Metal Forming Division

Market environment and business development

The performance of the Metal Forming Division in the first half of the business year 2019/20 was weaker overall. Aside from the declining economic momentum in major customer segments and regions, the division was also confronted with a massive increase in the start-up costs of a component plant for the automotive industry in the United States.

To date, the business climate in the Automotive Components business segment has clouded over during the current business year. The decline of about 2% in the sales of Europe’s renowned automakers triggered a slightly greater decline in production. In North America, demand for the locally manufactured products of the Automotive Components segment was altogether satisfactory in an otherwise stagnating market. While the number of new light vehicle registrations has fallen, the strong trend toward sport utility vehicles (SUVs) remains unbroken. Our plant in Cartersville, Georgia, USA, which is in its start-up phase, had to contend with substantially higher start-up costs in the first half of the current business year. This had a correspondingly negative impact on the business segment’s earnings. Some of the steps that have been taken to ameliorate the situation have already been successfully implemented, and productivity has risen. But numerous other optimization measures will be necessary to meet the originally planned targets. In China, the growth rates of the German premium auto brands have fallen a bit in a sharply shrinking automotive market overall, but the local branches of Automotive Components succeeded nonetheless in benefiting from the solid demand.

Declining automotive sales worldwide also had a negative impact on the Tubes & Sections business segment in the first half of the business year 2019/20. The Rotec Group, which specializes in safety components for the automotive industry and is a link in the global supplier industry, was faced with lower sales as well as shrinking supply chain inventories. Regionally, orders from the commercial and construction machinery industry in Europe have declined. But the traditionally late-cycle construction industry is still delivering largely stable performance in the European Single Market. The Tubes & Sections business segment benefited from much better demand in the United States, relatively speaking. Both storage technology and the aerospace industry are the bedrock of the solid order volume in this region. So far, Brazil’s trends toward a recovery have been weaker than expected.

Although the momentum in its market has been steadily declining in the most recent quarters, the Precision Strip business segment delivered a largely satisfactory performance in the first half of the business year 2019/20 thanks to its good market position. While orders on hand recently stabilized at a lower level in China, the segment’s environment in the U.S. has become less favorable. The European market for the products of the Precision Strip business segment is shrinking, too, but customers’ order levels still remain relatively solid.

The Warehouse & Rack Solutions business segment, which specializes in manufacturing and installing high-bay warehouses and system racks, has been profiting for years from the excellent e-commerce business climate. Hence the scope of this segment’s projects in the first two quarters of the current business year was highly satisfactory. In contrast to the U.S. market, which continues to prosper in this respect, the project pipeline in Europe has recently been buffeted by declining market dynamics.

Financial key performance indicators

The Metal Forming Division had to contend with significant year-over-year declines in earnings in the first half of the business year 2019/20 despite stable revenue growth. This downturn is due only in part to the general downward trend; it stems for the most part from the sharply higher start-up costs at the Automotive Components plant in Cartersville, Georgia, USA. As a result, the segment’s revenue of EUR 1,453.3 million is practically the same as in the same period of the previous year (EUR 1,445.1 million). The revenue of both Tubes & Sections and Precision Strip was down slightly on account of the prevailing business climate, yet these declines were offset by increases in the Automotive Components as well as Warehouse & Rack Solutions business segments. While the start-up of the Cartersville plant had a positive effect on revenue in Automotive Components, the positive performance of Warehouse & Rack Solutions was largely driven by the completion of numerous projects. Earnings, however, present a completely different picture. The decline in this key performance indicator stems to a large degree from the start-up difficulties at the Cartersville plant. Owing to the gradual dampening of economic sentiment, all business segments of the Metal Forming Division other than Warehouse & Rack Solutions recorded declining profits. On the whole, EBITDA fell year over year by 29.8%, from EUR 152.6 million (margin of 10.6%) in the first half of the business year 2018/19 to EUR 107.1 million (margin of 7.4%) in the reporting period.

Quarter to quarter, the division’s key financial indicators point to declines that stem from both economic and seasonal effects. Revenue fell by 3.0%, from EUR 737.6 million in the first quarter of the business year 2019/20 to EUR 715.7 million in the second quarter. Solely the Automotive Components business segment managed to offset shrinking delivery volumes at other sites thanks to the steep ramp-up curve at the Cartersville plant that continued unabated. In terms of earnings, the weakening trend affected especially the two larger business segments (Tubes & Sections and Automotive Components). As a result, EBITDA dropped by 16.6%, from EUR 58.4 million (margin of 7.9%) in the first quarter of the business year 2019/20 to EUR 48.7 million (margin of 6.8%) in the second quarter.