Metal Engineering Division*

Market environment and business development

In the first quarter of 2016/17, the performance of the Metal Engineering Division for the most part saw a continuation of the economic trends that prevailed during the final quarter of the last business year. In the early part of the new business year, the Rail Technology and Turnout Systems business segments again experienced solid demand from both European and Chinese railway companies. As had been the case in the two preceding quarters, demand in the mining regions and in North America continues to be weaker as a result of lower demand for raw materials.

In the first three months of the current business year, the Wire Technology business segment profited from sustained, positive demand from the automotive industry; the situation in the Seamless Tubes business segment, however, is still extremely challenging due to ongoing price pressure in the oil and natural gas sector.

The comprehensive restructuring measures, which were initiated in the Welding Consumables business segment in the course of the previous year due to the dramatic weakness of the energy segment, already showed initial positive results in the first quarter of 2016/17. The market, however, is not yet showing any signs of recovery.

Financial key performance indicators

The downward trend in revenue and earnings in the Metal Engineering Division, which had prevailed throughout all four quarters of the previous business year due to the dramatic slump in the oil and natural gas sector, was stopped in the first quarter of 2016/17. However, in a comparison of the first quarter of 2016/17 with the first quarter of the previous business year, the marked decline in the revenue and earnings figures since the summer of last year becomes obvious. In a year-to-year comparison, revenue fell by 12.1% from EUR 774.0 million to EUR 680.4 million. As far as earnings are concerned, the figures of the first quarter of the previous business year contained positive non-recurring effects due to the acquisition of the controlling interest in the companies voestalpine Tubulars GmbH & Co KG, voestalpine Tubulars GmbH (both belonging to the Seamless Tubes business segment), and CNTT Chinese New Turnout Technologies Co., Ltd. (Turnout Systems business segment), amounting to EUR 126.5 million recorded in EBITDA and EUR 120.4 million recorded in EBIT. In the first quarter of 2016/17, the depreciation of disclosed hidden reserves resulting from reassessments had an adverse effect on EBIT of EUR 3.9 million. As a result of the challenging economic environment in the oil and natural gas sector, adjusted EBITDA fell by 20.1% from EUR 109.6 in the first quarter of 2015/16 to EUR 87.6 million in the first quarter of 2016/17, and adjusted EBIT plunged by 30.2% from EUR 76.8 million to EUR 53.6 million. Adjusted for non-recurring effects, the EBITDA margin went down from 14.2% to 12.9%, while the adjusted EBIT margin declined from 9.9% to 7.9%.