Steel Division*

Market environment and business development

The anti-dumping actions introduced by the European Commission to protect the European steel industry from cheap imports for cold-rolled steel strip from China and Russia as well as hot-rolled steel strip and heavy plate sheets from China proved effective throughout the 2016 calendar year. Overall, though higher imports for flat steel were recorded in 2016, imports from China and Russia declined considerably during this period. Because the mood in the most important steel-working industries increasingly brightened during the course of the year—despite Britain’s vote to leave the European Union—steel production held steady at last year’s level during the second half of 2016 while starting off the year a bit subdued. However, prices for the most important raw materials in steel production increasingly displayed a rising trend in the summer of 2016. This was true particularly for coking coal whose price rose dramatically in the second half of the year due to a supply shortage. Closely following this development, the price for iron ore also rose moderately. As a result of rising raw material prices and solid demand, steel prices on the spot market skyrocketed toward the end of the 2016 calendar year, with contract prices following suit after their typical delay.

Against this backdrop, demand from the Steel Division’s most important customer segments reached an overall healthy level in the first three quarters of 2016/17. The number of incoming orders from the automotive industry remained robust. The economic environment in the white goods and consumer goods industries as well as the mechanical engineering sector also remained satisfactory, while demand in the construction industry has even improved slightly. In addition to work on the Nord Stream II pipeline project, which runs to the end of the business year 2017/18, most recently the Heavy Plate business segment once again experienced a surge in requests from the energy sector.

Financial key performance indicators

The revenue generated by the Steel Division in the first three quarters of 2016/17 fell in a year-on-year comparison by 4.6%, dropping from EUR 2,835.1 million to EUR 2,703.9 million. The main reasons for this loss in revenue include lower prices due to falling deployment costs for raw materials, and a shift in the product mix within the Heavy Plate business segment, where the revenue from last year still included the delivery of a highly sophisticated major order. Overall, in a twelve-month comparison, the delivery volumes went up by roughly 5% due to generally strong demand.

With respect to earnings, the operating result (EBITDA) generated by the Steel Division in the first three quarters of 2016/17 improved by 2.5% over the same period in the previous year, rising from EUR 359.8 million (margin 12.7%) to EUR 368.9 million (margin 13.6%). This is remarkable in so far as several non-recurring effects were in play during the past nine months of the current business year that affected the EBITDA. These included the start-up losses recorded by the direct reduction plant in Texas and the performance loss resulting from the extensive renovation of blast furnace 5 in business year 2015/16 (fine-tuning adjustments to the coal injection system). These factors adversely affected the division’s operating result. In addition, performance in the energy segment (heavy plate) was down considerably compared to the previous year due to the weak oil and gas sector. In the last quarter, and against this backdrop, financial provisions were introduced—due to the sky-rocketing prices for coking coal since summer 2016—for a major project (Nord Stream II) whose price was set in the previous year and which will be ongoing until the end of the business year 2017/18. The EBITDA improved despite these negative non-recurring effects due to the outstanding sales figures and a continuous focus on improving efficiency and streamlining costs across the entire value chain.

In contrast to the operating result, the profit from operations (EBIT) of EUR 155.8 million (margin 5.8%) recorded in the first three quarters of 2016/17 fell 10.5% below last year’s figure of EUR 174.1 million (margin 6.1%). This can be explained by the depreciation basis that rose by EUR 27.4 million as a result of finalizing major investment projects (renovation of blast furnace 5 and the new vacuum plant at the Linz location, and the HBI plant in Texas) in the past quarters.

The number of employees (FTE) in the Steel Division was 10,869 at the end of December 2016, and therefore almost identical to last year’s figure of 10,858.