High Performance Metals Division

Market environment and business development

While the market environment of the High Performance Metals Division was still very solid overall at the start of the business year 2018/19, since then individual market segments and economic regions have started to weaken. Particularly the automotive industry in both Europe and China, which is important to the development of demand for high-grade tool steel, has lost momentum in the past six months. The numbers coming out of the consumer goods industry also show a slight decline compared with the preceding quarters. On the whole, demand for tool steel trended negative owing to numerous countries’ increasingly protectionist policies.

By contrast, investments in the oil and natural gas sector have risen during the business year to date as a result of rising oil prices, further boosting order levels in this segment. Aside from the increase in project activity that is aimed at developing new oil and natural gas fields, the repair business has grown as well, especially in the United States, the technology leader. Our local presence in Europe, North America, and Asia—which enables us to maintain our own inventories and thus offers pre-processing opportunities—turns out to be an important factor in our ability to stand out from the competition in this connection. The market environment of the aerospace industry also remained solid. Investments in high-tech forging facilities for sophisticated aircraft components, whose capacity utilization is secured for years at a time under long-term contracts, help to support the above-average growth we expect to achieve in this industry in the coming years.

Regionally speaking, in Europe the High Performance Metals Division benefitted from very solid market conditions in the mechanical engineering and commercial vehicle industry. Just as in the United States, order activity in this region’s oil and natural gas sector grew as well, while competitive pressures in the European toolmaking industry have intensified not least on account of diversion effects stemming from the punitive tariffs in the United States. Yet the division delivered altogether stable performance in North America—especially because most of our applications for exemptions from the US’s punitive tariffs in the tool steel segment were granted. The Mexican market also developed along a stable trajectory overall.

The upward trend in Brazil, which had already begun to make itself felt the previous year, continued in the current business year. Order activity particularly in the oil and natural gas industry continued to improve in this, South America’s most important economic region. Not least export activities to the United States were supported by the weakening of the Brazilian real against the US dollar.

In contrast to South America, the market environment in China was dominated by slowing economic sentiment, and the rising tariffs particularly on exports to the US that affect primarily the consumer goods industry had a dampening effect. Sales volumes in China’s automotive industry also declined most recently.

Manufacturing capacity utilization rates in the High Performance Metals Division were largely satisfactory in the first six months of the business year 2018/19. As usual, the seasonal slowdown in demand during the summer was used for extensive maintenance work. The Value Added Services business segment, which distinguishes itself from the competition through both its customer proximity and its global positioning, succeeded in further strengthening its market position by continuing to expand its range of services.

Financial key performance indicators

Year over year, the High Performance Metals Division boosted both revenue and results. Revenue grew by 8.0%, from EUR 1,431.4 million in the first half of 2017/18 to EUR 1,545.9 million in the first half of the current business year; this increase is due to higher pricing that stems from higher scrap and alloy prices as well as to sales gains. On the delivery side, the division’s performance particularly in the first quarter of 2018/19 was excellent, whereas delivery volumes in the second quarter were more or less the same as in the previous year. The operating result (EBITDA) improved by 1.5% from EUR 226.5 million in the previous year to EUR 229.8 million in the first six months of the current business year, but the greater revenue growth lowered the EBITDA margin from 15.8% to 14.9%. Following a similar trajectory, the profit from operations (EBIT) rose year over year by 2.3% from EUR 152.2 million (margin of 10.6%) to EUR 155.7 million (margin of 10.1%).

The quarter-to-quarter comparison shows that the key financial indicators for the second quarter of the business year 2018/19 fell short of those for the first quarter for seasonal reasons, but also on account of partial slowdowns at the regional level. At EUR 765.6 million, therefore, revenue for the second quarter was 1.9% less than in the first quarter (EUR 780.3 million). EBITDA fell in the same period by 22.1% from EUR 129.2 million (margin of 16.6%) to EUR 100.6 million (margin of 13.1%). In addition, a required adjustment in the provisions for long-service bonuses (see the Notes for details) resulted in a negative non-recurring effect of EUR 1.5 million on earnings in the second quarter of the business year 2018/19. From the first to the second quarter of the current business year, the profit from operations (EBIT) dropped from EUR 91.9 million by 30.6% to EUR 63.8 million, causing the EBIT margin to decline from 11.8% to 8.3%.

As of the end of the first half of the business year 2018/19, the number of employees (FTE) was 14,528 and thus 4.1% higher than the figure (13,950) for the same quarter of the previous business year. Relative to the figure (14,274) as of the end of the previous business year, the number of employees has risen by 1.8%.