These impairments impact the EBIT, but not the EBITDA. Assets are being revalued as a consequence of the changed framework conditions for the 2020/21 business year. The effects of COVID-19 have also resulted in a higher discount rate (WACC—weighted average cost of capital), so that further write-offs to the amount of € 125 million are required. Furthermore, the first operational effects of the COVID-19 pandemic started to have an impact in mid-March. These effects are having a negative impact on both EBITDA and EBIT by around € 40 million.
Back in December 2019 the Management Board had already taken far-reaching decisions in response to a strategic analysis which had examined changes in the global economy, primarily the global trade dispute, but also Europe’s continuing development as an economic region with an evident dwindling interest in a continuous industrial value chain. Already at that time, the results of the analysis clearly showed the need for measures over and above purely short-term operative optimisations. Therefore, in the third quarter of the 2019/2020 business year non-recurring write-offs of € 270 million were announced in response to the impairment tests undertaken at that time. In addition, provisions for risks which will have a negative financial impact (including restructuring costs) of € 75 million were recognised. The COVID-19 pandemic now makes further revaluations necessary.

€ 125 million in write-offs

In addition to the measures taken in December 2019, voestalpine AG will now make non-recurring write-offs to the sum of € 125 million in several business segments during the 2019/2020 business year. The impairment tests indicated that non-recurring write-offs needed to be made at the foundries in Traisen and Linz, Seamless Tubes (Tubulars), Welding Consumables (welding sector), Buderus Edelstahl (Wetzlar, Germany), Cartersville and Texas (USA). The write-offs will have an impact on the EBIT during the fourth quarter of the 2019/2020 business year.

Short-time work

As announced at the end of March, of the total 22,300 employees in Austria, around 18,000 have already been registered for short-time work. This figure will rise to 20,000 by May. voestalpine has registered almost 6,000 of its 8,300 employees in Germany for short-time work; the deployment of similar models is currently being considered and implemented in Belgium and the Netherlands.
Herbert Eibensteiner, Chairman of the Management Board of voestalpine AG: “We have succeeded in adapting to this completely new situation very quickly. The voestalpine team has managed the past few weeks magnificently. As before, irrespective of the economic considerations, our primary concern remains the health of our employees,” says CEO Eibensteiner. “However, in view of the COVID-19 pandemic and its impact on our operating environment, naturally we have no other choice but to be much more critical than originally planned in our assessments of future market expectations. Therefore, we must further reduce our expectations for the business year 2020/21 and for the value of individual companies, and again implement non-recurring write-offs,” Eibensteiner continues. “This does not alter our long-term strategic orientation. We will continue to focus on technology-intensive sectors with the most stringent quality standards.”
The current standstill in many sectors of the economy must end soon. “Apart from our current crisis management, we are already preparing for the announced restart of the automotive industry and other sectors which are more important to our Group. Quickly getting back up to speed will be vital. The Austrian government has now taken the first step towards restarting economic activities and reviving consumption. Now further steps must soon follow in order to get industrial production back up and running as quickly as possible.”

Outlook BY 2019/20

Based on these exceptional, non-recurring measures, from its current standpoint the Management Board expects a slightly reduced (over the outlook in late 2019) operating result (EBITDA) of over € 1.1 billion for the business year 2019/20 ended on 31 March 2020. With respect to EBIT, the previous outlook no longer applies: profit from operations (EBIT) will be negative at around – € 135 million (previous outlook: “just positive EBIT”).
In order to secure its financial resources, voestalpine continues to work at full speed to implement the announced cost savings and efficiency optimisation programs. Furthermore, the focus will remain on cash flow optimisation and reductions in inventory, while investments will be cancelled. Construction of the special steel plant in Kapfenberg will continue.
_{(Source: voestalpine AG)}