start here and how long or how long will it take for the production before we move to the new site?

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [43]

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So we will start the production at the end of 2021. And the overlapping time of closing the old 1 and starting the new 1 is around about 3 to 4 months. So the first -- let me say, the first quarter of 2022 until summer 2022, and the old facility will close down, and the new 1 will be fully in operation.

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Operator [44]

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We will now move to Rochus Brauneiser from Kepler Cheuvreux.

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Rochus Brauneiser, Kepler Cheuvreux, Research Division - Head of Steel Research [45]

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A few questions. Maybe you can go to number one. The first 1 is on the steel business. I guess you talked about the trends in auto volumes. Can you talk a bit about how you're currently dealing with your business bookings, as you have to shift from auto to non auto, is your current preference to reduce output or to accept a lower margin mix, particularly in that kind of price environment? And in that context, as of what you see now, what is your strategy? Or what is the perspective now for the smaller blast furnace to come back. Is there any visibility about the time frame of the idling? And can you, in this context, confirm whether the furnace is hot or cold idled?

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [46]

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To the first question of the -- regarding the order book. Yes, if the car industry, like it was in end of March and in April and beginning of May, if we do not ship to the auto industry, we swap and we try to be flexible, and we supply to segments which do need some supply. That's what we always do. We do not only supply to auto industry that's for Steel Division around a little bit lower than 40% of our sales. And we do -- also, we do see building and construction industry more stable. So we sweep from -- swap from auto to different segments. That was what we do all the time. And when auto is coming back, and it seems that auto is ramping up again right now. We stick to contracts, and we do supply again to the car industry. Your question about the time frame. So we shut down the blast furnace #5 by end of March. And we shut it down in a way that now it is cold, and it is in a very good condition. We do don't need to repair anything there, and we would be able to ramp it up again in 2 or 3 weeks. That means as soon as we see the demand on the market, we will prepare the blast furnace for being ramped up again. And our forecast and what we do see is that the earliest time can be in fall to prepare the plus furnace for being ramped up again.

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Rochus Brauneiser, Kepler Cheuvreux, Research Division - Head of Steel Research [47]

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Then the other question I have is on your cost measures. I think you have commented in the past on pre-COVID on the cost savings exercise you had in the magnitude of EUR 100 million. Can you just may be reconcile what has happened in the meantime? And what is the current magnitude, of cost -- sustainable cost savings? And is the current thinking that this is enough or do we rather have to expect that there is a step-up in terms of the cost measures?

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [48]

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We are currently working on additional cost measures. I think you can see in the results of last year that the cost measures -- that the cost-cutting programs are working. So we are working on new programs. And it's clear that some of the measures were melting up, and this is the reason why we work on additional programs to compensate it.

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Rochus Brauneiser, Kepler Cheuvreux, Research Division - Head of Steel Research [49]

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So are we talking about like EUR 200 million in total of sustainable savings now? Is that kind of the right ballpark number?

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [50]

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It's -- when you put the continuous improvement programs and the additional programs together, this is a good figure.

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Rochus Brauneiser, Kepler Cheuvreux, Research Division - Head of Steel Research [51]

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Okay. Then maybe finally, a bit more question from the helicopter perspective. I think the automotive business was the key strategic success factor for Voestalpine in the past decade, and we have seen some more complicated environment for the business now for 1 or 2 years? And what from your current thinking that's leading to in the years ahead? Is there a kind of reshifting in the strategic focus, you're thinking about a more balanced portfolio towards other technicians? Maybe can you give us your early thoughts on that?

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [52]

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Automotive business was always our -- was always a very innovative business for us, and it was also driving our growth. I think it's -- we will reconsider the influence of the COVID impact. That's clear. But it's now. I would say, now, it's too early to talk about reshifting in market segments, I think mobility in automotive will be a part of our of our business also in the future. And maybe we will talk in 2 years or 3 years, what percentage of the segment size will be.

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [53]

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May I add to that a little bit independently of COVID situation? What we decided already in last calendar year was that especially in the Metal Forming Division, the quite huge investments over the last years in the automotive business have to be digested first, to make any other steps. So at the moment, Metal Forming business and automotive is more in digestion and also in filling the capacity they have also for the future. I think I just wanted to add that because there is, for certain, a little change, but it's independently from COVID. And with regard to the divisions other because we have automotive customers in also Steel, High Performance Metals and Metal Engineering Division. Especially in Steel and Metal Engineering Division, there's a natural shift. So if there is less demand in automotive, we will fill it by other demand. Because automotive, like already expressed, is the highest demands in quality and delivered performance and so on. So also high stability in prices. But we have to shift at the moment to other customers, and especially also in High Performance Metals Division, we are exploring a lot of different other customer groups, which need also the high-quality steel made in High Performance Metals Division. So there's a natural change at the 1 side. And the other side. We see a phase of lower investments in automotive, especially in the Metal Forming Division.

