Voestalpine Ag Unsp/Adr

Ladies and gentlemen, welcome to the publication of the first nine months of the year 2023-2024 conference call. I am Sandra, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. This time, it's my pleasure to hand over to Peter Fleischer, head of IR. Please go ahead, sir.

Thank you very much, and good afternoon, ladies and gentlemen. Again, a warm welcome to our results presentation today of the first nine months, respectively the third quarter of our current business year, 2023-2024. Just a quick remark from the technical side. We got on the one hand this webcast, which is a one-way transmission only, If you want to ask a question, I would kindly ask you to dial into the conference call as well. If you don't have the detail, please shoot Andrea Klepp a quick email, and she will reply instantly and send you all the details for the call as well. So far with me, our CEO, Herbert Eibensteiner, I think you all know him. We will give you a quick overview on what has happened in the last nine months and also speak about how far we can see in the current business year, end of March, and as well want to give you a quick update on our decarbonization projects. Herbert, the floor is yours.

Thank you, Peter. Good afternoon, ladies and gentlemen. Let me start with a quick overview of the actual situation of the current development of our markets. I think you are well aware that the European economy is affected by lower demand, I would say, compared to other markets or other geographic markets. Europe is more affected. We see here a weaker demand for our products in construction, mechanical engineering, and manufacturing. also consumer goods. The very important part of our business, automotive production, is stable on the actual level, which is slightly higher than last year. And what's very positive is the very positive demand for from the energy sector and from the aviation industry, and very positive and the biggest sector, which is very stable and with high demand, is our railway infrastructure business. North America is, from our perspective... the economy more resilient, and we can say that in mostly all of our first alpina sites, we have a very satisfactory demand. Also, Brazil, always very interesting. We had a very robust development despite this high inflation and high interest and why is that the case? Very good underlying demand, and in addition, we saw a boom in photovoltaic in Brazil, and we have also strong demand from the oil and gas sector. China is growing, but a bit lower than expected. I would say all this reopening effect at the beginning of the year quickly faded, and we saw a steady development. And from our business, we have a relatively stable development in China. Let me come to our divisions. First, the steel division. We have a good performance in a really difficult environment in the European steel industry, as presented before. We see this... lower demand in building and construction industry, lower demand in mechanical engineering and consumer goods. But we can mostly compensate that with other sectors. We have a good demand from the automotive side. And also the energy sector, mostly heavy plates, is doing very well. In high-performance metals division, we have a very weak demand for tool steel due to this very low spending, industrial capital spending, which is a driving element, and also a lack of new models in automotive sector, which is also driving this business. But we have a strong demand in special material and aerospace business, and the bigger part, the even bigger part, is in energy-related industries, and demand here is good. Metal engineering, very good development of railway systems. and very stable, good demand, good order book, and seamless tubes for oil and gas exploration on a good level again. And just to remind you that we had exceptional development at the beginning of this business year in the first quarter. Welding technology is overall stable on a good level, and a weak demand is in wire technology. And, yes, I would say we have here bottomed out, and I think we are stable on a lower level. And metal forming division, We see some improvement in the course of the year in automotive components, solid development, good development in our tubes and section business, and we experience a lower demand for our precision strip products and, what can I say, an ongoing positive development in in warehouse and rack solutions. So this is a quick overview. You can say, yes, we have some areas where we face this lower demand, as I have explained. But on the other side, we have very stable markets, stable markets, and very positive developing markets, as I mentioned before, railways, energy, and others. So let's move to the figures. Peter?

