Voestalpine AG (VLPNF) CEO Herbert Eibensteiner on Q4 2020 Results - Earnings Call Transcript

Voestalpine AG (OTCPK:VLPNF) Q4 2020 Earnings Conference Call June 3, 2020 4:00 AM ET

Company Participants

Peter Felsbach - Head of Group Communications

Herbert Eibensteiner - Chief Executive Officer

Robert Ottel - Chief Financial Officer

Hubert Zajicek - Head of Steel Division

Franz Kainersdorfer - Head of Metal Engineering

Franz Rotter - Head of High Performance Metals Division

Peter Schwab - Head of Metal Forming Division

Conference Call Participants

Boris Groendahl - Bloomberg

Monika Graf - Salzburger Nachrichten

Sigrid Brandstaetter - Oberoesterreichische

Alexandra Siebenhofer - ORF

Peter Felsbach

Good morning, ladies and gentlemen. Welcome to this Voestalpine Press Conference on our Balance Sheet. Let us try to talk you through the period 1st of April 2019 to end of March 2020, and also of course some outlook as to the future and the present period.

I'm Peter Felsbach, and I'm going to be your host. First of all, thank you very much for being here and listening. For us this press conference is always a special event during our business year. And in this very special year, there are shutdowns on all continents. It is a special year. And, of course, there has been a standstill and an emergency situation and forecast is fraught with many uncertainties of course.

Due to the present situation and also in order to protect our health, we have webstream a virtual press conference this year. The program will be the same. The structure will be the same and there will be answers to all your questions. You can find the media information and the presentation and the press photos and videos on our website voestalpine.com.

The challenging economic environment, of course, hits Voestalpine, as well as a global player. And the CEO and his colleagues will have much more on this. And here let me tell you who is here on the podium with us. Let me start from the left, we have Peter Schwab, Head of Metal Forming Division; Franz Rotter, Head of High Performance Metals Division; Robert Ottel, CFO; Herbert Eibensteiner, CEO; Franz Kainersdorfer, Head of Metal Engineering; and Hubert Zajicek, Head of Steel Division.

The press conference will last some 45 minutes. And after this you can, of course, ask your questions in English or in German and you will receive the phone patch and other data soon and you can find these also on our website.

The press conference will also be live streamed. There is a webcast. It's also being recorded, so you will always be onboard and live. That much as an introductory statement of mine.

And let me hand over directly to the CEO of Voestalpine AG, Mr. Herbert Eibensteiner. Over to you Herbert.

Herbert Eibensteiner

Ladies and gentlemen, a cordial welcome to today's press conference, covering the elapsed business year 2019-2020. We are going to share with you some insight in our highlights of the year.

And let me get started by the economic situation. We all, of course, are hit by this crisis. You all know what this means. There were lockdowns in all countries. Now the situation is improving a little bit finally. But if you look back, we have to say that as early as last year, since the start of this business year, economy has been suffering, has been deteriorating particularly caused, of course, by some trade wars. First Europe was hit by these. And we had to see that in particular export oriented industries had to accept clear downturns.

In the course of the year, China got worse and worse. The dynamic situation there got weaker and weaker. And we had to see also and accept that confidence of consumers went down and the automotive industries and in particular local OEMs suffered from a clear and steep downturn.

It is obvious that it's a bit hard to win trade wars and the industry in the U.S. had to live with this as well. In the course of the year, the situation has deteriorated considerably. And here we have to add, however, that the service area until the end of the business year remained quite stable.

A segment, which remained really stable was South America and there in particular Brazil. Brazil posted solid development across the business year until before the eruption of COVID-19.

Here you can see on the basis of the directions of the arrows that we saw a global downturn, which is still ongoing obviously. And all fields of the economy were concerned towards the end of the business year last quarter. End of January, early in February, we saw a slight recovery. And all of this then of course was entirely destroyed first in China by the lockdown due to the pandemic and then the virus, as we know spread into Europe, the U.S. and now presently into Brazil and South America.

In general, what then have been the reasons for this business downturn you'll see it here, it's the global economic downturn. Obviously in these global trade wars, there were tariffs, countermeasures, retaliation tariffs. And we have seen also that due to some other trade obstacles the intensity in the worldwide business situation of course was clearly reduced. We have seen furthermore that the automotive industry was a very important global supply chain.

In the course of the year went down even more. And for the steel industry itself, particularly in Europe, we had to see that in the face of rising raw material prices and low steel prices getting even lower there were some negative effects. When I say raw material prices, I mean particularly iron ore and the iron ore price itself was of course driven by a very good demand in steel production in China.

And after those first three quarters in January and early in February, the business situation and economic situation was clearly hit by the COVID-19 pandemic with the effect we can all see now a worldwide a global recession. How has all of this impacted us? The negative consequences particularly were impairment losses and provisions of €480 million, which also meant that our EBIT turned into the negative with a minus of €89 million. And we then decided quite fast to react to such environment and to put in place cash flow optimization and efficiency-boosting programs. We reduced our investments considerably. We tried and are trying to reduce our inventory and optimize our cash flow.

Here you see the main key figures of the business year in question. The revenue fell to €12.7 billion. The EBITDA, the operating result there we could achieve €1.2 billion, which wasn't that bad. As to the EBIT, we had of course the special impairment for the first time in December. Then for the second time early in April, due to the pandemic, the total headcount went down by some 4% to 49,700. And within the management Board, we have decided to propose to the Annual General Meeting a dividend of €0.20 per share and that is a reduction by some 80% year-on-year.

First, I've been mentioning some measures we have introduced what is their impact now. Due to the cost-cutting measures and the efficiency improvement measures, we have succeeded in achieving an operating result to the tune of €1.2 billion and this is the EBITDA which for us is clearly positive. And it's also positive to see that the cash flow from operating activities rises to €1.3 billion. And if you reduce this by investment expenditure we have a free cash flow of €588 million which here again is better than the year before.

