The voestalpine Group demonstrates a high degree of stability despite challenging times

Despite the fact that revenue fell from EUR 2.9 billion to EUR 2.7 billion, the operating result (EBITDA) for the third quarter rose in a year-to-year comparison by 10% from EUR 294 million to EUR 322 million and profit from operations (EBIT) went up by 20% from EUR 145 million to EUR 174 million, due primarily to the much stronger performance of the Steel Division. Therefore, the EBITDA margin was 11.8% (compared to 10.1% in the third quarter of 2011/12), and the EBIT margin was 6.4% (previous year: 5.0%).

Looking at the individual divisions, a highly differentiated picture emerges. Due to its broad business portfolio, parts of which are less sensitive to economic trends, the Metal Engineering Division (includes railway systems, turnout technology, specially treated wire, oilfield tubes, and welding technology) was able to increase its revenue by 0.5% to EUR 2.2 billion, while the other divisions faced declines in revenue of 4% to 5%, which were largely the result of weak market environments in important industry segments (automobile industry, energy sector).

Equity increased from EUR 4.87 billion as of December 31, 2011 to EUR 5.04 billion as of the end of 2012, and during the same period, net financial debt fell by 16% from EUR 3.0 billion to EUR 2.5 billion. Therefore, the gearing ratio (net financial debt in percent of equity) dropped from 61.3% to 49.8%. As of the reporting date December 31, 2012, the voestalpine Group had 44,700 employees (full-time equivalent, including apprentices and temporary personnel), a decrease of 1%. As of the end of 2012, around 3,000 employees (FTE) were employed as temporary staff (minus 30%). At 1,594. the number of apprentices being trained in the voestalpine Group is approximately at the same level as in the previous year (1,603). In the first nine months of the year, investments rose in the voestalpine Group compared to the same period of the previous year by 41% from EUR 354 million to EUR 498 million in accordance with the previously announced significant expansion of the Group’s investment activities.

The first nine months of the business year were characterized by an overall economic situation both in Europe and in the most important overseas markets that was challenging, and the situation became even more dire in some industrial segments in the fall of 2012. The situation in the European automobile industry in the second half of the calendar year was especially affected by lower sales figures. Viewed globally, the energy sector, in particular, emerged as increasingly inconsistent. While energy exploration continued its dynamic performance, both pipeline and power plant construction was marked by subdued demand. The mechanical engineering sector continued to develop at quite a solid level, while the weak trend in the construction industry continued. The development in Europe in those customer industries that depend directly on the buying behavior of end consumers (with the exception of the automobile industry) was relatively stable. This applies particularly to the white goods and consumer goods segments, which most recently actually showed indications of a revival. The aerospace market continued to show satisfactory growth as did the railway infrastructure market, especially overseas.

A decision was made in March 2012 to close the TSTG Schienen Technik GmbH & Co KG rail production facility in Duisburg; on February 4, 2013, the negotiations with the Works Council that have been ongoing since that point in time regarding a reconciliation of interests were declared to have failed. Now, the procedure provided for under the law will be undertaken and the parties will appeal to an arbitration tribunal before which negotiations will be continued. Nevertheless, discussions regarding a social compensation plan will be held. The final closure will take place toward the end of the 2013 calendar year once all remaining orders have been fulfilled. The provisions created for the antitrust proceedings and associated actions and costs as well as for the closure of TSTG Schienen Technik GmbH & Co KG in the annual financial statements 2011/12 in the amount of EUR 205 million was reduced by the amount of the paid fine of EUR 8.5 million. The remaining provisions are still considered to be appropriate. At a later date, the German Federal Cartel Office will examine the deliveries of railway superstructure material to regional and local customers. From today's perspective, it is still too early to estimate when we can count on a final decision regarding these additional issues.

While the last calendar quarter of 2012 was still dominated by cautious anticipation with regard to the current business year, the first indications of an economic recovery in China and progress in overcoming the European debt crisis have been increasingly interpreted by various quarters as a positive trend reversal It remains a fact, however, that the sustainability of both the uptrend in China and the beginning of an easing of the European debt dilemma can only be assessed in the further course of the year. Furthermore, it should not be overlooked that growth impulses of any consequence cannot be expected from other important economic regions, such as India and South America, and—even more importantly—the “fiscal cliff” problem in the USA has still not been permanently solved. Against this backdrop, a real step in the direction of a global improvement of the economic situation seems to be quite improbable prior to the second half of 2013. In the short term, however, individual industry segments could see an uptick in demand as a result of inventory cycle effects. As a slightly positive conclusion from what we know today, there are numerous indications that at least the broad-based economic downtrend that we have experienced in the last quarters has come to a stop as of the turn of the year 2012/13.

For the voestalpine Group, expectations for the last quarter of the business year are similar to what we saw in the immediately preceding quarter, whereby both quarters are traditionally affected by significant seasonal effects. The current performance of the voestalpine Group compared to the competition confirms very clearly yet again how right our fundamental strategic policy of the last ten years has been. With the strategy of guiding the Group away from being a “classic” steel company to becoming a specialized technology and industrial goods group with a long value chain and sophisticated niche products differentiates the Group—particularly in difficult economic times—from the competition by its relatively stable profitability that continues to be at a healthy level. “Despite the fact that the economic environment continues to be challenging, from today’s perspective, the Management Board is still anticipating the results for the business year 2012/13 that were predicted in the letter to shareholders for the second quarter, i.e., an operating result (EBITDA) in the range of EUR 1.4 billion and profit from operations (EBIT) of around EUR 800 million, although the conditions for achieving these target figures have become significantly more adverse in recent months,” said Eder.