Thank you very much. Just some very Quick remarks on the figures. I think you've worked through the figures and are very well aware of what has happened in the quarter. Anyway, I want to mention a few highlights, and I want to start here actually with the last business year. Today in the morning, we got quite some negative media headlines, and I want to remind you that last business year was our absolute all-time high record business year, which ended with an EBITDA of more than $2.5 billion. in March 23. So in the situation we are in today, it's a completely different market environment. And, of course, looking at all the metrics, they have come down in an annual comparison. But I think it's worth mentioning that in an environment as we are in today, as you have just mentioned, you can see a good part of our business is in good condition, railways, aerospace, you name it. But, of course, we've got a lot of businesses which is related to building construction, mechanical engineering, and so on. which is really, really difficult in a difficult environment. And still in this environment, we were able to generate an EBITDA of almost 1.3 billion euros and an EBITDA margin of more than 10%, which I think is not a bad number in such an environment. Only walking down to EBIT, 713 million euros for the first nine months, which is an EBIT margin of almost 6% for this period. Now, how has EBITDA developed in the last 12 months? What has happened on group level? As mentioned before, the last year starting point and EBITDA of almost 1.9 billion for the first nine months was a record number. That was the starting point. And what has happened in the last 12 months is that we lost 551 million euros on EBITDA from the pricing side. And you might remember that last business year was a year of an extreme strong dynamics in the pricing environment in the steel market. Volume-wise, last year wasn't a strong steel year, but the prices were really, really very, very good. And those prices have come down in the last 12 months. So this 551 million euros are basically subject to the development in the steel divisions. The other areas, the other divisions had really very minor movements on the pricing side. It's basically a steel price movement, what we've seen. As steel prices have come down, we saw some tailwind from raw materials, iron ore, coking coal. Of course, this again affected mainly the steel division, but also the metal engineering benefited from lower raw materials prices. Moving down the line, you can see volume and mix development, minus 126 million euros. That was basically the development in the high-performance metals division. We lost a lot of volume, in particular in the tool steel business. Herbert mentioned a very weak demand environment from industrial cap expanding, which really was a big drag on tool steel demand. And in this annual comparison, we lost the volume here in the high-performance metals division. The last element, Mr. Lehner's minus 220 million euros, is basically cost inflation, you can say. And here the largest part is really the wage increases, what we've seen last October, but also October this year. So it is a cost increase, which brought us then down to an EBTA of €1,283,000,000 for the first nine months of this business year, and this equates to an EBTA margin of 10.4%. Now moving on to cash. cashless effect. As you can see, for the first nine months this year, we generated a very minor small negative free cash flow portion. I think it's worth mentioning that we had in the course, in the developing of the year, we had a relatively large negative free cash flow development in the first quarter, and then already a positive one in the second quarter, and now again a positive free cash flow almost 70 million euros in the third quarter. So we started from a low point, and the trend since then is moving into the right direction. And when we think about the full year, we think about a free cash flow guidance, which is completely unchanged to our last results, where we think about 400 million euros roughly we can achieve with the guided EBTA. What would that mean if I walk through the cash flow statement here? In particular, working capital, you can see we had a strong build, 300 million euros in the first nine months. Again, like free cash flow, this has basically happened in the first quarter. And then we've seen a cash release in the second quarter from working capital. And in the third quarter, working capital was basically flat. And for the last quarter, we expect a big cash release from this section here, around 500 million euros is our expectations here. That would lead to substantial cash flow from operations. And then CapEx spending cash flow from investing almost 700 million for the first nine months. For the full year, we guided to around 1.2 billion. I think the very actual figure is around 1.1, 1.15 billion euros for CapEx for the full business year. And that should lead us then to free cash flow for the full business year in a range of around 400 million euros. What does that mean for the balance sheet? As you can see, by end of December, our gearing ratio slightly increased compared to the starting point of the business year. Our net debt now stands at 2 billion euros, pretty straight, starting from 1.6. What has happened in the meantime, this very small free cash flow, negative one, but, of course, the larger portion where the dividends we paid out and the share buyback program, which was in total more than 350 million euros, which led to this gearing ratio of 26%, taking into account an equity of 7.8 billion euros roughly. For the full year, we expect equity to move north of 8 billion euros, and on the other hand, net debt should come down to a range of around 1.5 billion euros, which would then equate to a gearing ratio of below 20%. Those were just some highlights from the figures, and now back to the outlook.

