Steel Division

Market environment and business development

The positive market environment that prevailed in recent quarters continued in the first quarter of 2018/19 with regard to the Steel Division. Hence the demand for high-quality strip steel used in automotive engineering remained as strong as before, and there was no break in the excellent momentum that drove the mechanical engineering, construction, and consumer goods industries in the previous business year. Project activity in the oil and gas sector, which procures primarily highest-quality heavy plate for the construction of deep sea pipelines from the Steel Division, has expanded most recently. Demand for sponge iron (HBI) also remained stable at a high level.

However, the continuation of the advantageous economic climate has not only given the European steel industry a solid volume market, it has also pushed steel imports to a new high. Walling-off the US steel market by means of protectionist tariffs in the name of national security (“Section 232”) is the primary driver of this development; it has caused the global export streams to be rerouted particularly towards Europe. The European Commission has reacted to this development by adopting “Safeguard Measures,” which lead us to expect that imports will be relaxed, as is already happening.

In the Steel Division, the ongoing stability of the market environment has led to the continuation, for the most part, of the highly pleasing earnings growth in the previous year, even though the division was unable to fully exploit the demand potential in the first quarter of 2018/19, as expected, owing to the overhaul of the largest blast furnace in the Linz, Austria, facility (“blast furnace A”), which started in June 2018 as planned.

This overhaul, the first in 14 years of continuous operation, entails completely renovating the blast furnace’s fire-proof interior lining; the associated infrastructure as well as ancillary units will also undergo a comprehensive overhaul in this connection.

The facility will be restarted in early October. The diminished production capacity will have a predictably intense effect on the second quarter of the business year 2018/19, and earnings will be substantially lower than those recorded in the first business quarter, as planned.

Financial key performance indicators

A year-over-year comparison by quarter shows that the division succeeded in keeping its key performance indicators stable despite the initial negative effects from the blast furnace repairs.

The Heavy Plate business segment, which is engaged mainly in the energy industry (oil and natural gas pipelines), succeeded in delivering significant increases in both revenue and results in the face of declining volumes thanks to the substantially higher quality of its product mix. Margins in the strip business segment remained stable despite rising raw materials costs. As expected, the limits on production volumes resulting from the overhaul of the blast furnace have already had a negative impact overall on the first quarter of 2018/19.

Nonetheless, the Steel Division succeeded in boosting its revenue year over year from EUR 1,213.3 million in the previous year to EUR 1,276.4 million in the current year, which corresponds to a plus of 5.2%. This increase is due largely to the improvement of the product mix in the Heavy Plate business segment as well as to the higher prices for strip steel, both of which more than just offset the effects from declining volumes. In terms of profits, this could not be achieved to the same extent because of the blast furnace repairs and a planned, three-week maintenance shutdown of the direct reduction plant in Texas. This led to a slight lowering of EBITDA by 1.7% to EUR 223.9 million (previous year: EUR 227.8 million). The EBITDA margin fell from 18.8% to 17.5%. EBIT declined in the same period by 3.5% to EUR 145.0 million (previous year: EUR 150.2 million), and the EBIT margin dropped slightly to 11.4% (previous year: 12.4%).

As of June 30, 2018, the division had 11,111 employees (FTE), which means that the number of employees rose by 2.8% year over year (10,810 employees) due to high capacity utilization in the Heavy Plate business segment as well as the extensive repairs in both Linz, Austria, and Texas, USA.