Economic development in the Aurubis Group

Results of operations of the Aurubis Group

Results of operations (operating)

In order to portray the Aurubis Group’s operating success independently of measurement influences – deriving from the use of the average cost method for inventory measurement purposes in accordance with IAS 2, from copper price-related measurement effects on inventories and from the impact of purchase price allocations, primarily on property, plant and equipment, from fiscal year 2010/11 onwards – for internal management purposes, the presentation of the results of operations, net assets and financial position in accordance with IFRS is supplemented by the results of operations and net assets explained on the basis of operating values.

The following table shows how the operating result for fiscal year 2015/16 and for the comparative prior-year period are determined.

Reconciliation of the consolidated income statement

T 009
 
in € million 2015/16
IFRS
2015/16
adjustment 1)
2015/16
operating
2014/15
operating
         
Revenues 9,475 0 9,475 10,995
Changes in inventories of finished goods and work in process 97 23 120 76
Own work capitalized 9 0 9 6
Other operating income 58 0 58 60
Cost of materials (8,635) 23 (8,612) (9,964)
Gross profit 1,004 46 1,050 1,173
 
Personnel expenses (449) 0 (449) (431)
Depreciation and amortization of intangible assets and property, plant and equipment (135) 6 (129) (130)
Other operating expenses (243) 0 (243) (242)
Operational result (EBIT) 177 52 229 370
 
Result from investments measured using the equity method 6 2 8 4
Interest income 3 0 3 4
Interest expense (27) 0 (27) (31)
Other financial expenses 0 0 0 (4)
Earnings before taxes (EBT) 159 54 213 343
 
Income taxes (35) (13) (48) (86)
Consolidated net income 124 41 165 257
      
1) Adjustment for measurement effects deriving from the use of the average cost method in accordance with IAS 2, from copper price-related measurement effects on inventories and for impacts from purchase price allocations, primarily on property, plant and equipment, from fiscal year 2010/11 onwards.

The Aurubis Group (Aurubis) generated operating consolidated earnings before taxes (EBT) of € 213 million in fiscal year 2015/16 (previous year: € 343 million). Business performance was influenced by an overall difficult situation on the copper scrap and sulfuric acid markets. The refining charges for copper scrap and revenues for sulfuric acid were at a much lower level compared to the previous year. On the copper concentrate markets, good availability and an improved input mix led to higher treatment and refining charges. Overall, copper product sales were slightly higher than the previous year with lower cathode premiums. Only strip product sales volumes were at the prior-year level. Business performance continued to be influenced by the lower metal yield with reduced metal prices compared to the previous year. Additionally, the scheduled shutdown at our site in Pirdop, Bulgaria in the spring also had a negative impact. As in the previous year, Aurubis was able to benefit from the EUR/USD development in this year.

IFRS earnings before taxes, which amounted to € 159 million, were adjusted for inventory measurement effects of € 48 million (previous year: € 167 million), as well as for impacts of € 6 million (previous year: € 6 million) deriving from a purchase price allocation from 2010/11 onwards, resulting in operating earnings before taxes of € 213 million (previous year: € 343 million).

The Group’s revenues decreased by € 1,520 million to € 9,475 million during the reporting period (previous year: € 10,995 million). This development was primarily due to the lower average copper price compared to the previous year.

Breakdown of revenues

T 010
 
in % 2015/16 2014/15
     
Germany 35 32
European Union 38 38
Rest of Europe 3 2
Other countries 24 28
 
Total 100 100

The change in inventories amounted to € 120 million (previous year: € 76 million), mainly because of an increase in copper and precious metal inventories.

In a manner corresponding to the development for revenues, the cost of materials decreased by € 1,352 million, from € 9,964 million in the previous year to € 8,612 million.

After taking the change in inventories, own work capitalized and other operating income into account, the residual gross profit was € 1,050 million (previous year: € 1,173 million).

Personnel expenses rose from € 431 million in the previous year to € 449 million in the current reporting period. The increase was due in particular to higher collective wage agreement rates, a slightly higher number of employees and higher personnel costs, expressed in euros, at the Buffalo, USA site.

Depreciation and amortization of fixed assets amounted to € 129 million and was therefore similar to the prior-year level (€ 130 million).