Yes, the outlook is mostly unchanged, I would say. We think that all the existing trends we have expected to – We are expected to continue for the remainder of the year, and we see this and we know this ongoing stagnation in demand construction and mechanical engineering, also in consumer goods. Automotive should remain stable at the current level, and the demand from energy industry will increase. developed well. Railway systems business is only affected by the usual winter seasonality but the underlying demand and the order book will remain on very good level and the aerospace industry will continue. It's a positive trend and this is the unchanged guidance for EBTA for the end of the business year. where we expect EBITDA around 1.7 billion euros. So this was more or less the outlook, maybe just in a nutshell. So the good sectors remain good until the end of the year, I would say. The stable ones remain. remain stable, and those that are particularly affected by the economic downturn that should remain on the same level. I would say these sectors have bottomed out now, and I think that's the situation until the end of the year. I would say stability on the different levels. So thank you. That was our presentation and the presentation of the figures and the outlook. And now I would give you an update on our green textile activities and decarbonization update just to remind you the first Albini group you can divide it in two parts the steel producing melting activities and on the other hand on industrial business. So the biggest part of metal engineering and the whole metal forming is industrial business where you have no really material CO2 footprint. And this is roughly more than 30% of group revenues, 32%. So the production sites. On the left-hand side is steel division, three blast furnaces, metal engineering, two blast furnaces and high-performance metals has already implemented for electric arc furnaces with a very excellent scrap burden and it's only operated by scrap, that means that we have a relatively low carbon footprint. So you can put it more or less on the right-hand side, and that means that only 52% of coastal penis revenues have no material carbon footprint. When we talk about decarbonization, we only talk more or less in replacing arc furnaces. So the first phase of our decarbonization strategy is that we replace two blast furnaces, one in the steel division, one in the metal engineering division, by electro-arc furnaces on the left-hand side. And so we can reduce roughly 30% of our CO2 emissions. And after this first step, roughly 2.5 million tons of green steel or CO2 reduced steel. So after this step, again, 65% of First Albina's revenue has no material carbon footprint. And this first phase, which has been already started, is the actual situation is that we have HBI secured via a long-term contract via stake of our HBI plant in Texas. We have long-term contracts with scrap dealers. Scrap is very decisive in this concept. We have the... electro arc furnace for the steel division recently awarded in January and we have as you may know the Donowitz electro arc furnace was already awarded in autumn so both project has started and all the works, all the activities proceeding according to plan and also within our budget. So this is not the end of the story, but the first phase for this first step, 30% lower CO2 emissions, 2.5 million tons of green steel has already started. So after, just to remind you, after 2030, the same procedure, we replace, please look on the left-hand side, we replace another two blast furnaces, one in the steel division and one in the metal engineering division, division by electro arc furnaces and this would lead to I would say only one remaining blast furnace and by 2035 80% of first alpinist revenue would be then without any material carbon footprint. And so after 2035, we will replace this one blast furnace till 2040, 2050. And so we have two opportunities. It's either an electro-arc furnace with 8Bi HBI feed, or we are currently working on a HIFOR technology, and this would, if this is the better way, electro-arc furnaces under bracket, feed it by this HIFOR raw material. So this is not finally decided, but we plan to implement a pilot plant in Linz together with partners to build a plant where we can test this technology on a bigger scale. On a bigger scale is this technology of the future. Why is the question? On the one hand side, you need these high-quality pellets for the HPI plant. On the other hand, HIFO is using fines, iron ore fines, and there is a lower quality possible, and this is the topic we want to test in this I would say pilot plant, it's a bigger one. Maybe you can produce, so the full capacity would be 20,000, 30,000 tons, so we can see how this will work in the future. So this is the actual situation. More or less, there is no change in our plan, but we will do this pilot plant project. in HIFOR together with two partners, an engineering company and a company from Australia which produces iron ore. Yeah, this was a very brief presentation of the figures of the market and also of our decarbonization activities. And we're looking forward to answer your question.

We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone with a question may press star and one at this time. The first question comes from Alan Gabriel from Morgan Stanley. Please, go ahead.

Good afternoon, everyone. A couple of questions. The first one is on your full-year EBITDA guidance, which implies a Q4 EBITDA run rate of around, let's say, €420 million. And if we add back the one-offs that you've guided for, we get close to €450 million or €60 million. Is this figure a reasonable quarterly run rate to assume for the remainder of the calendar year before any one-offs? And if not, what are the moving parts that we need to be aware of? That's my first question. Thank you.

I would say yes, this is a reasonable figure when you put all things together and I know this was a very tricky December in particular and a tricky Q3 with a lot of plus and minuses but at the end we stick to our guidance from of 1.7 billion, and I think this is the corresponding figure for Q4.

Thank you. My second question is on the, I guess, with the big net working capital release that you expect in Q4 and the step reduction in net debt. How are you thinking about capital allocation, dividend buybacks as we draw close to your fiscal year end?