All of this has been made possible by us successfully reducing the working capital and in particular inventory and that to the tune of €434 million. Now in a very difficult phase and also with a view to the next few months, it's very important to see that we still have an available liquidity amounting to €1.7 billion for the next business year.

This chart here shows you how voestalpine fares when compared to international competitors. It's the EBITDA margin which is shown here. And I'd like you to see that voestalpine is indicated by the dark blue line here. And you see that towards the end of the business year that is, in its last quarter due to some positive development of EBITDA as well, we have been clearly better than our peers.

Thank you very much indeed for listening to this first round. And now I'd like to hand back to Mr. Felsbach.

Peter Felsbach

Thanks indeed Mr. Eibensteiner for the first part of this presentation. The second part now is for Robert Ottel, our CFO. He will speak about financial key figures and the gearing ratio.

Robert Ottel

Thanks indeed Mr. Felsbach. Good morning also from my end. Welcome to our press conference on our revenue earnings and business year in general. What you see here on our chart is the overview of some key figures. And you see here that the revenue has gone down by more than €800 million. A key driver here, 3/4 of this is of course reduces in volume. You see a reduced volume demanded by our customers. The next 1/4 of course of that was weak prices because it's always hard to get good prices in such an environment.

As to the operating result, our EBITDA you also see a clear decline by €380 million. And to the same tune, we also see the impact of the reduce in volume €380 million here as well. In addition, you'll see this deterioration here and this has reduced EBITDA by some €200 million due to the measures described before cost management and some countermeasures. A large part of this has been compensated however.

This here is what we see in the operating result on this chart here. As to our EBIT the profit from operations, you see for the first time a loss as it were. And such loss was mainly caused by the fact that we had to depreciate a lot onetime -- one-off depreciations, mainly related to assets but also some property of the company. And such depreciation not goodwill though was also explained by the weaker business situation towards the end of the business year in a second step. This means a deterioration year-on-year of €870 million to our EBIT.

The financial result is more or less stable. And the tax earnings for this year that's an IFRS effect because losses can also be used and so in the balance sheet they mean earnings. But nevertheless, this means a profit after tax of minus €216 million. That's the loss for the year, which also means that we had to clearly reduce our proposed dividend, which now amounts to €0.20 per share. What you see furthermore is that we had to reduce our headcount by more than 2,000 full-time equivalent and Austria versus abroad. That's well-balanced as is our headcount in total.

This was of course, our most difficult aspect, which has accompanied us since early in autumn, how could we reduce debt and earn free cash flow. Here you see what we have done and you see the causes because it became apparent that our net financial debt will go up towards the end of the year.

This is due by a reduction -- due to a reduction of equity and an increase of the net financial debt but both effects are almost exclusively caused by one-off effects because since the acquisition of Böhler-Uddeholm in 2007 and 2008, we had some hybrid capital as part of our financing. This year -- early this year we had some €500 million and such hybrid capital is equity according to IFRS. This year we replaced that by so-called senior debt. And so €500 million of equity got lost due to this transaction or conversion.

Then a further effect is a dividend paid out of €240 million on the one hand and of course, also the negative annual surplus due to a weaker economic situation in depreciations amounting to €216 million. On the other hand, you see the net financial debt itself which has gone up by €650 million.

Here as well most part of is this €500 million hybrid capital, which was refinanced as a normal net financial debt. And the second large chunk there is that there were changed balance sheet regulations IFRS 16 towards the end of the year lease and long-term rent in contrast to the years before now has to be shown as assets in the book and that amount to €436 million.

The dividend as well had to be financed by €240 million. Nevertheless due to all our efforts, we have succeeded in not having more than €1 million -- €1 billion in terms of net financial debt, but only €650 million, which due to the fact that in spite of the bad economic situation we had a free cash flow of €590 million.

Without those non-recurring effects hybrid refinancing and IFRS 16, the gearing ratio would have gone down even slightly to 46%. Nevertheless, we do know that 67% can't be our target. And in the ongoing business here we have to further improve this key figure.

Peter Felsbach

Thanks indeed, Mr. Ottel for these explanations and we now go over to the highlights from the four divisions. Let's start by the largest one which is the Steel Division. And for that I hand over to its head Mr. Zajicek.

Hubert Zajicek

The key challenge was that as early as start of this year we had a reduced demand, which was also linked to reduced steel prices and all of that was combined with a very unfavorable development of raw materials prices. An example would be that the reference innings for iron ore in the first half year of the elapsed business year almost doubled. That of course had meant a price cost and the margin squeeze, and we had to try to counter this by some countermeasures to that price-cost ratio.

Currently, we have had a last quarter of the business year which has been a bit better, and of course, we were hit by the corona crisis as well, and we are already trying to implement an action package for overcoming the COVID-19 crisis. For instance, end of March one of our small blast furnaces was taken out of operation in order to react flexibly to the changed demand.

Nevertheless, in the elapsed business year, we also dealt with new technologies, and one example here would be the steel strips. You see that here we have some integrated conductive paths and sensors, which are integrated in the steel already and we have some prototypes already, and for package containers one can see automatically whether there are some parcels for instance on the shelf or not can also be used in supermarkets.

And last but not least, let me also mention that we have also started up the world's largest pilot plant for so-called green hydrogen. That was a very successful start up and we are already in the prepared startup phase for full operation of that plant.

Thank you very much from my end.

Franz Kainersdorfer

Let me talk you through the highlights of the High Performance Metals division. The High Performance Metals division are working in markets related to high-speed steel and tool steel that's some 50% of the total revenue, but oil and gas industry and aerospace are very important amounting to some 10% each and 10% to 15% in the field of consumables. We had very difficult developments in our industrial segments in the elapsed business year in tool steel.

