High Performance Metals Division

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

Market environment and business development

Advantageous economic conditions shaped the first three quarters of the business year 2022/23 for the High Performance Metals Division. The division benefited, especially in the first business quarter, from excellent demand in key customer segments. In the two subsequent business quarters, however, declines in incoming order volumes that were partly due to macro-economic developments made themselves felt over and above the customary seasonal weakening.

Tool Steel

Demand from the automotive industry – a significant customer segment for tool steel – developed along a largely stable trajectory during the reporting period. Investments in new car models, particularly those powered by electric drives, were key to the satisfactory demand. In Europe, demand did not weaken even a bit until the third business quarter. In North and South America, orders from the automotive industry followed a largely solid trajectory throughout the current business year to date.

The Chinese government’s COVID-19 measures in the business year 2022/23 had a considerably adverse effect on the consumer goods market in Asia, which is key to the division’s activities. Initially, the lockdowns led to widespread production stoppages; subsequently, they triggered commensurate negative effects in the supply chains. Toward the end of the calendar year, however, the country’s sudden opening against the backdrop of the Chinese government’s changed COVID policies resulted in massive waves of illness and the resulting limitations on industrial production.

Special Materials

The clearly positive trend in the aerospace industry, which had already made itself felt in the previous business year, continued in the reporting period. This development was fueled by rising build rates of single-aisle aircraft that are used primarily on regional routes. Growing passenger numbers as well as acquisitions aimed at replacing existing planes with new fleets boasting more efficient jet engines supported this segment. Toward the end of calendar year 2022, demand for long-haul, twin-aisle aircraft also began to intensify, but it will still take quite some time for this segment to return to pre-crisis demand levels.

The upturn in the oil and natural gas industry has continued unabated. Demand here was fueled substantially by the build-up of alternative energy infrastructures as well as high energy prices overall. The dynamic situation in the oil and natural gas sector shaped the market in Europe as much as it did the markets in North and South America.

High Performance Metals Production

Significant increases in the cost of energy and alloys affected developments in the first three quarters of the business year 2022/23 for the High Performance Metals Production business unit. Electricity and natural gas prices skyrocketed in the wake of the war in Ukraine, especially in Europe, even though there were stark regional differences here, too. For example, the segment’s production facility in Hagfors, Sweden, benefited from substantially lower costs than plants in both Germany and Austria. In the final analysis, the high energy prices at the unit’s European production plants led to shifts in the product mix toward products offering greater differentiation potential. The division’s largest investment at this time – specifically, the construction of the special steel plant in Kapfenberg, Austria – has entered its final phase: The plant will be started up before the end of the current business year.

Value Added Services

The service centers of the Value Added Services business unit saw satisfactory capacity utilization thanks to their strong focus on the international toolmaking industry. Besides supplying customers with high-quality tool steel grades, demand for services such as mechanical processing, heat treatments, and surface coatings was also solid. In North America, the unit’s sales centers benefited from lower protective tariffs as well as changes in foreign exchange rates. In China, by contrast, the Value Added Services unit had to contend with a more difficult business environment owing to the government’s COVID-19 measures as well as high European energy costs.

Financial key performance Indicators

The key performance indicators (KPIs) for the High Performance Metals Division reflect the solid economic environment in which it operates. Division revenue for the first three quarters of the business year 2022/23 climbed by 28.8% to EUR 2,783.8 million (Q1–Q3 2021/22: EUR 2,161.4 million). The division’s ability to pass on most of the energy cost increases to its customers, in particular, was key to this positive result. The implementation of price increases in response to significant increases in the cost of alloys also made an important contribution to the revenue growth. While delivery volumes declined by about 10% during the reporting period, the higher-value product mix had a positive offsetting effect on revenue. The increase in the gross margin over and above the pleasing development of the division’s portfolio of products possessing a high level of differentiation in relation to the competition was a key factor in the division’s improved earnings performance. As a result, EBITDA rose during the reporting period by 20.2% to EUR 324.3 million with a margin of 11.6% (Q1–Q3 2021/22: EUR 269.9 million, margin of 12.5%). EBIT dropped during the same period by 76.3% to EUR 35.8 million with a margin of 1.3% (Q1–Q3 2021/22: EUR 151.0 million, margin of 7.0%) due to a total of EUR 173 million in impairment losses. Of these impairment losses, EUR 54 million concern assets belonging to Buderus Edelstahl in Wetzlar, Germany, and EUR 119 million arise from impairment losses on the goodwill of HPM Production (a cash generating unit).

The quarter-on-quarter comparison (QoQ) of the current business year’s second and third quarter shows a slight decline in revenue by 1.8% to EUR 904.2 million in the third quarter (Q2 2022/23: EUR 920.8 million). While prices in the individual product categories remained stable, the sales volume in Q3 2022/23 fell slightly QoQ. The High Performance Metals Division had to contend with a more substantial decline in EBITDA, which fell by 23.1% in the third business quarter to EUR 77.5 million with a margin of 8.6%, down from EUR 100.8 million with a margin of 10.9% in the second. At EUR 39.3 million (margin of 4.3%) in Q3 2022/23, by contrast, EBIT turned into positive territory yet again, following the division’s negative EBIT of EUR –111.2 million (margin of –12.1%) for Q2. However, the aforementioned impairment losses of EUR 173 million adversely affected EBIT for Q2 2022/23.

Against the backdrop of the improved economic environment, as of December 31, 2022, the number of employees (FTE) in the High Performance Metals Division rose by 2.3% to 13,390 (December 31, 2021: 13,083).