I think you know that I always say we want to pay dividends. I think we have a lot of big projects ahead of us, but despite these activities, we plan to pay dividends. You know, at this time, I always say we haven't finally discuss this with our supervisor report. But, you know, in our strategy, it's clear that we want to pay dividends continuously.

Thank you.

The next question comes from Tristan Grese from BNP Paribas. Please go ahead.

Yes, thank you for taking my questions. The first one is on the contracts. I think since we last talked, HRC prices have rallied in Europe. So I would assume that annual contract negotiations have maybe fared a bit better than initially expected. So were you able for those annual contract negotiations not to concede anything and any decline and maybe roll over most of your contracts? That's my first question.

Yeah, this is a yes, good question. And it was a bit more complex, but in a nutshell is that we, in the long-term contracts in the auto business, was, I would say, between rollover and a slight reduction there. The result, what we see in quarterly business, was more or less a rollover. So it's better than expected because in September we thought it would be more complicated. But this is the actual situation and more or less the outcome. in our negotiations, yearly contracts, half-year contracts, and quarterly contracts.

Okay, that's really helpful. My second question is a bit tied to that. It's more on automotive demand. You expect some stability in the current quarter. What is the visibility that you have for the remainder of the calendar year I think some peers are flagging a low mid-single-digit decline for automotive demand in Europe for this year. Is that in line with what you're seeing and what you're expecting for the year? Thank you.

Yeah, what we see is really so that, you know, we have these contracts, but so when we look at the planning of our customers, we see, I would say, till summer, And there is really stable demand on the actual level. And I would say that why should that change in the course of the year 2024? Because it's already on lower level compared to pre-COVID. It's a bit better now. than last year, and I think it's a lower level than three or four years ago. And when you look at international figures, so I think we are on a level in, I would say, stable level also in the course of next year.

Thank you very much. That was really helpful.

The next question comes from Tom Zhang from Barclays. Please, go ahead.

Hi, good afternoon. Thanks for taking our questions. Also, just two from me, please. First one on energy subsidies. So, obviously, you realize sort of 80 million one-off benefit. Could you just clarify if those are all Austrian or if there are any other country schemes in there and whether or not you expect any more positive effects on the P&L going forward?

This is a figure, it's only Austrian figure because we are the biggest energy consumer in Austria in our company.

And do you think this is all of the sort of subsidies now recognized, so we shouldn't expect any more sort of positive one-offs going forward?

Yes, there are always discussions also in other countries how will different countries proceed with the subsidies. So far, we think this was it for the past. And we try to negotiate for the future.

Thank you. And then just the other question. You've obviously restarted furnaces back in the last quarter. Maybe just any color on utilization rates now that you're basically, you know, all furnaces are back online. Is all of that volume being placed? And, yeah, just sort of general volume trends would be interesting. Thanks.

You're talking about our utilization rate?

Correct, your steel furnace utilization since you brought, I think it was Linz back online in October, November.

Yeah, what I can say is that we had a good utilization in the last three quarters, and we expect a similar utilization in the next quarters as well. So I wouldn't say there is any change. There's no expectation that something changes.

Understood. Thanks very much. I'll turn it back.

The next question comes from Patrick Munn from Bank of America. Please go ahead.

Hi, good day. Thank you for the presentation. Maybe a follow-on from Tristan's. What's the outlook beyond this quarter and this calendar quarter for the rest of the year and the end markets? Is it, as you expect for this quarter, kind of a continuation of existing trends? And maybe in particular on the tool steel where I think you're also seeing a lot of pressure from imports. Is there any sign that that might be easing up? That's the first question. Thanks.

Yeah, this is, as I mentioned before, I expect more or less a similar situation also into next year. The strong markets stay strong. Stable market, as I mentioned before, automotive will stay on that level. We are under pressure in tool steel industry. That's clear. We are working hard on that, improving efficiencies and so on. But more or less, I think this market environment will also be in the next phase. in the next months also into the first quarters of next business year. We see no easing of import pressure. I think it's as it is, so we have coped with that. On the other hand, when you look at the flat steel business, we have... a good order book, we have good utilization, and we have imports into Europe. Also, we are more or less protected by safeguards, and Europe is used to these imports. But I would say the market will stay stable on that level.