In that business year elapsed we had a decline in demand, which we had to accept, which mainly was due to the development of the automotive industry, but also of course, to some restrictions like trade restrictions in particular in the U.S. based on anti-dumping and Section 232. On balance, this has meant that some 80% got lost year-on-year.

In oil and gas and also in aerospace in the first three quarters of the elapsed business year, we were quite stable. Only in Q4 of that business year due to aerospace situation and also due to COVID towards the end of the business year in these segments as well we had some downturn. A major element early in the COVID-19 crisis was the situation in China, yet China towards the end of the business year could go back to some favorable results and there was a far-reaching market stabilization in that area.

In oil and gas, it was particularly the oil price, which has been a driving element for this development, and it was very volatile towards the end of the year a volatility which then translated into some reduced investments of course by our target customers. A major stabilizing element in our division was the further development of our value-added service activities that is the development of heat treatment, physical coating methods and eventually also the further development of our expansion for metal additive manufacturing.

In the meantime, we're having six locations globally, U.S., Canada, Singapore, Taiwan and China, in this segment. And the basis of this development is high technology investments at Kapfenberg, Austria and at Böhler-Uddeholm in powder metallurgy, in order to have an ongoing value chain in this segment as well.

As earlier as mid this year, in total, we had some cost-cutting measures and some measures in order to improve our operational excellence, that in order to react to this changing market environment.

In spite of the efforts to adapt our investment to this market environment and be as parsimonious as possible, the major strategic investments of our division that is the construction of the new special steel plant in Kapfenberg, Austria has been kept.

And will be continued until in 2021. It is a global technological benchmark. And this investment will certainly be continued accordingly. Thank you.

Franz Rotter

Ladies and gentlemen, welcome from our end as well. I'm going to speak to the Metal Engineering Division in business year 2019/2020. Let's get started by railway systems, where in the first -- for the first time, all railway infrastructure activities have been bundled into the system.

The business year 2019/2020 across the board was characterized by solid order levels and a very good development of revenue and earnings in Europe, China as well as Australia and India. But in North America railway systems market has also posted good revenue and good earnings.

But we did not only have endogenous growth. But with the second joint venture turnout system in China, we went into the mass transit sector. And we also had the successful localization in France, in small turnout companies. So we expanded successfully as well.

As to tracks we had a novelty worldwide that was a low maintenance tracks systems for mixed traffic and this new generation of tracks had been undergoing tests in the channel for a long-time and very favourably. Industrial systems are the second part of my presentation after these solid order levels, in railway systems.

Industrial systems in 2019/2020 were in a definitely more difficult situation. The segments here are Wire Seamless Tubes and Welding Technology. All three segments in the first half year were in conformity with the budget envisaged. But Wire and Seamless Tubes in the second quarter with some time offset had to face fiercer-and-fiercer competition.

And then due to COVID-19 pandemic there was a significant negative market change in the most important customer segments. In the field of Welding Technology which in 2019/2020 until the end of the business year, had posted a solid development. And we acquired the Italian vending machine makers Selco. And so we became a full service provider of welding machinery and technology. Thank you.

Peter Schwab

Ladies and gentlemen, the Metal Forming Division had a very challenging year. The weaker economy has led to lower revenue particularly in the automotive sector. Let me here bring out in particular our core market of Germany, where the automotive production from 2017 to 2018 and from 2018 to 2019, had always gone down by 9% each time.

And this was contrasted by a solid sale in trucks and buses. Trailers were a bit better. And in renewables in the solar industry, we had quite good figures as well and also in construction. Except for the U.K. where starting early in 2020, there was a clear weakening due to the Brexit.

There is a still very robust trend in automated storage technology, driven by a clear trend towards e-commerce and through same-day delivery. So there is more and more automated storage technology. You see here on the screen what such storage system can look like in B2 design, construction, manufacturing and also setting up of such steel constructions.

As an example of innovation, I have a laser-welded multi-material special strip product. What does it look like, you see it here. There is steel and copper linked by a laser weld. It's more or less an endless system, then it's coiled on reels. And then, it's punched here at the customer's end and then such components are made of it.

These components have special properties. Copper is very soft, but its conductivity is excellent. It's high strength steel. In other components, but conductivity isn't so good there. So these components can be used for plugs, for instance, copper wood paint and for the contact I use copper because of its excellent electrical conductivity. This innovation is now being placed on the market and some minor revenue has already been earned from that.

Peter Felsbach

Thanks indeed for these short presentations. And before our outlook maybe some housekeeping remarks for you. We will start our Q&A session. [Operator Instructions] We are prepared for that. But before this, maybe a few words on our outlook. And for that, once again, we have our CEO, Mr. Eibensteiner.

Herbert Eibensteiner

Ladies and gentlemen, let me show you some outlook and before that maybe some figures in order to show you where we are standing now. In every phase of the pandemic, health of our employees and workers has had highest priority. And due to containment measures and due to very strict hygiene and distancing rules, we have succeeded in having a very low number of diseases or infections. And it has been very important that across the group these rules have been respected and followed very accurately.

Now step-by-step, we are getting back to more or less normal operations. In many countries, measures are being loosened and our customers gradually are restarting their production. We accompany them in doing so. And it's interesting to see that this week is the first week where all our facilities are operational again. And we have to see that slowly, but surely, together with our customers, we do all these startups and restarts.

It's interesting to see that in China there is rapid recovery already there. We're having a capacity utilization which is close to 100% and we see a very good trend there, which is a sector counting some €600 million in terms of revenue. And what impresses me very much is the railway infrastructure system, that is tracks and rails and turnouts, which even during the pandemic had a very good capacity utilization. And then, of course, storage systems, which benefit very much from the favorable e-commerce situation. So there is even 100% capacity utilization there and they produce full swing.

