The two business segments of the Metal Engineering Division had already delivered divergent performance in the business year 2019/20. While Railway Systems followed a stable, satisfactory trajectory in the business year 2020/21, Industrial Systems had to contend with ever-increasing difficulties. The COVID-19 pandemic intensified and magnified the negative trend buffeting Industrial Systems at the start of the reporting period. Not until the subsequent quarters did orders rebound slightly. There was a substantial drop in capacity utilization especially in the wire technology and tubulars product segments. Both segments responded by carrying out comprehensive cost optimization programs and by implementing necessary personnel measures, which included registering employees for state-sponsored short time work options. Given declining demand for pre-materials in the Industrial Systems business unit, the planned maintenance work on one of the division’s two blast furnaces at the Donawitz steel plant in Austria was moved up to June 2020. By contrast, the Railway Systems business segment largely managed (as in previous years) to deliver satisfactory performance over the entire reporting period despite the pandemic.
Railway Systems, a systemically relevant business segment, did well at the start of the business year 2020/21 even despite far-reaching COVID-19-induced lockdowns. Demand for rail technology developed along a stable trajectory although some projects were postponed. The rails product segment stood out over the entire reporting period because order levels in Europe were good. Particularly the European core markets in Western Europe turned out to be a stabilizing factor. Solely order call-ups from Eastern European customers fell below the levels seen in the business year 2019/20. Some projects in markets outside of Europe were delayed, in turn intensifying competition for the remaining railway system maintenance and expansion projects. Aside from the usual seasonal fluctuations due to railway operators’ reduced activities over the Northern winter, capacity utilization in rail production at the Donawitz plant remained solid throughout the reporting period.
The turnout systems product segment has a broad footprint worldwide thanks to its facilities in customer proximity. As a result, this segment benefited even at the peak of the COVID-19 lockdowns from robust demand both in Europe and overseas. With the exception of a few Eastern European countries, the most important European markets saw few if any project delays. Outside of Europe, demand from the Australian and Brazilian heavy-haul transport markets was dynamic. Chinese facilities, in turn, were able to benefit from state-sponsored infrastructure projects aimed at stimulating the economy. In the fourth quarter of the business year 2019/20, production of turnout systems in China had been limited for a few weeks owing to the measures that were put in place to contain COVID-19. The large (Class I) rail freight operators in the United States scaled back their investments in the rail network due to the dampening of economic sentiment. Operators of mass transit systems in the U.S., by contrast, faced a more positive environment.
The signaling technology product segment, which had seen strong growth in recent years, underwent a consolidation phase in the business year 2020/21. Project activity in two overseas markets (Brazil and Australia), especially with respect to digitalized turnout diagnostic systems and rolling stock alarm systems, was limited on account of the travel restrictions imposed in connection with COVID-19. The fourth quarter of the business year 2020/21 saw demand flatten for seasonal reasons even in Europe.
In contrast to the largely stable development of the Railway Systems business segment, the Industrial Systems business segment was confronted with highly challenging conditions during the reporting period. For example, the wire technology product segment—a supplier to the European automotive supplier industry—was deeply affected by the automakers’ weeks-long production shutdowns in the first business quarter. Governmental short time work options helped to bridge the temporary breakdown in demand owing to COVID-19 on the personnel side. The Northern fall of 2020 saw a considerable upturn in the market once inventories within the value chain had been reduced. Deliveries of wire rod and drawn wire were robust in the business year’s fourth quarter despite the existing supply chain difficulties affecting semiconductors and the resulting volatility of passenger car production levels in Europe.
The economic environment of the tubulars product segment posed a particular challenge. Conditions in the tubulars market for the oil and natural gas sector had already deteriorated even before the COVID-19 pandemic broke out. Moreover, steel imports to the important U.S. market are still adversely affected by protectionist Section 232 tariffs of 25%. The fact that oil prices plummeted in the course of the pandemic brought almost all exploration activity to a standstill worldwide. The U.S. rig count (which encompasses active drilling fields) hit a historic low at the start of the reporting period. Capacity utilization at the Group’s facilities in Kindberg, Austria, was correspondingly low in the first three quarters of the business year 2020/21. A slight rebound in volume made itself felt for the first time in the fourth business quarter, but prices remained low despite rising pre-material costs. The third business quarter saw a trend reversal in industrial tubes that are processed for further use by the automotive supplier industry. In this altogether unfavorable environment, the Kindberg production facility availed itself of state-sponsored short time work options and carried out necessary structural cuts on the cost side as well. Flexible shift models were implemented to account for the ongoing volatility regarding both orders and capacity utilization.
The economic fallout from the COVID-19 crisis in the reporting period also had a negative impact on the welding product segment. In the final analysis, however, the trend in this segment was positive, albeit slightly below the previous year’s level. Activities rebounded significantly at the end of the business year 2020/21 due, among other things, to developments in China, where deliveries of welding consumables for the crane industry continued to rise. In the United States and the Middle East, the business volume was substantially lower than in the business year 2019/20 owing to the weakness of the oil and natural gas sector. In Europe, the declining momentum that stemmed from the dampened sentiment in the automotive industry affected Germany in particular. The economic environment in South America was somewhat satisfactory despite high COVID-19 infection rates.