Thank you. And then the follow-up question or second question is, can you just remind us the CapEx outlook for, especially given the decarbonization spend starts to pick up now, can you just remind us the profile over the next few years? Thank you.

You know, we have to spend 1.5 billion euros in this decarbonization. On the other hand, We want to further develop our downstream business. And so when I look at our figures, so we will see a CapEx numbers, I would say next year, between 1.3 billion, 1.3 billion, 1.4 billion, and then back again to 1.2 billion. So it's easy. We have roughly 150 million already spent of this 1.5 billion. So you can divide these remaining figures by four or even five because we have to spend something in 2027 as well. So I think this is the distribution, and you can add it to this 900 million normal investments and with a peak, I would say, in 2025. Thank you.

The next question comes from Bastian Siganovic from Deutsche Bank. Please go ahead.

Yes, good afternoon all. I got two questions, actually. The first one just on the impact from the pricing of CO2 certificates. We've seen a drop in pricing on that front, which, if I just consider your 4 million tons short position, could be 100 million plus cost relief over the next couple of, versus the last couple of months. So I'm wondering, is this something which helped you already in the fourth quarter, or are we still due to see the effects which are benefiting you in the next quarter? That's my first question.

No, I think it's... That is a positive effect. That's clear. But we take also advantage in the next quarters because we have a rolling buying-purchasing strategy implemented And I think we will see the first positive effects, but also in the upcoming quarters as well.

Okay, thank you. Then my next question is actually on pricing of your green tech steel. I think you talked about the 200 euro per ton price premium for flat steel earlier, but there was only flat steel. I was wondering, what's the situation like in HBM and also metal engineering, at least for the European part of your revenue exposure today? Shall we expect you to potentially command a certain CO2 or green steel price premium here as well over time?

No. When we look at high-performance metals, you know this business is you have to pay these alloy extras, and this is a different situation. But when it comes to steel division and metal engineering, the customers are asking for CO2-reduced steels, and I think that will be part of these activities. How will the market develop? And I think that this green premium will be paid in the future. Okay. Thank you.

The next question comes from Patrick Steiner from Kepler Chevrolet. Please go ahead.

Good afternoon. Thank you for the presentation. Two questions from my side. First of all, could you give us some more information about what's going on in the weaker end markets specifically? Do you see any signs of recovery or some kind of bottoming out?

Yes, I think when you mean the building industry, mechanical engineering, and also this consumer market, consumer industries, household appliances, and so on. So our feeling is we have seen in the course of this year a reduction in demand. Now it's relatively stable. From our planning is that we consider that these markets have bottomed out, So far, but on the other hand, as I mentioned before, we do not see really the big signs or relevant signs of improvement. So as I mentioned before, I expect that also in the next months on these lower levels.

Okay, thank you. Very helpful. Second question would be, could we discuss a bit more the impact of the high Chinese production despite lower domestic demand and the subsequent imports into Europe? I mean, what are your expectations on prices and volumes for 2024?

The interesting thing is that we have very minor imports of Chinese steel in Europe. As you may know, that We have safeguard measures implemented in Europe where roughly 20 million tons per year. Flat steel is important. The rest, 10 million tons, is slabs and long products. So these 20 million tons are more or less coming from all over the world. But less volumes than expected from China. But on the other way around, I think China makes pressure in all the other markets and that leads to indirect imports to the EU. But as I mentioned before, we are used to that because we have always this 30 million tons imports per year Now, for the last six, seven, eight years, the European market is used to that. It's not helping when demand in Europe is weaker, but I wouldn't see this additional harm from Chinese production.

Perfect. Thank you. Thank you very much.

The next question comes from Andrew Jones from UBS. Please go ahead.

Thanks for taking questions. Just one for me. It's quite broad. Just on the fourth quarter trend, can you give us a bit more colour around what's driving the improvement and what to expect in terms of broad changes in prices and volumes and more material costs? Can you just walk us through the sort of broad bridge between three and four years?

