Metal Engineering Division

Market environment and business development

As regards railway infrastructure, developments worldwide in the turnout systems product segment were positive throughout all major economies. As mentioned earlier, China’s economic stimulus programs, in particular, which are aimed primarily at the country’s infrastructure, lead to strong demand for high-speed turnout systems. Both Europe (mixed transportation segment) and North America (heavy haul and mass transit segment) delivered solid demand growth throughout.

As regards premium rail technology, the Metal Engineering Division focuses much more on the European market. Here, demand in the business quarter just ended was satisfactory in volume terms, yet not even slightly improving prices were able to fully offset the rapid increase in the cost of raw materials.

In the first quarter of the business year 2019/20, the Industrial Systems business segment saw considerably declining momentum, especially in the automotive supplier industry. The wire technology product segment, which is largely aligned with this sector, was confronted not only with declining demand in the automotive segment but, increasingly, with competitive pressures as well. Against this backdrop, operations related to premium wire production at the Group’s Donawitz site in Austria were reduced in April 2019 from four shifts to three.

The tubulars product segment (seamless tubes for oil and natural gas exploration) also faced declining market momentum at the start of the business year 2019/20. Besides the trade barriers (“Section 232”) against imports of steel products into the United States, most recently the demand in North America for oil and gas field pipes temporarily fell a bit yet again. On the cost side, this product segment too is exposed to the enormous increase in iron ore prices. Aside from steps serving to reduce costs and boost efficiency, additional innovations in threaded connections, especially for shale oil and shale gas drilling, are aimed at lowering the pressure on earnings and from competitors.

Given a structural weakness in demand, the welding consumables product segment, which focuses on the energy sector, has implemented a broad range of internal restructuring measures in recent years. Despite the fact that economic growth remains moderate, the successful cost improvements have yielded positive effects so far, in that this segment has turned out to be relatively stable thanks also to product portfolio differentiation measures as well as the segment’s continuous development towards becoming a provider of comprehensive solutions (integrated offerings of welding consumables and welding equipment).

Development of the key figures

The Metal Engineering Division’s key performance indicators for the first quarter of the business year 2019/20 are slightly weaker than those for the first quarter of the business year 2018/19. In revenue terms, the division posted a decline of 2.6%, from EUR 799.8 million to EUR 778.8 million. While the Railway Systems business segment succeeded in expanding the scope of its deliveries and services, the external revenue of the Industrial Systems business segment fell year over year. In this regard, there was a substantial decline in deliveries of both wire products for the automotive industry and seamless tubes for the oil and natural gas sector. By contrast, prices in the wire technology product segment remained largely stable, whereas prices in the tubulars product segment even rose a bit combined with the simultaneous increase in pre-material costs. The earnings performance shows a trajectory comparable to that on the revenue side. Compared with the first quarter of the business year 2018/19, the Railway Systems business segment managed to boost earnings a bit, whereas the Industrial Systems business segment was confronted with the opposite trend. Due to the declining sales volume mainly in the wire technology and tubulars product segments, EBITDA fell by 8.6% from EUR 98.5 million in the first quarter of the business year 2018/19 to EUR 90.0 million in the first quarter of the business year 2019/20; the EBITDA margin fell from 12.3% to 11.6%.