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Operator [54]

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We will now take our next question from Bastian Synagowitz from Deutsche Bank.

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Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [55]

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I just have 2 quick ones left. And my first is a follow-up on demand in the Steel Division. Can you please share with us where your utilization rate currently stands in June? And just from reading your order book and your clients as well, is there any early indication you have for us, how that utilization rate will move in your second quarter?

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Hubert Zajicek, Voestalpine AG - Head of the Steel Division & Member of the Management Board [56]

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Yes. We saw in the first month of the business year, which was April, we saw utilization rate going down by more than 40%. So we were above 50% utilization in April in the steel division in Linz. We did see some improvement in May. In May, we were slightly above 60%, and we do see some further improvement in the upcoming months, June, July and also a cautious improvement until the rest of the year.

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Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [57]

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And when you say improvement in June, we're talking about like 70% already or -- in June?

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Hubert Zajicek, Voestalpine AG - Head of the Steel Division & Member of the Management Board [58]

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It's very, very hard to be so precise. I would say, a little bit below 70%.

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Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [59]

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But then like if you look at the quarter as a whole, you then do seem to anticipate an improvement in volumes overall in the second calendar year quarter despite the holiday season, which would be typically upcoming?

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Hubert Zajicek, Voestalpine AG - Head of the Steel Division & Member of the Management Board [60]

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Yes, absolutely. We have -- traditionally, we have August at the lower level because there are the shutdowns of the car makers, for example, that is also in the budget, always a lower level, but we expect and we forecast improving situation in September, October.

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Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [61]

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And if you just zoom away from the automotive end market, which you have been talking about a lot, are there any other sectors which are standing out in terms of how they have either disappointed you after essentially the restart phase or whether they have maybe been holding up better? I think you mentioned construction, which has been more stable. Could you just maybe talk briefly about other end markets as well?

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Hubert Zajicek, Voestalpine AG - Head of the Steel Division & Member of the Management Board [62]

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Yes. Construction, I mentioned already, is more stable. Machinery construction was also better than car industry in demand. And we do expect because the orders and the time for producing the product is longer, we do see, at the moment, a stable situation for our foundries, for example, and for our heavy plate business. And it's hard to predict how the situation will change till end of the calendar year. But for heavy plate, for example, it's more and more energy-related business. And the foundry companies that we have -- they will not need, for example, a short time work till end of December.

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Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [63]

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Understood. Then my next question is still on your financials. Mr. Ottel, probably 1 for you. You mentioned earlier that you have a peak cash requirement of EUR 550 million, and I'm not sure I understood that perfectly right. Is this just taking the April cash burn and just making this quarterly, EUR 150 million and then basically adding the EUR [350 million working capital requirement and maybe some others, so which gets you to the EUR 550 million or what is this number referring to?

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [64]

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The EUR 550 million is -- was the peak cash need. From my point of view, we will have that in the last calendar year of the business year. That's starting from the needs we see in the first business year quarter, then more or less flat development over the next quarter. And then the repayments of the deferred taxes and social security payments will then lead to a peak cash need of EUR 550 million which will then be decreased in the fourth business year quarter to more or less whatsoever, EUR 200 million or so on. So the peak need is, from my point of view, in the fourth calendar quarter.

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Operator [65]

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We will take our next question from Carsten Riek from Crédit Suisse.

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Carsten Riek, Crédit Suisse AG, Research Division - Director & Co-Head of the European Steel & Mining Research [66]

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Three questions from my side. You mentioned the first quarter EBITDA of EUR 100 million. To me, it looks like you have to flag quite a bit the fixed cost in order to get there. Could you, therefore, just give us, if it's possible, a quantification of the cost benefit you get from the governmental support of short term work? That's the first one.

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [67]

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I haven't run through the different models of short time work in Austria, Germany, France, U.K., whatsoever, and added to that. So I have no clue what the percentage of the improvement of the short-term -- of the EBITDA is, which is coming from the short-term. At the end, if we wouldn't have -- and we do that already in countries where we don't have the offer of short term work, we have to do the layoffs. So it's more or less an instrument to retain the qualified employment persons via a different instrument. So it's 1 instrument to adopt the fixed cost of personnel to the capacity needs we have. Otherwise, we would need to do more layoffs, but I didn't do the quantitative sum up of those measures.