Development of revenues by product groups

Chart: Development of revenues by product groups

At a level of € 243 million, other operating expenses were also similar to those of the previous year (€ 242 million).

The operational result before interest and taxes (EBIT) therefore amounted to € 229 million (previous year: € 370 million).

The net interest expense was € 24 million compared to € 27 million in the previous year. The decrease was primarily due to lower interest rates.

After taking the financial result into account, operating earnings before taxes (EBT) were € 213 million (previous year: € 343 million). The following significant factors were decisive for the reported fiscal year’s development compared to the previous fiscal year: 

  • The scheduled shutdown in Pirdop, Bulgaria with a lower resultant throughput
  • Higher treatment and refining charges for copper concentrates with an improved input mix
  • Considerably reduced refining charges for copper scrap accompanied by a lower copper scrap supply
  • Significantly weaker sales prices for sulfuric acid due to a surplus on the global markets
  • A lower metal gain accompanied by decreased metal prices
  • A lower cathode premium
  • Stable sales volumes for continuous cast wire rod and shapes
  • The strong US dollar

Operating earnings before taxes were significantly below those of the previous year, and thus corresponded to the expectation provided in the Forecast Report at the start of the fiscal year.

Operating consolidated net income of € 165 million remained after tax (previous year: € 257 million). Operating earnings per share amounted to € 3.64 (previous year: € 5.68).

Results of operations (IFRS)

The Aurubis Group generated consolidated net income of € 124 million in fiscal year 2015/16 (previous year: € 134 million).

Consolidated income statement

T 011
 
in € million 2015/16
IFRS
2014/15
IFRS
     
Revenues 9,475 10,995
 
Changes in inventories/own work capitalized 106 21
Other operating income 58 60
Cost of materials (8,635) (10,067)
Gross profit 1,004 1,009
 
Personnel expenses (449) (431)
Depreciation and amortization of intangible assets and property, plant and equipment (135) (136)
Other operating expenses (243) (242)
Operational result (EBIT) 177 200
 
Financial result (18) (30)
Earnings before taxes (EBT) 159 170
 
Income taxes (35) (36)
 
Consolidated net income 124 134

Group revenues decreased by € 1,520 million to € 9,475 million during the reporting period (previous year: € 10,995 million). This development is primarily due to the lower average copper price compared to the previous year.

The change in inventories increased by € 82 million compared to the previous year, to € 97 million (previous year: € 15 million), mainly because of an increase in copper and precious metal inventories.

In a manner corresponding to the development for revenues, the cost of materials decreased by € 1,432 million, from € 10,067 million in the previous year to € 8,635 million.

After taking the change in inventories, own work capitalized and other operating income into account, the residual gross profit was € 1,004 million (previous year: € 1,009 million).

In addition to the effects on earnings described in the explanation of the operating results of operations, the change in gross profit was also due to the metal price trend. The use of the average cost method leads to metal price valuations that are close to market prices. Metal price volatility therefore has a direct effect on the change in inventories/cost of materials and thus on the IFRS gross profit. This is independent of the operating performance and is not relevant to the cash flow.

Personnel expenses rose from € 431 million in the previous year to € 449 million in the current reporting period. The increase was due in particular to higher collective wage agreement rates, a slightly higher number of employees and higher personnel costs, as expressed in euros, at the Buffalo, USA site.

At a level of € 135 million, depreciation and amortization of fixed assets was similar to the previous year (€ 136 million).

At a level of € 243 million, other operating expenses were also similar to those of the previous year (€ 242 million).

Earnings before interest and taxes (EBIT) were therefore € 177 million (previous year: € 200 million).

The net interest expense was € 24 million compared to € 27 million in the previous year. The decrease was primarily due to lower interest rates.

After taking the financial result into account, earnings before taxes amounted to € 159 million (previous year: € 170 million). A consolidated net income of € 124 million remained after tax (previous year: € 134 million). Earnings per share amounted to € 2.71 (previous year: € 2.95).

Net assets of the Aurubis Group

Net assets (operating)

The following table shows the derivation of the operating balance sheet as at September 30, 2016 and September 30, 2015.

