Metal Engineering Division

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

Market environment and business development

The Metal Engineering Division’s performance in the first half of the business year 2022/23 was satisfactory. While the Railway Systems business segment developed along a solid trajectory as usual, Industrial Systems continued the previous business year’s upward trend. The tubulars product segment, in particular, profited from improved conditions in the oil and natural gas sector.

During the reporting period, Railway Systems boosted deliveries overall of high quality track grades for the railway infrastructure sector. Yet the conditions under which this was achieved remained difficult. Generally speaking, logistics issues associated with the transportation of goods had to be overcome. Moreover, the rails product segment faced challenges in connection with longer-term project contracts owing to the sharp increases in energy costs. Overall, it was good demand in the division’s European core markets that ensured full capacity utilization at its key production plants. The mass transit market segment, in particular, provided positive momentum. The volume of sales to overseas markets fell slightly short of expectations, however. The turnout systems product segment continued benefiting from the favorable market environment in Europe’s so-called “D-A-CH” region (which comprises Germany, Austria, and Switzerland) during H1 2022/23. By contrast, supply chain issues tended to adversely affect the economic environment in both Northern Europe and Great Britain. Outside of Europe, the positive trends in the heavy haul market segment in North and South America as well as in Australia continued unabated. High raw materials costs, in particular, had a positive impact on demand. Conditions in India were largely favorable too. By contrast, deliveries of turnout systems for China’s high-speed network remained volatile throughout the reporting period.

The market environment of the Industrial Systems business segment presented a more differentiated picture. While orders from the automotive industry, the most important customer segment of the wire technology product segment, were solid at the start of the current business year, they began to decline as time wore on. Against the backdrop of the increasingly difficult economic environment, this was due not least to the inventory reductions within the downstream value chains. Bookings from both the mechanical engineering and the consumer goods industries weakened over the Northern summer. Demand from the energy sector remained favorable throughout the reporting period.

The highly satisfactory performance, especially of the tubulars product segment (seamless tubes), in the first half of 2022/23 reflects the energy sector’s strong momentum. High demand for energy worldwide intensified exploration activity in North America, the most important market of the tubulars product segment. The quota system applicable to steel exports from Europe to the United States, which has been in place since January 1, 2022, also had positive effects on the earning power of this product segment. This system replaced the general protectionist Section 232 tariffs of 25%. By contrast, high energy costs in Europe compared with those elsewhere along with capacity bottlenecks in international container shipping adversely affected deliveries to both Canada and the United States.

The market environment of the welding product segment (welding technology) at the start of the current business year was favorable, and capacity utilization at the segment’s key production plants was satisfactory. Strong momentum drove conditions particularly in Europe and South America. As the business year wore on, however, the economic sentiment in individual sectors began to weaken a bit. While orders from the oil and natural gas sector remained good throughout the reporting period, order call-ups from the mechanical engineering industry flattened out somewhat. In China, orders remained volatile during the current business year’s first quarter owing to the COVID-19 lockdowns but did improve during the second quarter. Demand in the U.S. fell slightly short of expectations throughout the reporting period.

Financial key performance indicators

The Metal Engineering Division posted substantial increases in its financial key performance indicators (KPIs) for the first half of the business year 2022/23. Year over year, they reflect improved conditions in the Industrial Systems business segment. Revenue jumped almost one third to EUR 2,118.3 million (H1 2021/22: EUR 1,614.9 million). Industrial Systems succeeded in boosting the volume of seamless tube deliveries. But it was the significant upsurge in prices across all of the Metal Engineering Division’s product groups that accounted most for its revenue growth. Aside from the solid economic environment, this also reflects the sharply rising cost of both raw materials and energy. The increase in prices outpaced the increase in input costs, especially in the tubulars product segment, with the concomitant positive impact on earnings. Tubulars also profited from the rollback of the protectionist tariffs in connection with its seamless tube exports to the U.S. Against this backdrop, the Metal Engineering Division boosted EBITDA for H1 2022/23 by 21.1% to EUR 241.8 million with a margin of 11.4% (H1 2021/22: EUR 199.7 million, margin of 12.4%). EBIT jumped during the same period by 38.2% to EUR 153.5 million with a margin of 7.2% (H1 2021/22: EUR 111.1 million, margin of 6.9%).

The division’s quarter on quarter (QoQ) performance was stable. At EUR 1,076.1 million, the revenue for Q2 2022/23 is 3.3% higher than the EUR 1,042.2 million posted for Q1. Slightly smaller delivery volumes were offset by higher customer prices. The division’s operating performance in the current business year’s second quarter also reflects the positive trend in the first. Earnings of the rails and the tubulars product segments improved, whereas the earning power of the wire product segment dropped a bit for both seasonal and macroeconomic reasons. Overall, the Metal Engineering Division posted EBITDA of EUR 120.6 million with a margin of 11.2% for Q2 2022/23, with the result that its performance relative to Q1 remained constant (EUR 121.2 million, margin of 11.6%). At EUR 76.5 million and a margin of 7.1%, EBIT for Q2 2022/23 also remained stable quarter on quarter (Q1 2022/23: EUR 77.0 million, margin of 7.4%).

As of September 30, 2022, the Metal Engineering Division had 13,619 employees (FTE). This represents an increase of 2.6% from the 13,276 employed in the previous year.