Metal Engineering Division

This report is a translation of the original report in German, which is solely valid.

Market environment and business development

In the first three quarters of the business year 2021/22, the market environment of the Metal Engineering Division was characterized by the stable, good performance of its Railway Systems business segment and the striking year-over-year improvement in the performance of its Industrial Systems business segment. While Railway Systems benefited from robust demand in its European core markets, conditions for Industrial Systems improved especially on account of the oil & natural gas sector’s ongoing rebound. In the third business quarter, the division’s production plants at its European sites had to contend with skyrocketing energy costs.

Capacity utilization in the key production companies of the Railway Systems business segment during the business year to date has been satisfactory. Note that, in contrast to many other customer segments, project delays in Railway Sys­tems were immaterial, even during strict COVID-19 lockdowns. Good demand from both Austrian and German railway operators as well as the rebound in Eastern Europe were the most important drivers of sales in the rail product segment. Deliveries to overseas markets, by contrast, were slightly lower than expected.

The satisfactory performance of the turnout systems product segment resulted from stable demand in the relevant regions of the division’s European market. Outside of Europe, this product segment benefited from a slight improvement in demand for greater quantities in the U.S.’s rail industry as well as higher demand in Mexico. In Brazil, additional demand from mine operators led to positive performance. South Africa con­tinued to be hampered by restrained demand. In China, orders from railway operators for the country’s high-speed network fluctuated widely during the first three quarters of the business year 2021/22.

Following the meltdown in orders owing to COVID-19 in the previous business year, the Industrial Systems business segment benefited from the strong rebound in the reporting period’s first nine months. Deliveries in the wire product segment improved significantly, especially in the first half of the current business year. The production curtailments at original equipment manufacturers (OEMs) owing to shortages of electronic components did not impact order levels in the automotive supplier industry customer segment until the third business quarter. Customer demand in the construction and mechanical engineering industry developed along a positive trajectory throughout the reporting period. Thanks to the existent contract structure, this segment was able to translate the significant increases in raw materials prices into higher sales prices, albeit with a slight delay.

The tubulars product segment benefited during the reporting period from rising exploration activity in the oil & natural gas industry. Drilling activities in North America, the segment’s most important market, rose substantially in the past few quarters. The volatility in delivery volumes throughout the reporting period resulted mainly from logistical capacity bottlenecks in connec­tion with deliveries to overseas markets. Section 232 protectionist tariffs on steel imports into the United States continued to have a negative impact on the performance of the tubulars seg­ment in the current business year’s first three quarters. The start of calendar year 2022 brought a strong improvement in this respect: Under a new agreement, from now on the 25% tariff will apply only once a fixed quota has been exceeded.

Market conditions in the welding product segment’s main sales regions were positive during the first three quarters of the business year 2021/22. Particularly the rebound in the energy sector pushed demand higher. In addition to Europe, the market environment in Mexico, ­Canada, and Brazil among other countries was good, whereas the momentum in the United States remained restrained. On the whole, voest­alpine’s main European production plants in the welding segment saw satisfactory capacity utilization. The energy shortages in China that occurred after the Northern summer of 2021 triggered a number of challenges, some of which led to production shutdowns at the plant in Suzhou.

Financial key performance indicators

The Metal Engineering Division succeeded in exploiting improved economic conditions in the Industrial Systems business segment during the first three quarters of the business year 2021/22 to substantially boost its key performance indicators (KPIs). At the same time, the Railway Systems business segment maintained the good performance level it had achieved the previous year even in light of comprehensive COVID-19 lockdowns.

Industrial Systems benefited from a substantial expansion of delivery volumes in its wire technology and tubulars product segments. Across all product groups and throughout the current business year, sales prices also exceeded those of the previous business year on account of rising raw materials and energy costs. Against this backdrop, the revenue of the Metal Engineering Division rose 26.2% for the first three quarters of the business year 2021/22 to EUR 2,473.3 million (Q 1 – Q 3 2020/21: EUR 1,959.6 million). The increase in EBITDA by 82.0% to currently EUR 286.6 million with a margin of 11.6% (Q 1 – Q 3 2020/21: EUR 157.5 million, margin of 8.0%) is largely due to increases in the delivery volumes of both wire technology and tubulars. Cost savings also contributed to the positive earnings performance. The favorable developments in pricing, however, were equalized by the increases in the cost of raw materials and energy. EBIT for the reporting period is EUR 153.8 million with a margin of 6.2%, up year over year from slightly negative EUR –7.8 million with a margin of –0.4%.

The quarter-on-quarter (QoQ) comparison of the second and third quarters of the business year 2021/22 shows that revenue rose 5.5% in the third quarter to EUR 858.4 million (Q 2 2021/22: EUR 814.0 million). While this increase stems from improved pricing due to sharp cost increases, the division was unable to shift particularly the exorbitant increases in energy costs to the market on short notice. Add to that seasonal effects that always cause a slight dip in the earnings of the Railway Systems business segment for the given business year’s second half. Consequently, EBITDA decreased in Q 3 2021/22 by 16.0% to EUR 86.9 million with a margin of 10.1% (Q 2 2021/22: EUR 103.5 million, margin of 12.7%). EBIT fell during the same period by 27.9% to EUR 42.7 million with a margin of 5.0% (Q 2 2021/22: EUR 59.2 million, margin of 7.3%).