Of course, in certain areas, we have to adapt to reduced capacities of our customers and there are also some temporary production shutdowns. For instance, one small blast furnace here at Lind has been shut down. And in Donawitz Austria, there will be a relining of a blast furnace, which will be anticipated in time, so one will be shut down.

We do not yet know precisely when we will restart both furnaces. And one good means of course to adapt, to reduce capacities is short time work. In Austria, we have some 10,000 employees; we try in short time work and some 3,000 in Germany. This is a bit less than half of the employees which we are having in the respective countries. And in addition of course, internationally some 2,200 employees are subject to some schemes which are similar to the Austrian shorts and German short time work. So it's a good way of adapting, but we do have to see that there are some areas or there will be some areas where we find it difficult to work in the long run.

And there even after this summer, some further capacity reductions will have to be implemented. How much reduction that will mean, we cannot yet say. It will of course depend on the further development of the business situation.

Presently in Q1, of this business year, we see a market environment characterized by the economic meltdown and lock down. It will remain the most difficult quarter for us. There are many analysts telling us that in the second half year, the business situation will improve. All of this of course is not yet certain at all. And volatility in our economic environment will certainly remain high.

For us now, it is important to implement the appropriate crisis management and the topics are very obvious. We will have to further improve our cost-cutting programs. We are focusing on the working capital and storage systems and inventory reduction that is. And it will be decisive how we can generate cash flow and that's why we have opted for a further reduction of investments. So, it will be according to our plan some €600 million in terms of investments. And all of that in a very volatile environment, which means of course that, there will be some outlook of a larger bandwidth than in the past. And we expect for the EBITDA the operating result between €600 million and €1billion.

Thank you, very much for listening. And of course we appreciate your questions in English or German.

Question-and-Answer Session

A - Peter Felsbach

Thanks, Mr. Eibensteiner. On we go to our Q&A session. Once again, here you see the phone patch and other possibilities to get in touch with us. [Operator Instructions] Maybe we have a first question already.

Unidentified Analyst

Hello?

Peter Felsbach

Yeah. We can hear you. Yes. You are live. Please your question.

Unidentified Analyst

So, good morning. Christian [ph] here Tata Steel. I have two questions linking up with what Mr. Eibensteiner and Mr. Zajicek have said. This is about this Donawitz blast furnace shut down. Some repair or relining is being anticipated in time. Is it a total relining, or is it a modernization or adaptation? And Linz and Donawitz blast furnaces are shut down and you do not yet know when you will restart them. That was my first question.

And the second one, Mr. Zajicek spoke about a reference index and an almost doubling. What is the reference period here? And what does it contain? Is it iron ore prices only or some others as well?

Peter Felsbach

Mr. Zajicek can you get started with the reply.

Hubert Zajicek

As to the first question in Linz, we are having one large and two smaller blast furnaces. And a small one that some 20% of raw iron capacity of the location and that one we shutdown in the second half of March, and it will not be operated for a while. And the other two blast furnaces at Linz remain in operation and in Donawitz, there is a planned repair. They are having two blast furnace there as well and one of them is being relined. It's not a damage it's a relining of the blast furnace which had been planned anyway, but now it's just done earlier.

And second an almost doubling of the raw material prices, I'm speaking of an index which to us always has been a reference parameter. That's the index for 62% iron ore. And that index between early in January last year and before summertime has gone from some US$70 to more than US$120 per tonne so almost a doubling of the value.

Peter Felsbach

Thank you very much. Next question please.

Unidentified Analyst

Ms. Sabine Moser [ph] Austrian Broadcasting Corporation ORF. What about the Texas plant? How is it doing?

Hubert Zajicek

Maybe that's for me again. First, we have succeeded from the technical perspective to get the Texas plant into a very stable condition. Year-on-year, the technical availability of the plant has been stepped up by some 10% so the technology does work very well. And we then went over to a regular operation. The first quarter of the elapsed business year was a very successful one. But as described before, we also had better raw materials prices particularly also iron ore related to market prices, which are also characterized by raw iron and scrap the substitute products. So here again that has meant a very difficult situation and the margins increased particularly in the second half year of that business year.

Unidentified Analyst

Thank you. And then I'd like to know as to the 2000 staff, which you have reduced how many of them in Austria?

Herbert Eibensteiner

In Austria, actually, we mainly reduced least so temporary workers and I would say it will be more or less half of all of them, half of 2000. And that's of course in full-time equivalent. And over time, it's being included as well.

Unidentified Analyst

So, 1,000 FTE?

Hubert Zajicek

Precisely

Unidentified Analyst

And how many people? How many persons as it were more or less?

Herbert Eibensteiner

Some 600.

Unidentified Analyst

Thank you very much.

Peter Felsbach

Thanks, Miss. Christian. And also next question comes from Andre Tumi [ph] [Indiscernible], an Austrian Daily.

Unidentified Analyst

Yeah. First question, is it short time work only or do you get state aid or state support also from some other systems or schemes? And short time work for some 10,000 for how long? Will you have some of them back in September already? Will you require a further scheme like short time work after September? Can you tell us for how long, and what kind of short time work you would want to have or you will need?

Herbert Eibensteiner

Let me get started with your second question. We are now having some 10,000 staff in short time working in Austria. We believe that in some further areas the second short time work round will be needed as well. We have some areas performing very well, like railway systems, rails turnouts, casting foundry. They are much better in the other segments. And also in some segments we will require a second round of short time work. And the government has announced that they will have something after September as well, and I believe that we will need it in certain areas. We will need an additional scheme, which we can benefit from.

Unidentified Analyst

How many people are not in short-time work presently?

Herbert Eibensteiner

We are having 23,000 staff -- or 22,000 rather in Austria. And the 10,000 mentioned are in short-time work.

