Revenue of the voestalpine Group
In millions of euros
The positive revenue trend that prevailed in recent years continued in the business year 2018/19. Besides the boost from the investments made especially in recent years as part of the Group’s internationalization strategy, this development was also due to significant increases in the prices of both raw materials and alloys along with the resulting effects on sales revenue as well as to the positive economic climate that still held sway in the business year’s first half. The dampening of sentiment toward the end of the period affected the development of revenue during the year in that the last quarter was the strongest one yet again in this business segment too, but the difference to the preceding quarters was not as pronounced as in previous business years.
The year-over-year increase in revenue is based on positive developments in each of the Group’s four divisions, which is remarkable because the Steel Division had to contend with substantially reduced production capacities in the past 12 months owing to the complete overhaul (relining) of the Group’s largest blast furnace (blast furnace A) in Linz, Austria, and thus fell short substantially year over year with respect to sales volumes.
The High Performance Metals Division boosted its revenue as well, but the sales volume was just about the same as in the previous business year. Hence higher price levels driven by much higher prices for alloys largely account for the improvement in revenue.
In the Metal Engineering Division, the increase in revenue is due to effects from both the product mix and prices. As far as sales volumes are concerned, particularly the rail technology and wire technology product segments lost a bit of ground year over year, whereas the tubulars product segment, which is engaged primarily in the oil and natural gas exploration business, succeeded in recovering from its low revenue levels in previous periods.
In the Metal Forming Division, revenue growth was driven by the Tubes & Sections business segment as well as, in particular, the expansion of automotive activities, while the remaining business segments posted stable revenue growth.
At EUR 13,560.7 million, the voestalpine Group saw a new all-time revenue high against this backdrop, which equates to an increase of 5.1% year over year (EUR 12,897.8 million).
In millions of euros
In millions of euros
Due to the significant cooling of the economy as well as non-recurring effects specific to the Group, however, the positive revenue development did not translate into higher earnings. As a result, at EUR 1,564.6 million the operating result (EBITDA) in the business year 2018/19 was down 19.9% compared with the previous year (EUR 1,954.1 million). The EBITDA margin fell accordingly from 15.2% to 11.5% year over year.
The profit from operations (EBIT) followed a trajectory akin to that of the operating result. Specifically, it dropped from EUR 1,180.0 million (EBIT margin of 9.1%) in the business year 2017/18 to EUR 779.4 million (EBIT margin of 5.7%) in the business year 2018/19, which corresponds to a decline of 33.9%.
While the substantial cooling of the economy in the business year’s second half had a negative effect on all of the voestalpine Group’s divisions, the effects of the global trade wars triggered by the isolationist stance of the United States impacted particularly the High Performance Metals Division and the Metal Engineering Division, whereas the Steel Division and the Metal Forming Division suffered primarily from internal negative non-recurring effects.
To a large extent, the volume losses in production owing to the overhaul (relining) of blast furnace A in the Steel Division were offset by purchases of pre-materials from third parties—in addition to a certain level of pre-production activities—which supported revenue growth yet succeeded only in mitigating the negative effects as far as results are concerned. A three-week planned maintenance shutdown as well as unplanned production stoppages at the HBI facility in Texas, USA, due especially to flooding and a gas pipe rupture made matters worse. Furthermore, the Steel Division had to set up provisions at the start of the calendar year 2019 due to potentially adverse financial effects on the Group from the pending investigation by the German Federal Cartel Office (Bundeskartellamt) against several steel producers on suspicion of past anti-competitive practices in the Heavy Plate business segment.
In September 2018, the market segment that is key to the voestalpine Group—the automotive industry—experienced significant turbulence with corresponding effects on demand in the wake of the switch in emissions testing procedures to uniform standards worldwide (specifically, the Worldwide Harmonized Light Vehicle Test Procedure – WLTP). This had an especially negative effect on the Metal Forming Division, where the automotive industry accounts for just nearly one half of revenue. Starting in the fall of 2018, moreover, this division was confronted with significant negative effects on earnings due to difficulties in connection with the start-up of a new automotive component plant in Cartersville, Georgia, USA, as well as associated one-time effects from the provisions that were set up on account of shifts in order activity.
The Section 232 tariffs on steel and aluminum imports that the United States introduced on national security grounds affected the voestalpine Group both directly and indirectly. The direct effects concern primarily the tubulars product segment of the Metal Engineering Division, which exports a substantial portion of its products to the US and thus was exposed to margin pressures. Indirectly, the US measures had an impact on prices in both the European and the Chinese tool steel industry on account of the effects from the diversion of global trade flows with corresponding consequences on the earnings growth of the High Performance Metals Division.
Due to the non-recurring effects on earnings, most of which were posted in the third quarter of the business year 2018/19, the direct comparison of this quarter with the business year’s fourth quarter shows a jump in earnings of 88.7% from EUR 244.0 million in the third quarter to EUR 460.5 million in the fourth. Accordingly, EBIT skyrocketed from EUR 46.0 million in the third quarter of the business year 2018/19 to EUR 253.9 million in the fourth quarter—an increase of 452.0%.
The analysis of the division’s performance during the business year based solely on the operating business—i.e. subject to adjustment of the third-quarter results for the aforementioned one-time effects—shows a merely small increase in both the operating result (EBITDA) and the profit from operations (EBIT) between the third and the fourth quarter.