Letter of the Management Board

Ladies and Gentlemen:

Geopolitically, the business year 2017/18 was defined by a number of new and partly surprising developments. Aside from the Middle East, a perpetual flash point, and the ongoing escalation of the sanctions race between Russia and the West, the past 12 months saw China clearly articulating its claim to global leadership, both economically and politically, for the very first time. The initially massive intensification of the decades-old conflict between North and South Korea was followed most recently by the completely unexpected easing of tensions in the two countries’ bilateral relationship; whether this is sustainable remains to be seen. The current US administration is asserting the country’s claim to political and economic leadership—based on a record defense budget, the questioning of the NAFTA approach, and massive protectionist tendencies in the realm of trade as embodied by the “America First” slogan—more transparently than was the case under previous administrations in recent history.

In this environment and driven primarily by France’s president Macron, the European Union is making an attempt yet again to push its own integration not least as an answer to the Brexit. But these attempts are being counteracted by overtly nationalist and protectionist tendencies, especially in some of the more recent member states. Europe would undoubtedly be well advised, precisely against the backdrop of the race between the United States and China for political and economic dominance, to position itself more explicitly and assertively in the global play of forces. It would be high time for the EU to finally move away from its inward-looking focus on the resolution of conflicts and to face international challenges, actively and consciously.

No matter how intense the political uncertainties, economically and globally speaking the past business year brought a return to the growth rates last seen in the pre-crisis years. Rising global demand in almost all industrial segments, the dramatic reduction in sovereign debt due to reforms in a number of countries, and relatively stable foreign exchange rates in tandem with the continued low interest rate environment were the most important drivers of this positive development. As far as the voestalpine Group is concerned, the new business year 2018/19 (at least its first half) should be defined by conditions similar to those that characterized the previous one. Given the aforementioned recent developments, however, increasingly uncertain parameters will be the name of the game: In the short term, the potential escalation of tensions worldwide owing to the intensification of national trade barriers will be the largest instability factor. Yet the political sphere anywhere in this world should be conscious of the fact that any increase in protectionist tendencies, i.e. those that limit international competition, will sooner or later lead to decreases in supplies and concurrent increases in prices. As a result, ultimately such developments always harm consumers. That international trade can only function on the basis of uniform, minimum quality standards and plausible cost structures must be indisputable in this connection. Equally difficult to predict is the extent to which the interest rate reversal that will be necessary sooner or later in Europe too will affect the general economic growth. Finally and ultimately, there is the question as to how long the current upturn across the entire industrial spectrum is going to last on this scale.

For voestalpine, the past business year brought not just new all-time highs with respect to both revenue and results, but also key steps toward the Group’s goal of securing its position as a technology and quality leader in its main product segments over the long term. This includes the successful commissioning of the world’s first fully digitalized wire production as much as the decision to build the first new special steel plant in Europe in more than 40 years. It also includes the massive global expansion of our production capacities in high-tech automotive components as well as the construction of a cutting-edge hydrogen pilot plant for the development of alternatives to fossil fuels. Finally, the development of the framework for the comprehensive digitalization of the Group as well as the continuation of its work to develop a broad technological concept for the Group’s traditional Austrian steel sites in Linz and Leoben/Donawitz are key to the achievement of the ultimate goal.

Both the financial position and the balance sheet structure of the voestalpine Group are defined by the continual increase in equity, the decrease in net financial debt, and thus also the declining gearing ratio—despite the ambitious investment programs in all four of the Group’s divisions that continue unabated, albeit at a slightly slower pace as planned. The Group’s solid position, operationally and strategically, and the resulting strong development of its cash flow as an expression of its increasing ability to finance itself have convinced Management Board and Supervisory Board alike to propose, as in previous years, that the dividend for the past business year be raised significantly yet again.

The history of the voestalpine Group shows a steady upward trajectory since its IPO in the autumn of 1995. Not even the critical period of the financial and economic crisis changed anything with respect to the uninterrupted stream of profits and dividends. Nothing should change this in the future, not least in the light of the Group’s excellent performance in the business year 2017/18 and the consistent expansion of its strengths—in the interest of our customers, shareholders, and employees.

Linz, May 25, 2018

The Management Board