Unidentified Analyst

And in September, how many will that be?

Herbert Eibensteiner

We can't say now. Probably we can tell you more in the first quarter in August. And state aid or state support alongside with short time work, we also have benefited from the government's offer to defer some payments of insurance and social schemes, meaning that we will only pay in autumn or towards the end of the year, but we will have to pay everything yet later. And otherwise in terms of fixed cost allocation so far and we have not been benefiting from any further schemes.

Peter Felsbach

Thank you. [Indiscernible] seem to be answer. Now, Boris Groendahl from Bloomberg.

Boris Groendahl

Mr. Eibensteiner, two questions. As to the world steel market, first, do you expect that as a consequence of the coronavirus crisis there will be some further protectionist measures, meaning that some governments like EU, U.S. or others might decide such new measures in order to protect their home markets or extend such measures?

And the second question also caused by COVID structural changes in the global steel market. Do you expect that there will be some new conglomerates, new structures or will everything be back to as it was before?

Herbert Eibensteiner

Maybe your first question, all protectionist measures, which had existed before the corona crisis like Section 232 tariffs, China, as well all of this is still valid.

And presently I also do not see any trend showing or indicating that those protectionist measures might be loosened or stopped after the crisis. I cannot say whether there will be some additional and further measures. I believe and that's my personal view that we have to see that the total economy in Europe and in the rest of the world gets up to full swing again and such measures there certainly are hampering this.

The further evolution of the global steel market after corona, I would say that China has sailed out of these difficulties. In the meantime they are producing max capacity again. And in some other countries it's much too early, I would say to say whether there will be some concentration, new groupings or to anticipate how the steel configuration and panorama will develop in the individual countries.

Boris Groendahl

So you cannot yet say where there will be changes in supply and demand?

Herbert Eibensteiner

No, it depends on the individual segments and how they will evolve. But I've understood your question in such way will there be concentration? Will there be new groups? Will there be mergers? Will there be consolidation? That we cannot say now. It is too early.

Not only concentration of companies but maybe also some fields in production, which after the crisis due to the measures, which are implemented or due to some other products, which are not in so high demand any longer just to say whether on the level of products and the demand for progress there might be some shift.

I believe in the present phase, it is definitely too early to speak about such elements. I believe it is very important that the automotive industry be backed and supported. It's one of the most important supply chains we are having in Europe and also a very important one globally. It will be decisive to see how consumption would pick up again. In China as an example they have succeeded very well in so doing. Thank you.

Peter Felsbach

Thanks. The next question then is from Ms. Valerie [ph] from Plex [ph].

Unidentified Analyst

Two questions related to steel production. I'd like to know about that Linz blast furnace, which has been shutdown; might it be shut down forever? And according to demand maybe be compensated by HBI and what is capacity utilization in Austria Voestalpine steelworks presently?

Hubert Zajicek

As to the first question, a sustainable shutdown that is forever of that blast furnace is not our intention. We are having large one and two small ones in Linz, so we can react very flexibly to demand. And as soon as demand picks up again and stabilizes more and more, the small blast furnace will also be restarted and taken into operation again.

And as to HBI in the blast furnaces this makes sense when the blast furnaces are a bottleneck in order to step up production capacity, but this is not the case. So a more focused use of HBI in the blast furnaces is not our intention or plan presently.

As to the capacity utilization of steel works. I'm under the impression that all European steel plants presently are being hit very much by a slump in demand. The figures you keep reading are at least at 50% and depend very much on which product portfolio is the focus of the plant and which market segments are being served mainly.

Unidentified Analyst

50% that -- does that apply to Voestalpine as well?

Herbert Eibensteiner

Well for Linz, April were the lockdown of the automotive industry. One of our main customer segments came across the board. It was a bit more than that. And we are seeing already a cautious and slow recovery of the situation.

Unidentified Analyst

Thank you.

Peter Felsbach

Thanks indeed. Next we have Monika Graf, Salzburger Nachrichten another Austrian daily paper.

Monika Graf

Two questions. First, Mr. Eibensteiner, you have said that there will be capacity reductions in certain areas. Which areas do you mean by that? And second for Mr. Ottel maybe in investments, which investments do your curtail or have you eliminated?

Herbert Eibensteiner

As to capacity adaptations there are two areas, which are in a very difficult environment. On the one hand that's the aviation or aerospace industry. And on the other hand it's the oil and gas field. As regards OCTG and there are some other segments as well where some adaptation necessities exist like in the automotive industry. And as you know portables is concerned as well.

Robert Ottel

As to investments the total approach of ours is that investments for the operating work and maintenance are being continued. And investments which are rather long-term and also of a strategic nature have been stopped or taken out or postponed. An exception to that is the large project at Kapfenberg, which is in the second half of its implementation already. And due to the COVID-related problems it is being delayed, but it will be continued to the same extent. So in short, small short-term investments are going on long-term investments do not exception being made for Kapfenberg.

Monika Graf

And which ones have you then reduced or cut out?

Robert Ottel

It's many individual measures. You wouldn't understand the how much I believe and I couldn't tell you off the cuff.

Peter Felsbach

Thanks indeed, Ms. Graf. The next question comes from Sigrid Brandstaetter Oberoesterreichische Nachrichten yet another Austrian daily.

Sigrid Brandstaetter

Several questions. First, the capacity reductions have been addressed already. Can you give us some insight? You say that in April there's been a reduction by 50%. If you see the Linz site at how many percent are you now in terms of capacity utilization? And Mr. Eibensteiner has said that this week almost all facilities are being operational again. So in terms of capacities of our -- are you from the group's targets. And another question what are the short time work? Are you at 50%, or in the meantime are you at a higher degree of occupation already?

