Steel Division

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

Market environment and business development

At the start of the business year 2022/23, the fallout from the Ukraine war gave rise to significant distortions in the European steel market. Given strong demand in Europe, dramatic reductions in the volume of imports from both Ukraine and Russia triggered steep short-term increases in the price of steel, but the price returned to the level prior to the outbreak of the war as early as in the Northern summer of 2022.

As the business year wore on, a negative sentiment began to spread at the macro-economic level. In conjunction with effects from inventory reductions, this development triggered a downward trend in steel prices in the European spot market by the end of calendar year 2022. The situation finally began to stabilize toward the end of the reporting period.

The Steel Division generally sells its products via long-term contracts. As a result, it was affected only to a very limited degree by the volatilities in the spot market at the start of the reporting period. The division did not have to contend with price declines resulting from the deterioration in the economic environment overall until the third business quarter.

Furthermore, the European steel industry was confronted with difficulties in the raw materials supply chain due to logistics problems and skyrocketing energy costs, especially in the first half of the business year 2022/23. Given rising manufacturing costs and falling demand, many steel producers in Europe sharply curtailed production in the Northern fall of 2022.

The Steel Division, too, was unable in this environment to achieve full capacity utilization, particularly in the third business quarter. In contrast to many spot market suppliers, however, it did not have to shut down core units.

Demand for the Steel Division’s products remained satisfactory throughout the first three quarters of the business year 2022/23 despite the weakening economic momentum.

The supply chain bottlenecks in the automotive industry have persisted throughout the business year to date. As a result, the sector was unable to fully ramp up production despite strong order levels, at least in Europe. Both the Steel Division’s broad customer base and its active working of the markets also helped to ensure that its deliveries to the automotive industry ultimately remained satisfactory overall.

Demand in the white goods and consumer goods industries increasingly weakened as the year wore on due to the poor economic sentiment and higher financing costs.

In the mechanical engineering industry, by contrast, demand remained stable in the first three quarters of the current business year thanks to strong order levels.

While the Steel Division benefited from an advantageous business environment in the construction industry throughout most of the reporting period, the momentum clearly began to weaken in the third business quarter of 2022/23. Over and above the deteriorating economic sentiment overall, this was due particularly to the tightened fiscal policies of the European Central Bank (ECB) and the resulting increase in interest rates.

The energy sector, which is the main market of the Steel Division’s heavy plate product segment, benefited both from high energy prices worldwide and very good demand throughout the business year to date.

Raw material prices increasingly returned to normal following the abrupt surges at the start of the business year. They followed a largely stable trajectory as time wore on. By contrast, logistics in Europe presented a major challenge: Due to the war in Ukraine, Black Sea shipping routes are no longer available as before. The situation was exacerbated over the Northern summer of 2022 due to the limited navigability of the Rhine-Main-Danube Canal resulting from both droughts and low water levels. Hence shipping had to be switched to a considerable extent to the railways and other sea or river ports.

In the final analysis, the pronounced increases in the price of electricity and especially natural gas created problems for European steel producers. They had a major negative impact on the Steel Division as well. However, fears of natural gas shortages in Europe during the current Northern winter have yet to materialize. As a result, the price of natural gas in Europe declined toward the end of the reporting period, after reaching record highs as recently as in the late Northern summer.

Financial key performance indicators

The Steel Division succeeded in substantially boosting its key performance indicators (KPIs) during the current reporting period. Despite the decline in volumes owing to the dampening of demand for steel, by raising its own prices the division succeeded in boosting revenue for the first three quarters of the business year 2022/23 by 26.7% to EUR 4,941.2 million (Q1–Q3 2021/22: EUR 3,901.1 million). Following the extraordinary first business quarter, earnings gradually weakened over the course of the current reporting period on account of continually rising raw material and energy prices as well as declining sales volumes. On the whole, however, the division even surpassed its excellent performance in the previous year. At EUR 936.7 million, it boosted its operating result (EBITDA) for the first three quarters of the business year 2022/23 by 23.3% (Q1–Q3 2021/22: EUR 759.7 million). Due to the sharp increase in revenue, however, the EBITDA margin fell slightly year over year from 19.5% to 19.0%. EBIT jumped 31.9% to EUR 742.7 million with a margin of 15.0% (Q1–Q3 2021/22: EUR 563.2 million, margin of 14.4%).

The dampening of economic sentiment is reflected in the quarter-on-quarter (QoQ) comparison of the Steel Division’s KPIs for the second and third quarter of the current business year. Revenue fell in the third business quarter by 6.7% to EUR 1,503.7 million (down from EUR 1,611.3 million in the second). This was due chiefly to the downward trend in prices as well as the slight decline in delivery volumes. The downturn made itself felt more strongly on the earnings side: EBITDA fell by almost one half in the third business quarter to EUR 140.4 million with a margin of 9.3% (down from EUR 269.5 million (margin of 16.7%) in the second). The gross margin declined because the cost of both raw materials and energy remained high. The Steel Division posted EBIT of EUR 76.5 million with a margin of 5.1% for the third business quarter. This equates to a decline of 62.6% compared with the amount for the second business quarter (EUR 204.4 million, margin of 12.7%).

The number of employees (FTE) in the Steel Division as of December 31, 2022, fell slightly by 1.8% to 10,401 compared with the previous year’s reporting date (10,594).