High Performance Metals Division

Market environment and business development

The ongoing global decline in demand for tool steel defined the first half of the business year 2019/20 for the High Performance Metals Division. Worldwide, the weakness of the automotive industry lowered the number of both vehicles produced and new models brought to market. Demand for tool steel suffered commensurately. But the consumer goods industry also weakened worldwide and thus was unable to offset developments in this product segment.

The special materials segment presented a much better picture during the reporting period. For example, activities related to the oil and natural gas industry were generally stable, albeit at a slightly weaker level. Despite softening global markets, the division succeeded not only in successfully leveraging investments to expand its product portfolio but also in substantially enhancing its competitiveness.

It even posted considerable growth in the aerospace segment during the business year to date. Thanks to its investment in a new fast forge press, the High Performance Metals Division now is the only European manufacturer of demanding pre-materials for aircraft engine discs.

Its performance in Europe and North America largely paralleled this scenario. The market saw a weakening of automotive demand, which had corresponding adverse effects on both tool steel and high-speed steel for cutting tools. By contrast, the aerospace segment delivered further growth while the oil and natural gas segment remained largely stable. The Section 232 protectionist tariffs of 25% on all steel products that the United States imposed continue to generate strong uncertainty in the market, simultaneously intensifying competitive pressures.

In South America, the situation improved but marginally during the first half of the business year 2019/20.

The market environment in Asia was shaped by the trade war with the United States, especially in China. Here, too, the dramatic downturn in automotive production after years of stable growth as well as restrained demand from the consumer goods industry were the main factors driving the market decline.

Capacity utilization at those of the division’s plants that are chiefly focused on tool steel was substantially lower due to the significant declines in demand than that at plants mainly geared to special materials. Consequently, efficiency-boosting measures aimed at stabilizing earnings and generating cash flow were introduced at all production facilities.

Steps to lower costs were also taken in the global Value Added Services business segment. In particular, this concerns human resources, investments, and inventory management. But it does not affect the consistent alignment of Value Added Services with the Group’s aim to differentiate itself from the competition. In addition to offering expanded services, increasingly this approach also includes achieving efficiency gains for customers’ benefit.

By now, the High Performance Metals Division manufactures components and parts using additive manufacturing processes (3D printing) at seven sites worldwide. The division’s proprietary development of powder alloys is a unique selling proposition (USP) in this market and underscores its position as a premium supplier. Additive processes enable completely new ways of designing components and parts, boosting not only the range of technical applications but also their operational cost-effectiveness. Transcending its role as a component supplier, the division provides specialist expertise to its customers regarding additive manufacturing processes already in the design phase.

Financial key performance indicators

The increasingly difficult economic environment is reflected in the key performance indicators (KPIs) of the High Performance Metals Division for the first half of the business year 2019/20. For example, deliveries fell by 12% year over year. The significant increase in the cost of the division’s most important alloy material (nickel) caused the prices for tool steel and special materials to rise across the board. Against this backdrop, the 2.9% decline in revenue, from EUR 1,545.9 million in the previous year to EUR 1,500.9 million in the current year, is relatively moderate. The decline in EBITDA is due chiefly to lower capacity utilization at the division’s production facilities and declining sales. On the whole, the operating result dropped by 22.8 year over year, from EUR 229.8 million to EUR 177.4 million, causing the EBITDA margin to shrink from 14.9% to 11.8%.

The quarter-on-quarter (QoQ) comparison of the first and second quarters of the 2019/20 business year also shows declining KPIs, most of which stem from seasonal effects. As a result, revenue fell by 7.0% quarter on quarter, from EUR 777.6 million to EUR 723.3 million. Given unchanged pricing, this is due to weaker volume trends. Moreover, the summer quarter (i.e. a period of slightly declining demand for seasonal reasons) is generally used to carry out more extensive maintenance work, with the commensurate effect on costs. These two factors lowered the division’s EBITDA between the first and the second quarter of the business year 2019/20 by 21.2%, from EUR 99.2 million (margin of 12.8%) to EUR 78.2 million (margin of 10.8%).