Hubert Zajicek

As to the capacity utilization reduction at Linz, according to segments product areas it is different and has already been explained for Linz by Mr. Eibensteiner. We do have some areas and segments which are not hit very much by those market restrictions. As I said before, it's casting and foundry systems at Linz or at Drysen sheet metal as well. And the market accompanying reduction mentioned by me which was hit very much by the OEMs' lockdowns mainly relates to stocking SSCA links.

Sigrid Brandstaetter

And where are you now in terms of capacity utilization? Are you at 50% now, or where are you?

Hubert Zajicek

No. May has already been much better.

Sigrid Brandstaetter

70% maybe?

Hubert Zajicek

Yes a bit below that.

Sigrid Brandstaetter

And this also means some 70% of work for the people or people in short time work?

Hubert Zajicek

Well in short time work they are in short time work all of them across the board. And what I find very positive in the model is that, one can react very flexibly to the situation according to segment according to facility. So for instance in April, we have an effective full-time wide ratio of some 20%. And of course in combination with reduction of time accounts and holidays vacation we'll certainly more or less keep this percentage.

Sigrid Brandstaetter

What about positive and negative contributions to the earnings; Cartersville and the HBI plant in Texas? Because if I look into the quarterly comparisons the large drop in earnings were the nonrecurring effects depreciation and impairment and that's not so much related to COVID. And the second question relates to concrete results in those two companies?

Herbert Eibensteiner

Ms. Brandstaetter of course we do not announce detailed results of individual companies. But your interpretation is correct. Texas both in the individual operating result was worse than expected and was also hit by those impairment losses. Mr. Zajicek has said it already. In particular in the second half year, the ratio of pellets -- billet prices iron ore and scrap meant a negative operating result and of course also the impairment loss even more so.

As regards Cartersville, you know that in 2018, 2019 at Cartersville we had a very bad result because of the start-up problems. Cartersville in the elapsed business year 2019, 2020 still was not positive, but on a clear way towards improvement. Cartersville is part of an asset CKU, the so-called hot forming CKU. And there in the new evaluation of future perspectives, there has been an impairment loss. So in both companies mentioned by you, there has been a mix or there was a mix of operational worse performance and non-recurring effects due to impairment loss.

Sigrid Brandstaetter

Restart of the blast furnace at Linz, you won't deliver any perspective as to whether it will be this year will you?

Robert Ottel

As explained before by Mr. Eibensteiner it's a bit hard to assess that now. We have shut it down in such a way that it can be restarted immediately. There is no repair needed. It is operational whenever we need it. I believe it won't be before or during summertime. And whether it will be towards the end of the year or next year we will see in the light of the changing market environment.

Sigrid Brandstaetter

The time anticipation of Donawitz relining by how many months?

Robert Ottel

2.5 weeks only, 2.5 weeks earlier for that relining of the blast furnace and it will last until early in October according to plan precisely.

Sigrid Brandstaetter

And that one will then be restarted?

Robert Ottel

Cannot yet be seen from today's perspective, Ms. Brandstaetter. We expect that it will be in the course of autumn at the earnest, but for that first we have to wait and see what the next three months will bring particularly in the field of the automotive segment.

Sigrid Brandstaetter

And a last question. Mr. Eibensteiner mentioned some segments, which might require support even in autumn in the second phase of short time work. It's also possible. If there is no recovery in certain segments that there can also be some laying off of people in that connection. Are you considering that? And if so in what areas?

Herbert Eibensteiner

Well, I said before, we will decide upon this after summertime. We will see how business situation evolves and where the trend will go. We cannot yet say so.

Sigrid Brandstaetter

Thank you.

Peter Felsbach

Then all Ms. Brandstaetter's questions have been answered. The next ones come from [indiscernible] another Austrian daily.

Unidentified Analyst

Good morning. Several questions have been answered more or less already. So let me still ask my question very briefly. At Kapfenberg, what had been the initial timetable and when will it be finished now the project that is?

And the next question, can we say right now that the worst phase of the crisis is behind us? It is a very general question I know, but since Mr. Eibensteiner has mentioned China in a very favorable note it seems so that the worst phase is already a matter of the past and we go up hill again. And can we also say, how far your company will be strengthened after the crisis?

And as to the new electrolysis, you've also been mentioned this in passing. It will go into full operation you have said. Is there everything according to plan? And when will that go 100% operational the electrolysis?

Robert Ottel

Well, as to Kapfenberg, the initial timetable had been that mid-2022, the special steel plant would become operational. From today's perspective in conjunction with the delay caused by the pandemic we say that it will be three to six months later so say autumn or end of 2022.

Herbert Eibensteiner

I hope your question was not whether we are out of the crisis already. But in the last few months on a global basis, we have had a lockdown a lockdown in China in February where the economy has developed very fast. How fast the other countries will develop and it's fraught with so many uncertainties still.

But we are very far away from a total standstill. So, in -- so far, it's an improvement. Many of our customers are starting up again yet slowly. So, I think in terms of capacities and in terms of outlooks, we have to be very conservative and very patient because we can't estimate that certainly not in all our areas.

As to hydrogen, the hydrogen plant is a pilot plant, a research plant. There is a research project there which is underway where the plant is being tested under different operating conditions. That is working well. And the plant is or was in full operations, sometimes they do 100%, sometimes they don't. It is as I've said a research project with a lot of trials.

Strengthened after the crisis well you can be sure that all staff -- and by the way they are working excellently. My thanks go to all our staff in this very difficult phase. Everyone is working for us being -- for us to be strengthened after the crisis.

Unidentified Analyst

Yes, but can you maybe prove this by anything?

Robert Ottel

I believe it's most important presently that in the next few months it will be most important to overcome the crisis. And I've said it before, the focus is on the adaptation to the present situation, our cost programs, our efficiency programs. And obviously we will try to see that we do everything in order to have the focus there.