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Carsten Riek, Crédit Suisse AG, Research Division - Director & Co-Head of the European Steel & Mining Research [68]

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No, no problem. I think the majority, in any event, in Austria, I think the 10,000 you mentioned. When does this program actually run out in Austria? Can you remind us or do you expect actually any continuation here?

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [69]

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There is a program running for the next quarter until the end of September. And government is discussing a further third program, which will last till the end of the calendar year. And there is also an old program, which we do not prefer. That's the reason why we ask for a third round, which is with more flexibility than the old scheme.

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Carsten Riek, Crédit Suisse AG, Research Division - Director & Co-Head of the European Steel & Mining Research [70]

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Perfect. Is there also a discussion around higher corporate taxes on the back of it in order to recapture those expenditures for the government? Or how is the discussion going there?

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [71]

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Maybe you know that before the COVID crisis, we had a discussion about lowering the corporate taxes in Austria, which I -- and it was already part of the governmental programs. So I don't think that, that will happen most probably, although via the Industrial Lobbying Institute, we try to try to sell that as a economical stimulus program. But at the end, I don't foresee what the outcome of the refinancing of the spending in Austria will be in Germany, will be -- I think that will be a discussion we will have in all over the world. But at the moment, I don't foresee a higher corporate income tax in Austria.

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Carsten Riek, Crédit Suisse AG, Research Division - Director & Co-Head of the European Steel & Mining Research [72]

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Fair point. Then 1 on the railway infrastructure because what strikes me was quite good volumes in the rails business itself, which is understandable because it's a time where you can actually do quite a bit of maintenance given the lower public traffic on those lines? Is in any of your forecast, any meaningful slowdown post an easing of the COVID-19 pandemic included? Or do you expect those kind of volumes to continue?

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [73]

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Actually, for this business year, we are not expecting any slowdown. What we look about is, especially on the small public transport organizations like the ones for towns in Germany, and that's comparable to other towns all over the world. How are they going to proceed with their spending probably then next year? But for the major class 1 railways, which are state funded, mainly state funded, we also do not expect significant changes next year as most of the stimulant programs of the various countries include spending on infrastructure, and for that purpose on railway infrastructure.

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Carsten Riek, Crédit Suisse AG, Research Division - Director & Co-Head of the European Steel & Mining Research [74]

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That helps me already. The last one I have is usually in an environment with low utilization rates, you're trying to actually save costs, and that's usually quite often combined with restructurings. Are there -- is there any guidance already on potential one-offs planned? And I hear refer predominantly to restructurings, it's very difficult to guide on the impairments. Is there anything you have in mind or we should be aware of?

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [75]

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Obviously, as soon as we are aware of any restructuring items or any impairment losses, we would communicate that via the legally foreseen channels to you as well. So what -- so I cannot give you any indication with regard to impairment losses, I cannot give you any indication with regards to restructuring provisions we would see, but not have booked yet. What you see in the last business year of 2019/'20, you see approximately EUR 80 million of restructuring and other provisions included there. Those provisions are, to our best knowledge, for the foreseen future. And those programs are now in place. So we are working in Germany in automotive plants, we are working in Germany in the steel shop of the High Performance Metals Division. So those are -- and others. So we are working on them, but they are provided for in the -- those we know are provided for in the 31st of March.

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Operator [76]

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We will now move to Michael Marschallinger from Erste Group.

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Michael Marschallinger, Erste Group Bank AG, Research Division - Research Analyst [77]

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Question. Just 1 last follow-up on the EBITDA range guidance. I just wanted to know -- you said you expect this recovery in automotive in Western Europe rather quickly after summer in the 80%, 90% range. I just wanted to know if this assumption incorporated in the upper range of the guidance? Or is this your base assumption for the time being?

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [78]

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The more unsecure the questions are -- or the answers are, the more I have to answer them. Unfortunately, we did a lot of scenarios. And a very wide case, if you have EBITDA, you know that what is more or less, for sure, is the depreciation so you know that the influence of the profit itself is at those low levels decreasing. So I will not give you the answer to whether this is the upper range or the lower range. I think what we obviously like we do those scenarios the medium-range is what we expect for -- so if we give the indication of EUR 600 million to EUR 1 billion, we would most probably think that the EUR 800 million is the scenario where we have based our decisions on. And so that is maybe 1 indirect answer to your question.

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Operator [79]

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We will now take our next question from [Lance Ford] from Bloomberg Intelligence.

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Unidentified Analyst, [80]

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Question. I only have 1 left, and it's really a follow-up question. And it's with regarding your automotive exposure, and how that may evolve over time. Have you sort of quantified what percentage of your product suite is tailored to combustion engines? And what is more towards the chassis body work, et cetera? What I'm trying to sort of get a feel for is sort of how exposed are you to the, let's say, the electrification of future vehicles?