The biggest part is... So we had a really very weak December. Just to give you an example, so many of our big customers stopped earlier and stopped longer than the years before and expected in some areas. What we see is an example in flat steel. So we have a very good January volume-wise, and that shows that there are some carryover effects into this quarter. And I would say, yes, we see in some areas these normal seasonal activities, but I would say Volume is the topic, and I would say in September, we wouldn't have expected a reasonable price negotiation results in steel. But on the other hand, we see that good order book in railway systems, good order books also in heavy plates, which is energy, So all in all, together, I would say would lead us to this improving quarter. And when you look back in the past, Q4 was always our best quarter because of all these effects coming out of this weaker, seasonal weaker Q3 quarter. into this quarter four, and you see that's the trend also in the last years, and we have, as I mentioned before, we have the visibility for sure until the end of the business year, and this is the reason why we are, I would say, optimistic that we can achieve this goal of this 1.7 billion, so which is a, I would say, a very good supported, good supported, from the market, good supported outlook.

Okay, and just on the divisional breakdown, I mean, Can you just talk us through where you expect to see most of the improvement coming through here? I mean, I guess in steel, do you expect much in the way of a sort of price change? If we take a blend between the annual contracts, quarterlies, and so forth, what sort of price progression do you expect there? And how will the raw material move compare?

So I would hand you over to Peter. Peter? So it's too far away with this laptop for me.

Yeah, right. As Herbert mentioned, the biggest improvement will come in the steel division, and here the biggest driver is volumes. We had a very, very weak volume-wise December quarter, and a lot of that was pushed into the March quarter of the volumes. We have already seen that by quite strong January shipment numbers, so we are pretty confident that will work. On the other hand, also heavy plate, you know, this is a pure projects business. Project portfolio was a bit weaker in the December quarter and is looking very, very good in the March quarter. So I would say those two are the big moving elements. Pricing-wise, as mentioned beforehand, contract prices moved down a bit. On the other hand, the shorter-term prices moved up a bit. So all in all, prices will stay relatively stable. On the cost side, we don't expect a big change. So the driver in the steel division of this improvement is volume and project mix, I would say, in heavy plate. Looking at the high-performance metals division, that also had a really very weak volume-wise December quarter. Interesting was weaker than the summer quarter, which we did not expect, to be frank, at this stage. What is changing here, looking into the March quarter, again, we've seen some push of volumes from December into January But also I have to say we had the startup of the Kapfenberg plant, the new plant, and we had this intermitting procedure of running the old plant for a couple of days and running the new plant for a couple of days. We did this in the last two quarters. Now the old plant is shut down completely. We run only the new plant. So we have a bit of an improvement, I would say a bit of a tailwind here, from the cost situation because we have not this intermitting procedure, production procedure anymore. And also the new plant, you know, was in the startup phase. It's getting better every day. So a bit on the volume side, but also a bit on the self-help side, I would say, in high-performance metals. Metal engineering is doing quite well, will stay as it is, I would say. No big change here. And metal forming, again, a very weak December, in particular in automotive parts and components. Some models we were in were shut down for a few weeks over Christmas, and we had quite a good start in January. So it's the same story here, like in steel, volumes pushed into January, and this is why metal forming was on the one hand weaker than expected in the December quarter, but also had a very good start in January. This is where the strong March quarter is coming from in our expectation. So all in all, in our guidance and outlook, there are no – no uncertain, I would say, sort of, I don't know, cost savings or whatever. It's basically a development which is driven by volume and mix, and we're pretty confident we will reach the guidance. Okay, that's fantastic. Thank you. You're welcome.

The next question comes from Ola Moses from J.P. Morgan. Please go ahead.

Hello. Thank you very much for taking my question. I just have one question, and this is regarding the recently announced agreement for the Net Zero Industry Act yesterday by the EU's parliament. I just want to figure out if there's any early wheel across to your decarbonization plans. You know, if the preference for a 2040 net emissions reduction of 90%, would that perhaps accelerate your net zero targets? and then also with the greater potential for projects that aid decarbonization to receive finance and faster permitting, do you think that there's potential for some of your decarbonization plans also to be eligible for subsidies in the future, just as some of your peers?

You know, 2040 is... is far ahead. But, you know, yes, it can influence our plan at the tail end, I would say, because the first two steps are clearly planned. And so, you know, this can influence our plans after 2020. And, you know, we normally in the past we also always communicate that we will be net zero in 2050, knowing that because of the expected higher CO2 costs that we have something to do after 2035. Yes, we will see. We have now this, as far as I know, this 90% till 2040 that will only affect our plan after 2035. And the potential for subsidies, we will see. You know, we see in a lot of countries difficulties to to pay more and sufficient subsidies. And I think it has to be decided in the next years how we get support for this transformation. But normally, I would say, if you get tougher goals, it should be an increase of funding, but this is more a political question. a more political topic. For the time being, we see the actual rules and regulations, and there is always potential for subsidies when we make our step-by-step approach.