Ms. [Indiscernible] maybe also in addition and not correction to Mr. Eibensteiner. As a CFO, I had the great financial crisis in 2008 and 2009. Not CFO, but as a member of the Board. And as you know in such situations it's a fundamental problem and a well-positioned group like Voestalpine normally sails better through such crisis even if we are hit very much as well.

And this automatically means that after such a crisis we can of course benefit from that as an advantage for us. And in overcoming the crisis, I believe we will be stronger than our competitors.

Herbert Eibensteiner

Ms. [Indiscernible] as to Kapfenberg, I've seen that some figures were wrong. So, it's end of 2021 not 2022, end of 2021 is the right figure.

Unidentified Analyst

And the electrolysis? Not Kapfenberg, but Linz? In a trial operation everything seems to work very well. When will that trial operation be evaluated in such a way that you can say the model does work?

Herbert Eibensteiner

All that project is planned for the next two years still and it will also take us so long before we then can come out with a final statement all in order to see whether all parameters are met because that's about a longer durability of the units for instance and it will take us a while still.

A short addendum to this, you have to see this in such a way, it is a pilot plant which is being operated and the efficiency is measured some coatings are changed. And the idea is as said by Mr. Eibensteiner that until 2021 these activities are planned in such way. How can you start it up, how can you reduce, its operation, it does work very well already and it also does deliver as expected and planned and it is a research program. There shouldn't always be 100% of its operation, but the boundary conditions should be investigated much better in order then to be in a sustainably optimized condition.

Unidentified Analyst

Thank you.

Peter Felsbach

Thanks, [Indiscernible] for the questions. Then in writing I have two questions Thomson Reuters Ms. Knoll [ph]. The first one automotive industry. The second one as well, which signals are you getting from the automotive industry and when do you expect some upswing there?

Herbert Eibensteiner

We know the automotive industries plans. We keep accompanying our customers in their plans as to their respective restarts. And it will be decisive how fast consumption will pick up and when people will buy cars again. If that picks up again that area will develop very fast. And I believe it's also important to give new impetus to the business situation and think about support for that field across Europe.

Peter Felsbach

And the next one is from again Ms. Siebenhofer, ORF.

Alexandra Siebenhofer

Have I understood properly that the Donawitz blast furnace will be restarted in autumn at the earliest? And you cannot exclude some further laying off of people in Austria can you?

Herbert Eibensteiner

Ms. Siebenhofer, the plant relining will last until early in October. And presently on the basis of today's capacity utilization, we would not restart it early in October yet. But we keep observing these months after months in order to see how the automotive industry in particular evolves. And as a function of that we will then decide when we take the blast furnace into operation as well.

Alexandra Siebenhofer

Same thing for Linz unclear for both them?

Herbert Eibensteiner

Yes, precisely Linz. I've said already here, we keep observing the market development. And whenever it's more efficient to use three, we will do that. And probably that won't be the case before autumn. And laying off people, I believe I've said it in detail uncertainties still are very high. But I believe in a phase like this we cannot basically exclude any laying off of people.

Peter Felsbach

Thank you. Again we have Mr. Groendahl from Bloomberg.

Boris Groendahl

For Mr. Ottel as to the gearing, you say 67% cannot be your target and you have brought it down. My question first what is your target, or what do you believe is realistic for this year as to the gearing? And second, any capital or equity measures as to the debt say a new bond, a new hybrid maybe?

Robert Ottel

The basic target for the gearing which we have been having for years is clearly below 50%. A concrete target for end of 2020, 2021 I can't tell because I hope you will understand that an outlook having a spread of €400 million EBITDA will make it very difficult to become more precise. The capital markets or equity measures as early as -- early in the previous business year we had done some refinancing almost nothing then. No larger refinancing in the last half years, so we have no redemptions almost for 2021. We have enough liquidity as of end of last business year. So there are no bond emissions, which we are expecting from our perspective. The largest next refinancing will be a bond of €400 million for calendar year 2021.

Peter Felsbach

Thank you. Thank you. Then again we have Ms. Brandstaetter then Ms. Graf with Oberoesterreichische and with Salzburger. So Sigrid Brandstaetter first.

Sigrid Brandstaetter

Thank you very much. One question, I forgotten. Please explain why, with a view to these figures, first pay a dividend at all? And what it will cost you?

Robert Ottel

We have decided to pay a dividend, yet adapted to the current situation, so that is €0.20 per share, against the backdrop of a certain continuity in our dividend policy towards our shareholders. And I might remind you of the fact that 50% of our staff are shareholders as well, so it will go to them as well. And all this has motivated us to pay a dividend to this reduced extent.

Herbert Eibensteiner

May I add to this? In the past, we always had two lines of our dividend policy. On the one hand, the dividend yield of 3% to 4%, where based on a low dividend we are clearly below this year. And on the other hand, also a payout ratio. And based on the negative annual result, of course, this payout ratio is very high, or almost not measurable. So the €0.20 against this background shows the two best guidelines.

But in the last decades, I can say in the meantime, at road shows and also at debt capital market road shows, so as to those giving money to us, we have always mentioned consistent respecting of our financial obligations towards our money lenders. And for our money lenders, it's always very positive also to have -- keep this policy and has helped us to always have a very -- or very good conditions as to the financing of voestalpine. And this also means that in this difficult situation we also believe that it's good to pay a dividend. Since we have some 180 million shareholders, it's €36 million.

Peter Felsbach

Thank you. Thank you. Monika Graf, Salzburger Nachrichten.

Monika Graf

Two more questions, detailed ones. Can you remind me of how much voestalpine saves in terms of money by means of all these measures? And the loss impairment has mainly been caused by the two U.S. plants, the €480 million, is that correct?