Reconciliation of the consolidated balance sheet

T 012
 
in € million 9/30/2016
IFRS
9/30/2016
adjustment 1)
9/30/2016
operating
9/30/2015
operating
         
ASSETS        
Fixed assets 1,450 (46) 1,404 1,387
Deferred tax assets 10 48 58 29
Non-current receivables and other assets 26 0 26 15
Inventories 1,700 (206) 1,494 1,374
Current receivables and other assets 369 0 369 495
Cash and cash equivalents 472 0 472 453
Assets “held-for-sale” 0 0 0 6
 
Total assets 4,027 (204) 3,823 3,759
 
EQUITY AND LIABILITIES        
Equity 1,991 (162) 1,829 1,765
Deferred tax liabilities 151 (42) 109 102
Non-current provisions 386 0 386 281
Non-current liabilities 357 0 357 509
Current provisions 32 0 32 35
Current liabilities 1,110 0 1,110 1,067
 
Total equity and liabilities 4,027 (204) 3,823 3,759
   
1) Adjustment for measurement effects deriving from the use of the average cost method in accordance with IAS 2, from copper price-related measurement effects on inventories and for impacts from purchase price allocations, primarily on property, plant and equipment, from fiscal year 2010/11 onwards.

Certain prior-year figures have been adjusted.

Total assets increased from € 3,759 million as at September 30, 2015 to € 3,823 million as at September 30, 2016, primarily due to higher inventories.

The Group’s equity increased by € 64 million, from € 1,765 million as at the end of the last fiscal year to € 1,829 million as at September 30, 2016, mainly due to the operating consolidated net result of € 165 million. The dividend payment of € 62 million and effects from the remeasurement of pension obligations recognized in equity had an opposite impact. Overall, the operating equity ratio (the ratio of equity to total assets) was 47.8 % compared to 46.9 % as at the end of the previous fiscal year.

The increase in non-current provisions resulted from an increase in pension liabilities due to the effects deriving from remeasurement mentioned above.

Borrowings decreased slightly from € 506 million as at September 30, 2015 to € 495 million as at September 30, 2016. The following table shows the development of borrowings as at September 30, 2016 and September 30, 2015:

Development of borrowings

T 013
 
in Mio. € 30.09.2016 30.09.2015
     
Langfristige Verbindlichkeiten gegenüber Kreditinstituten 321 464
Langfristige Verbindlichkeiten aus Finanzierungsleasing 16 17
Langfristige Finanzverbindlichkeiten 337 481
Kurzfristige Verbindlichkeiten gegenüber Kreditinstituten 156 23
Kurzfristige Verbindlichkeiten aus Finanzierungsleasing 2 2
Kurzfristige Finanzverbindlichkeiten 158 25
 
Finanzverbindlichkeiten 495 506

Return on capital (operating)

ROCE refers to the return on capital employed.

Operating ROCE (taking operating EBIT for the last 12 months into account) decreased from 18.7 % in the previous year to 10.9 % in the reporting year due to the lower operating result.

Aurubis achieved a significantly lower ROCE due to the considerably lower operating result in the fiscal year reported. This figure was, however, within the expected range as outlined in the Forecast Report at the start of the fiscal year.

Operating return on capital employed (ROCE)

T 014
 
in € million 9/30/2016 9/30/2015
     
Fixed assets 1,343 1,327
Inventories 1,494 1,374
Trade accounts receivable 242 307
Other receivables and assets 211 212
– Trade accounts payable (798) (761)
– Provisions and other liabilities (379) (480)
Capital employed as at the balance sheet date 2,114 1,979
 
Earnings before taxes (EBT) 213 343
Financial result 16 27
Earnings before interest and taxes (EBIT) 229 370
 
Return on capital employed (operating ROCE) 10.9 % 18.7 %

Net assets (IFRS)

Total assets decreased slightly from € 4,044 million as at the end of the previous fiscal year to € 4,027 million as at September 30, 2016.

