High Performance Metals Division

Market environment and business development

Notwithstanding the demand from the oil and natural gas industry or the aerospace industry for special materials, the High Performance Metals Division was confronted with a difficult environment in the business year 2019/20, which impacted primarily the tool steel product segment. The automotive industry’s focus on investments aimed at alternative drive train designs has come at the expense of the number of new models and thus the industry’s demand for tool steel. And the weakening of the consumer goods industry also dampened demand in the reporting period.

Europe

Declining demand alongside intensifying competition were the defining characteristics of the European market during the current business year. Given the protectionist trends in globally relevant trading regions, voestalpine’s competitors are increasingly turning their sights on the European domestic market. This has caused significant drops in order levels, especially in Germany. Add to that declining demand for special forgings in the commercial vehicle industry. voestalpine responded to the deteriorating economic environment by undertaking a comprehensive restructuring of Buderus Edelstahl in Wetzlar, Germany. Order levels in the European market for special materials used in the aerospace industry were much better.

North and South America

Declining momentum in tandem with declining investments by the automotive industry created a challenging environment in North America. By contrast, demand from the oil and natural gas industry developed along a positive trajectory for the High Performance Metals Division despite the general market trend toward lower exploration activities. Sales to the aerospace industry were highly satisfactory as well. The fact that the Boeing 737 Max has not been recertified had only minor effects by the end of the calendar year 2019. Boeing has indicated nonetheless that it will not accept any orders for this model in the next few months, thus necessitating capacity adjustments at voestalpine BÖHLER Aerospace in Kapfenberg, Austria.

Brazil’s economic environment in the business year 2019/20 to date has been friendly for the most part, due especially to improvements in the economic climate as well as the fact that the weakening of the country’s currency benefits export-driven industries. Conditions in Argentina remain difficult due to the ongoing economic and financial crisis.

Asia

While market conditions in China remained unfavorable during the first half of the current business year, the third quarter saw an improvement in economic sentiment and thus a slight easing of conditions. Developments in important sales regions in both Southeast Asia and Japan were largely positive. This clearly shows that voestalpine’s local presence, which includes its own distribution centers, facilitates its satisfactory performance in the market—even in the face of volatile economic conditions.

Financial key performance indicators

The key performance indicators (KPIs) of the High Performance Metals Division also reflect the dampening of economic sentiment. Although prices in the current business year have been much higher year over year owing to increases in alloy prices, revenue for the first three quarters of the business year 2019/20 fell by 5.3% to EUR 2,176.4 million (previous year: EUR 2,297.3 million) due primarily to substantially lower delivery volumes. The decline in deliveries accounts for about 20% of the downturn in tool steel, the division’s most important product segment. In earnings terms, the downturn was even more pronounced, because the KPIs were impacted by negative non-recurring effects as well. Among other things, the division incurred restructuring expenses in the current business year’s third quarter at voestalpine’s special steel plant in Wetzlar, Germany, given the significant deterioration in the economic environment. In sum, the High Performance Metals Division posted about EUR 60 million in non-recurring effects for the third quarter of the business year 2019/20, most of which (about EUR 50 million) also lowered EBITDA. As a result, EBITDA for the current business year’s first three quarters dropped by 42.3%, from EUR 319.4 million to EUR 184.3 million, thus causing a year-over-year decline in the EBITDA margin from 13.9% to 8.5%. The decline in EBIT during the same period was even more pronounced. It dropped from EUR 207.5 million (margin of 9.0%) to EUR 44.4 million (margin of 2.0%).

The quarter-on-quarter comparison (QoQ) of the second and third quarters of the business year 2019/20 shows that revenue fell by 6.6%, from EUR 723.3 million to EUR 675.5 million, especially due to seasonally lower sales volumes during this period. However, higher raw materials prices pushed prices slightly higher in the third quarter relative to the second quarter. The non- recurring effects in the third quarter of about EUR 50 million with respect to EBITDA and about EUR 60 million with respect to EBIT were key to the difference in earnings between the second and the third quarter. At EUR 6.9 million, EBITDA for the third quarter of the business year 2019/20 is 91.2% lower than that for the second quarter (EUR 78.2 million); at EUR –48.0 million (margin of –7.1%), EBIT for the current reporting period is decidedly negative. In the previous quarter, the division still managed to post EBIT of EUR 35.3 million and thus an EBIT margin of 4.9%.