Analysis of uncertainties in accounting estimates and assumptions

      The uncertainties in accounting estimates and assumptions specified in the Consolidated Financial Statements as of March 31, 2022, have been repeatedly examined in connection with the preparation of the present Interim Consolidated Financial Statements and remain valid with the exception of the updates set forth below.

      Ramifications of the Ukraine war

      Alternative suppliers and transport routes were identified and activated to ensure that relevant supplies of raw materials (e.g., iron ore, iron ore pellets, pulverized coal injection (PCI) coal, alloys, and natural gas) to our production plants (especially the steelworks in Austria) are not interrupted. In addition, work to build up our inventories—particularly of iron ore and coal—has continued, with the result that relevant supplies are assured through the Northern spring of 2023.

      The voestalpine Group consumes about six terawatt hours (TWh) of natural gas per year at its Austrian facilities; a natural gas storage capacity of 1.5 terawatt hours has been put in place during the current business year 2022/23. The process of filling the natural gas storage facility was already completed in the second quarter of 2022/23. It will be possible to cover various production methods as necessary using this stored natural gas, taking prevailing market and supply chain conditions in the given situation into account. In addition, voestalpine continues to work on diversifying its natural gas supplies by increasingly purchasing non-Russian natural gas, e.g., liquefied natural gas (LNG).

      At the time this Report was prepared, production activities at the affected voestalpine facilities were not subject to any limitations due to a lack of raw materials or energy supplies.

      The general increase in prices—especially the sharp fluctuations in the cost of energy and raw materials—can largely be passed on to the market.

      Recoverability of assets

      The assessment of the recoverability of intangible assets, goodwill as well as property, plant and equipment is based on assumptions concerning the future. The determination of the recoverable amounts in the course of the impairment tests is based on several assumptions, for example, assumptions regarding future net cash flows, the discount rate, or the fair values less costs to sell of the individual assets that are continually verified. As part of this analysis, current developments in the interest rate environment were considered over and above the Group’s market capitalization, which still falls short of the carrying amount of equity. All entities to which goodwill is allocated as well as all cash generating units (CGUs) were subjected to a detailed analysis in this connection. In consequence, as of September 30, 2022, select entities to which goodwill has been allocated and select CGUs were subjected to an impairment test. As previously, these tests were carried out pursuant to the value-in-use method, taking updated forecasts into account. In this respect, see also the disclosures in the Note, Impairment losses and reversal of impairment losses.

      Effects of climate and energy policies—decarbonization strategy

      The voestalpine Group continually observes and analyzes relevant developments. With the exception of the updates described below, all disclosures as of March 31, 2022, remain valid.

      In a first step, greentec steel entails the electrification of steelmaking from 2027—i.e., the incremental replacement of the fossil fuel-based blast furnace route with green electricity-based electric furnaces. In March 2022, the Supervisory Board of voestalpine AG approved an amount in the three-digit millions to fund the initial implementation steps. The work to clear the necessary construction sites along with the work to prepare the infrastructure was launched subsequent to the aforementioned approval. In the Northern spring of 2023, the Supervisory Board will make a decision as to final approval of the investment required for the two electric arc furnaces so that construction of the facilities could start in 2024. The commissioning of a 220 kV power line in Linz no later than by the end of calendar year 2026 is one milestone required to this end. The Strategic Environmental Impact Assessment requested by Austrian Power Grid (APG), the project applicant, has been completed in the meantime, but the governmental environmental impact assessment is still ongoing.

      Because the steel industry is considered a sector subject to high carbon leakage risks, initially the EU ETS provided for allocation of absolutely all allowances at no charge to those 10% of facilities that satisfy the applicable benchmarks. In actual fact, however, voestalpine must purchase about one third of its total emission allowances.

      As part of both the revision of the Emissions Trading Directive and the simultaneous plan for a Carbon Border Adjustment Mechanism (CBAM), the EU Commission’s plans to achieve a 55% reduction in all CO2 emissions by 2030—which it combined in its Fit for 55 legislative package—provide for a paradigm shift, for example, in the steel industry. Among other things, this will entail the gradual elimination of no-cost allowance allocations as well as a reduction in the total number of allowances granted, thus substantially increasing the EU steel industry’s need to purchase allowances.

      Our ability to quantify the effects of these plans remains limited, because the negotiations in the trilogue regarding the individual positions of the European Parliament, Commission, and Council are still in progress and are unlikely to be completed by the Czech Presidency of the Council of the European Union prior to the close of calendar year 2022. The following applies as to mechanisms for supporting investment and operating costs (in this case, particularly in view of offsetting increases in the costs of green electricity, raw materials, and hydrogen): While the Austrian federal government announced long-term funding vehicles in October 2022 aimed at transforming the industry, the requisite long-term budgetary framework, fund allocation details, and grant guidelines had yet to be finalized as of the date on which this Report was prepared.

      There was no need to recognize impairment losses in the first half of the business year 2022/23 on account of climate-related risks. The assumptions in this connection were considered in both the medium-term business plan and the updated forecasts based on the insights available as of the reporting date using best possible estimates.