Understood. Thank you.

The next question comes from Cole Hawthorne from Jefferies. Please go ahead.

Good afternoon. Thanks for taking my question. Three from my side. The first is on the downstream investments that you're talking about over the next number of years. Could you just give a little bit of color of where you're focused, what geographies and what areas in particular you're focusing on investments in the downstream business? Secondly, on Red Sea and just wider logistics areas, What impact has this had on your business, if any, at this stage? And have you had any questions from customers wanting to build safety stock? And then finally, on the Brazilian business, we've We've heard discussions around kind of import tariffs on steel there. I'm just wondering if that might potentially impact your business, if at all, or how do you see import tariffs on non-Europe or non-U.S. regions, kind of other emerging markets? Thank you.

Let me start with your last question about the import tariffs in Brazil. You know, we are producing in Brazil for high-performance metals, material and high-performance steels. And on the other hand, we buy locally steel for our other plants, for tubes and section plants and so on. So I would say that we are not really affected by these input tariffs from the perspective as a steel supplier to Brazil. On the other hand, we think that The imports, tariffs, I have not the final plans in front of me how this will work, but as First Albina, I wouldn't say that we are negatively affected. Red Sea, it Not really a big impact. We see that we have to redirect our ships via the Cape of Good Hope, and this takes a bit longer. It's a bit more expensive but doesn't have any other benefits. any other effects in First Alpine. So we have these stocks available. Normal, this is normal for us that we have ships underway and we are aware of that, that there are here and there some delays. And so far, we have no really impacts of our logistic effects. chain maybe the only one thing is that we get alloys from China and they have to go this long away this is maybe affecting our business but this is not what we do not charter these ships this is done by our supplier so this is maybe a smaller effect but we know that the supply chain is not in danger. So the downstream investments, as I mentioned before, these are the segments where we have a high return on capital employed. You may know that we have recently acquired, as an example, we have recently acquired an Italian hyper and REC producer, hyper warehouse and REC, produce 70 million turnover. So we acquired, let's say, technology we have not in-house and part of a market. This is an example of a segment we are focused on that railway infrastructure is for sure where we want to grow and also Tubes and Section is also a business with very low capex needs and high return on capital employed. So there is in the U.S. possible projects. So just to give you a flavor what we are thinking about that. Yes, railway system is because we are the world's biggest supplier in turnout systems, and we see the markets in the U.S. very strong, but also in other areas. So I think this is an example where we talk about such downstream activities and downstream investments.

Thank you.

As a reminder, if you wish to register for a question, please press star followed by one. We have a follow-up question from Alain Gabriel from Morgan Stanley. Please go ahead.

Yes, hi. Just one more question, one more follow-up from my side. On the greenfield transition, it seems that whichever route you adopt, you will need access to very competitive renewable energy. Have you secured any supply yet, or how are you developing your energy security strategy, if we may call it as such?

Yes, we... For this first step, you know, we have already secured this HBI long-term contract. So HBI's energy intensive is produced in the U.S., is imported. It's imported to Europe. And our energy supply in renewable energy when it comes to electrical energy, so we have more or less – secured with contracts this energy for the next years. When it comes to this hydrogen, more hydrogen induced projects after 2030, then we see that this big, I would say, hydrogen will be produced where the where we see the cheapest electrical energy, and this cannot or must not or will be outside of Europe for the time being. And I think this hydrogen will then be imported to Europe. And I think the access to green energy is, yes, it's a topic, but is at least for the first steps is more or less secured. On the longer term, we will see where are the right places to produce this necessary ore-based materials. And this is then a hydrogen topic, but also a green energy, renewable energy topic, wherever it is.

Thank you.

Gentlemen, so far there are no more questions from the phone.

Okay, so thank you very much, ladies and gentlemen, for this very interesting discussion, for giving us the time to present the results. Anyway, if there come up any questions, please feel free to give Peter Gerard or myself a call. I'll be up on my desk in around 15 minutes again. Thank you very much again, and have a good day. Goodbye. Thank you. Bye-bye.