Robert Ottel

Maybe as -- let me answer this question. Maybe this is a misunderstanding. No, the €480 million is not mainly caused by the impairment loss in the two U.S. plants. The €480 million, on the one hand, that's depreciation amounting to some €400 million and €80 million is caused by restructuring or some other provisions or accruals.

Again, the €400 million, they stem from most diverse areas of the group Cartersville and Texas, both of them are part of this. But there were some other locations also in Austria, also in Germany, which are concerned by this and have caused the €480 million.

Monika Graf

Would you say how much Cartersville and Texas is?

Robert Ottel

Was that a question or -- I've said before that of course, we do not mention these amounts in detail.

Peter Felsbach

Maybe on your first question, saving money, we communicated last year, that in addition to the normal mentioned some €100 million, EBIT effective are to be saved and on the cost strategies. And as the results show, we did achieve this target.

Monika Graf

Will there be added some more because of COVID?

Robert Ottel

Partly there are some programs, which are being restarted. And we have to focus on the new situation. Of course there are some additional areas in all fields. And some additional schemes which have been launched everywhere.

Peter Schwab

Thank you. Then we have Ms. [Indiscernible] Kurier Newspaper.

Unidentified Analyst

As to deferred payments of taxes and social insurance payments what is the volume here? Then I'd like to know, how many guarantees from the COFAC fund, COVID fund, you want to have? And then you mentioned the cost-cutting program quite often. How much of this is for the area of staff?

And a clarification, you've said that in the elapsed business year, in Austria, 1,000 FTE have been reduced, that is 600 that can't be correct, some clarity here please, and then what about the bonuses of the members of the management Board?

Peter Schwab

Ms. [Indiscernible] maybe on your first questions, as regards to those deferred payments it amounts -- and it fluctuates very much. And it amounts to some €50 million per month, which will then be paid as a total end of the calendar year. It is not our intention to use COFAC funding. We have enough liquidity reserve.

I can of course never exclude that, if the business situation deteriorates massively, we might do something counter to my today's statement. And that we use a similar scheme. But from today's perspective given our liquidity reserve, I do not see that.

Robert Ottel

As to your question 1,000 leased workers FTE 600, of course, overtime is part of the FTE. And natural leaving the company, which is not replaced, has also been counted here. As to the bonus you can read that from our company report we are clearly lower than the AGX.

And of course it also depends -- of course our bonus depends on success. So we have a clearly reduced bonus, which is clearly above 50%.

Unidentified Analyst

The reduction is clearly higher than 50%?

Robert Ottel

Yes.

Unidentified Analyst

And what bonus are you aiming at for the present business year? There are some companies which take out all bonuses on a voluntary basis?

Robert Ottel

Our bonus system has not been changed. And we have still high flying targets for this business year, which are part of the bonus system. It will be difficult to reach them. So the effect of our systems is sufficient, so that a worse economic situation would be reflected by them.

Unidentified Analyst

Thank you. And as to the cost-cutting program, how much of that is for the staff or head count area?

Robert Ottel

Well, there are so many cost items I couldn't say off the cuff in detail.

Unidentified Analyst

Order of magnitude?

Robert Ottel

I don't like to estimate figures.

Peter Felsbach

The last question from Ms. Sieza [ph] from FAZ.

Unidentified Analyst

The EBIT was mentioned and it's negative for the first time. First time since when? That's my first question. Second one you compare to your European competitors where does voestalpine stand according to you? And in the course of COVID pandemic, it has become obvious that many industrial groups have a customer risk in Asia not necessarily in China, but also in China. So what about a shift of production not to Europe but maybe to elsewhere?

Robert Ottel

As regards to negative EBIT, I've been in the management Board for 16 years. During that period it has never been negative. And as far as I know since first, I've been -- start as a listed company in the '90s there has never been any negative EBIT.

Herbert Eibensteiner

As to the other two questions of yours how do we fair compared to the peers? I've shown one parameter the EBITDA, but I think that voestalpine as a group has such a clear-cut strategy, our striving to innovation and to quality. The using of high-quality niches that gives us some autonomy, which distinguishes us from many competitors and that's also our USP. And like Robert Ottel has said, it will mean that we will be even stronger after the crisis.

As to your question related to Asia China is some €600 million of revenue for us. So a very important part of voestalpine yet when compared through the exposure we are having in Europe. It's a smaller part. There we are in special niches. We are acting in and also the automotive industry where we followed -- to where we followed our European customers. So as always, our strategy will be evaluated. But in China, you cannot expect a 180 degrees turn of ours.

Unidentified Analyst

You've misunderstood me. Voestalpine and your European competitors, I meant related to the COVID state support.

Herbert Eibensteiner

We have not asked for any state support so how do you mean?

Unidentified Analyst

Well, you are getting public support at least for short time work. And I'd like to know, how you see your own position. You know the situation of European competitors and their respective national support schemes.

Herbert Eibensteiner

Of course in those areas, there are some minor differences, but when comparing us to Germany, there are similar short time work schemes and this seems to be comparable.

Peter Felsbach

Thank you, very much and this is the end of our Q&A session. Thank you for your lively interest. It has been a very long Q&A session. There is of course one bitter tone in a virtual conference, the traditional talks after a press conference cannot be held this time. But for all these who normally always come, we will of course keep our regular events where people can also come to us hopefully already in November.

And my thanks go to the listeners to the members of the management Board. Thanks to all of you. And for the next few weeks and months, we wish to all of you and all of us that we will sail through this crisis. We wish to you an excellent summer. And at the latest early in August, we will have more on the first quarterly results. Thanks to the team for their organization. And I'd like to ask Mr. Eibensteiner for his final words.

Herbert Eibensteiner

Well, thank you very much for your keen interest in our business and our situation your interest also in the figures of the elapsed business year. I'm very happy to see you physically next time and I wish you all the best and thank you very much.