Report on the Group’s business performance and the economic situation

Europe/EU

The most important event to affect Europe in the first half of the business year 2016/17 was without a doubt the Brexit vote by the British. Although the result that was announced on the morning of June 24, 2016 shocked not only continental Europe but much of Great Britain as well, the economy in Europe returned to its slow but steady growth trajectory much more quickly than expected. This upward trend has been only moderately dynamic, but it has shown itself to be remarkably resilient not only with regard to the Brexit vote but also other potential threats during recent quarters, such as the putsch attempt in Turkey, the escalating crisis in Syria, and terrorist acts perpetrated by ISIS. Now that what had been viewed as a taboo of a member state withdrawing from the European Union has been broken, there are speculations about its continued existence and/or its future structure.

The driving force of the stable economic development in the EU remains private consumption—as was the case in recent quarters—supported by an overall positive development with regard to jobs and higher disposable income due to low inflation and a low oil price. The Continent was also able to increase some of its momentum as far as exports are concerned.

Investment activity, however, remains cautious despite the historically low interest rates that have persisted for quite some time. While public spending has risen, most of this increase was due to the challenges faced by communities resulting from refugee migration so that this has had no direct stimulating effect on the economy.

For the voestalpine Group, the current economic environment means a continuation of the excellent market conditions in the automotive sector and stable demand at a high level from the consumer goods industry. The development of the aerospace industry continues to be outstanding and the situation in the railway infrastructure sector has mostly remained quite solid.

Although sentiment indicators in the building and construction sector point to an improvement in momentum, order activity in this sector, which is of lesser importance for voestalpine, has remained modest. Apart from a few exceptions, the energy sector has remained in a weak phase that has marked this sector for quite some time.

All in all, the existing economic trends in Europe remain largely stable; even Brexit has remained primarily a political topic for the time being without any really noticeable implications for economic development. Nevertheless, the issues associated with Brexit will probably result in the greatest risks for Europe’s economic development, especially in the medium and long term. Otherwise, Europe’s modest but quite stable economic growth appears to be relatively resistant to external negative effects.

North America/NAFTA

Economic development in North America, especially the USA, has flagged considerably in the course of the year. Economic impetus has come primarily from private consumption, with manufacturing contributing relatively little to growth for quite a long time. Both private investment and public sector spending has been cautious—an additional reason for the subdued development. Additionally, exports have suffered from the relatively strong US dollar, a generally weak global economy, and the persisting bear market in the oil and natural gas industry.

In the first half of the business year 2016/17, it was primarily the latter that has affected the voestalpine Group, even though the downtrend was halted during the summer months and incoming orders even showed a slight uptick in some segments. At the same time, waning momentum in manufacturing resulted in declining investment activity in the railway infrastructure sector.

On the other hand, in both the aerospace and the automotive sectors, where the voestalpine Group exclusively supplies the North American plants of European premium manufacturers, demand remained excellent.

South America/Brazil

Although the recessive development of the Brazilian economy continued over the summer months, the negative trend slowed somewhat. Even though the political changes give rise to hope that the situation will improve, a trend reversal does not seem realistic before 2017.

The voestalpine locations have reacted to the continuing weakness of the market with rigorous cost reduction and efficiency improvement measures on one hand and on the other, with steps to boost exports, which were hampered during the summer months, however, by the upward revaluation of the real, the Brazilian currency.

Asia/China

Twelve months ago, the global economy was rattled by the slowing of China’s rapid economic development, but since then, its GDP growth has not only stabilized at considerably over six percent but has even gained momentum during recent months. The drivers of this positive trend were mainly the construction industry and investments in infrastructure, although most recently, private consumption and private investment have also made gains. Fiscal measures and an easing of the monetary policy support this positive development as does an aggressive export policy. In a number of sectors, however, the latter has resulted in anti-China trade measures.

The most important sectors for the voestalpine Group in China—and in Asia in general—are the consumer goods industry, automotive components, railway infrastructure, and the oil and natural gas industries. In the first half of the current business year, the first three segments have continued a positive trajectory and, from the current vantage point, a change is not anticipated in the second half of the business year. A trend reversal seems to be on the horizon for 2017 for the oil and natural gas segments, which have been challenging for some time.