Balance sheet structure of the Aurubis Group

T 015
 
in % 9/30/2016 9/30/2015
     
Fixed assets 36 36
Inventories 42 40
Receivables, etc. 10 13
Cash and cash equivalents 12 11
  100 100
 
Equity 49 49
Provisions 14 12
Liabilities 37 39
  100 100

The Group’s equity increased slightly by € 22 million, from € 1,969 million as at the end of the last fiscal year to € 1,991 million as at September 30, 2016, mainly due to the consolidated net result of € 124 million. The dividend payment of € 62 million and effects from the remeasurement of pension obligations recognized in equity had an opposite impact. Overall, the equity ratio (the ratio of equity to total assets) was 49.4 % compared to 48.7 % as at the end of the previous fiscal year.

Borrowings decreased slightly from € 506 million as at September 30, 2015 to € 495 million as at September 30, 2016. The following table shows the development of borrowings as at September 30, 2016 and September 30, 2015:

Development of borrowings

T 016
 
in € million 9/30/2016 9/30/2015
     
Non-current bank borrowings 321 464
Non-current liabilities under finance leases 16 17
Non-current borrowings 337 481
Current bank borrowings 156 23
Current liabilities under finance leases 2 2
Current borrowings 158 25
     
Borrowings 495 506

Return on capital (IFRS)

The operating result is used for control purposes within the Group. The operating ROCE is explained in the section “Return on capital (operating)”.

Financial position of the Aurubis Group

The Group’s liquidity sourcing is secured through a combination of the Group’s cash flow, short-term and long-term borrowings, as well as lines of credit available from our banks. Fluctuations in cash flow developments can be compensated at any time by existing credit resources and available lines of credit.

The development of the Aurubis Group’s liquidity position is monitored regularly on a timely basis. The control and monitoring functions are carried out on the basis of defined key financial ratios.

The main key financial ratio for controlling debt is debt coverage, which calculates the ratio of net borrowings (borrowings less cash and cash equivalents) to earnings before interest, taxes, depreciation and amortization (EBITDA) and shows the number of periods required to redeem the existing borrowings from the Group’s income –assuming an unchanged earnings situation.

The interest coverage ratio expresses how the net interest expense is covered by earnings before interest, taxes, depreciation and amortization (EBITDA).

Our long-term objective is to achieve a well-balanced debt structure. In this context, we consider debt coverage < 3 and interest coverage > 5 to be well balanced.

Since we use the operating result for control purposes in the Group, the Group’s key operating financial ratios are presented as follows:

Operating Group financial ratios

T 017
 
  9/30/2016 9/30/2015
     
Debt coverage =
net borrowings/EBITDA
0.1 0.1
Interest coverage =
EBITDA/net interest
14.6 18.3

Additional control measures related to liquidity risks are outlined in the Risk and Opportunity Report in the Combined Management Report.

Analysis of liquidity and funding

The cash flow statement shows the cash flows within the Group and highlights how funds are generated and used.

The net cash flow as at September 30, 2016 was € 236 million, compared to € 365 million in the previous year. The decrease in net cash flow was due to the lower result as well as higher inventories of intermediates.

Investments in fixed assets (including financial fixed assets) totaled € 143 million in the reporting period (previous year: € 112 million). The largest individual investment was made in connection with the shutdown in Pirdop, Bulgaria.

After deducting investments in fixed assets from the net cash flow, the free cash flow amounted to € 93 million (previous year: € 253 million). The cash outflow from investing activities totaled € 128 million (previous year: € 104 million).

The cash outflow from financing activities amounted to € 89 million, compared to a cash inflow of € 4 million in the previous year.

Cash and cash equivalents of € 472 million were available to the Group as at September 30, 2016 (previous year: € 453 million). Cash and cash equivalents are utilized for operating business activities, investing activities and the redemption of borrowings.

Net borrowings amounted to € 23 million as at September 30, 2016 (previous year: € 53 million). The following table shows the development as at September 30, 2016 and September 30, 2015:

Source and application of funds

Chart: Source and application of funds

Net borrowings in the Group

T 018
 
in € million 9/30/2016 9/30/2015
     
Borrowings 495 506
– Cash and cash equivalents (472) (453)
 
Net borrowings 23 53

In addition to cash and cash equivalents, the Aurubis Group has unutilized credit line facilities and thus has adequate liquidity reserves. Parallel to this, within the context of factoring agreements, the Group makes use of the sale of receivables without recourse as an off-balance-sheet financial instrument.