Ladies and Gentlemen:
The business year 2019/20 was one of the most challenging in the past decade. Having expanded for years, voestalpine entered a consolidation phase at the start of the reporting period. Toward its end, the Group was confronted with the steepest economic contraction since World War II due to the outbreak of the COVID-19 pandemic.
Changes in the macroeconomic environment worldwide had already flattened the economic momentum early in the business year. The radical change in the trade policies of the United States did more than just question the industrialized world’s economic system, which so far has been based on globalization and largely unfettered global trade. Although the U.S. accused practically all of its trading partners of engaging in unfair trade practices, its newly isolationist stance targeted Europe as well as the People’s Republic of China. “Protective tariffs” levied on one side soon led to “retaliatory tariffs” on the other.
The global stock markets reacted to these developments rather quickly with substantial drops in share prices, and a dampening of global economic growth at the level of the real economy ensued a short while later.
We analyzed the positioning in the long term of all of the voestalpine Group’s key business segments against the backdrop of these changes in the global economic order, some of which are structural and will last. This led to restructuring measures and impairment charges in some areas that have substantial, negative non-recurring effects on earnings for the business year 2019/20.
Comprehensive programs aimed at lowering costs and boosting earnings were implemented to stabilize earnings, with a special focus on generating cash flow and improving the Group’s asset and capital structure.
We are able to present a number of partial successes in this annual report 2019/20: A substantial portion of the Group’s debt was reduced in the reporting period’s final quarter. The reduction in the gearing ratio from 80% to about 67% means that we are coming closer to our target of between 40% and 50%. Total cash flow of EUR 1.3 billion for the year from operating activities was generated especially through the substantial inflow of liquidity in the final quarter. At less than EUR 800 million, investments were reduced to a level below depreciation in the business year 2019/20. At about EUR 600 million, the anticipated investment volume for the new business year 2020/21 is substantially lower yet again.
An extremely disciplined approach to investments is just one of many steps that were absolutely necessary in the face of the lockdowns imposed in connection with the COVID-19 pandemic. COVID-19 had a massive additional negative impact on the already difficult market environment in the reporting period’s fourth quarter. Non-recurring effects (mainly additional impairment losses) thus impacted both the final weeks of the business year 2019/20 operationally and the annual report generally.
The actual economic fallout from the pandemic will only become visible in another few months, making it difficult to present a sound assessment of the Group’s revenue and earnings performance in the current business year 2020/21. What is certain, however, is that we will have to come to terms with a scenario entailing periods of prolonged volatility. In light of both the results for the business year ended and the uncertain forecast for the business year 2020/21, the Management Board proposes to lower the dividend for the business year 2019/20 to EUR 0.20 per share.
The dramatic current conditions put voestalpine’s great strengths on display yet again: for one, its employees who are doing their best to work to overcome this extraordinary situation and, for another, its robust strategic alignment that provides the Group’s underpinning. Our portfolio contains business segments that performed very well even under lockdown conditions as, for instance, rail technology and storage technology. This provides a good basis for voestalpine to continue its successful journey in the long term even in a difficult environment.
Linz, May 26, 2020
The Management Board
This report is a translation of the original German-language report, which is solely valid.