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [81]

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We are mostly delivering to the car body. And we -- and this is, by far, the highest percentage of our delivery. And I think it's only a minor part, which is directly linked to combustion engines. So when we consider that electrical car, it's also a an old frame then we can fully deliver. Also to the electrical car. I would say that there are even additional chances we are delivering also electrical sheet, which is additional -- can be additional business for us. And are there some business possible, especially with high-strength steel when we deliver parts to the battery box.

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Franz Rotter, Voestalpine AG - Head of the High Performance Metals Division & Member of Management Board [82]

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I would take -- just to add 1 thing. As I said to you, automotive industry is an indirect back market for the HPM Division is also very important, round about 40% of our turnover. For us, it's not a big impact, the electrification of the car because we believe and we know because we made a deep dive into that, that there will not be a change in the tool business for us at the end of the day we will see much more complicated parts from the die casting point of view, from the plastic injection point of view, which is a super for our high-tech materials for the future due to this change on the one hand side. And the second side is especially the (inaudible) and so on, gains much more and creates much more complexity, and this is positive for our tooling business.

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Operator [83]

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We will take our next question from Christian Obst from Baader Bank.

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Christian Obst, Baader-Helvea Equity Research - Analyst [84]

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And first of all, two follow-ups. One is on deferred taxes and social security payments. How long does these programs last, so it's EUR 50 million per month and 6 months, will it last to EUR 300 million and going forward, which you have to pay at the end of the year? This Is the first one. And Second one is you added approximately EUR 3 billion of capital employed since the business '11/'12 and the former return on capital employed target was 15%. Do you still carry that kind of target? Or are you working on new targets going forward? And these are the questions.

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [85]

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They are, regarding the deferred taxes and social security payments, there are different programs, which last in 2 different maturities, more or less. So the 1 is, I think, but I'm not for sure, totally at the moment, I haven't had in mind, I would have had to look that up and give you the answer via Peter Fleischer at the end of the day. So -- but I think to what I have in mind, the 1 is lasting until September, and the other 1 is lasting until December. In total, both together at the moment are approximately the EUR 50 million. So that is a swing of -- it's from March, April, May -- April, May, June, July, August, so 5 -- the half of it is more -- last for 5 months, and the other 1 is until December, still 3 months more.

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Christian Obst, Baader-Helvea Equity Research - Analyst [86]

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And the return on capital employed?

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Herbert Eibensteiner, Voestalpine AG - Chairman of Management Board & CEO [87]

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At the end, it's our target of return of capital employed. Our target close to above 10%. And we have our old one still in place.

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Christian Obst, Baader-Helvea Equity Research - Analyst [88]

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Then you have to change furthermore your mix going forward towards more profitable products. But thank you very much and all the best.

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Robert Ottel, Voestalpine AG - CFO & Member of Management Board [89]

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I'm -- as long as the Board -- that I would like to comment on that. The one is we have that ROCE target for 12% until the time when at the beginning of the 2000 steel industry rocketed due to the China situation. So -- and then it was increased to the 15%. To be honest, whether it's realistic for the next years to say that we will reach that 15% target growth in our industry, I would be very skeptic, also looking at the history of the last 15 years or 10 years. So I think what is -- what we are aware of is that we need to decrease capital employed and increase EBIT. ROCE is still the highest important ratio we have in our bonus systems as well as in the Board as well as in our management teams and employees. So this is the target. And we also know that in deleveraging the group, it's the most important instrument of working on the ROCE, but quoting that we still want to reach and think it would be realistic to reach the 15% in the next years. I would be very hesitant

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Operator [90]

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We will take our next question from Alain Gabriel from Morgan Stanley.

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Alain Gabriel, Morgan Stanley, Research Division - Equity Analyst [91]

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My question has been answered. Thank you.

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Operator [92]

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It appears we have no further questions at this time.

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Peter Fleischer, Voestalpine AG - Head of IR [93]

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Thank you very much for this very intense discussion. If there are any questions left, please feel free to drop Gerald and myself a line. We'll be back in the office in a couple of minutes. And we are, of course are available to answer all questions, which are still open. Anyway, if you want to meet us virtually, will be on the virtual roadshow in the next phase. If you want to meet us, our management, Mr. Eibensteiner and myself, please shoot me a quick e-mail and we'll redirect you and try to set up a meeting. Thank you very much for your interesting remarks, for the discussion, for your patience. And also thank you very much to the management team for giving us and for spending your time with us and giving us all the details about the business year and about the outlook as far as we can see. Thank you very much, and have a good day. Goodbye.

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Operator [94]

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This concludes today's presentation. Thank you for participating.