Economic development within 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 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.

In this context, measurement influences include effects on inventories and fixed assets. In order to adjust for measurement influences deriving from the application of IAS 2, metal price fluctuations resulting from the use of the average cost method are eliminated along with devaluations and revaluations of copper inventories as at the reporting date. Furthermore, there is an adjustment for the effect of measurement influences deriving from purchase price allocations (PPA) carried out since the 2010/11 fiscal year.

The following table shows how the respective operating results for the 2016/17 fiscal year and for the comparative prior-year period have been determined.

Reconciliation of the consolidated income statement

T 010
         
in € million 2016/17
IFRS
2016/17
Adjustment for
inventory effects
2016/17
Adjustment for
effects from PPA
2016/17
Operating
2015/16
IFRS
2015/16
Adjustment for
inventory effects
2015/16
Adjustment for
effects from PPA
2015/16
Operating
                 
Revenues 11,040 0 0 11,040 9,475 0 0 9,475
Changes in inventories of finished goods and work in process 5 –70 0 –65 97 23 0 120
Own work capitalized 9 0 0 9 9 0 0 9
Other operating income 47 0 0 47 58 0 0 58
Cost of materials –9,774 –88 0 –9,862 –8,635 23 0 –8,612
Gross profit 1,327 –158 0 1,169 1,004 46 0 1,050
                 
Personnel expenses –470 0 0 –470 –449 0 0 –449
Depreciation and amortization of intangible assets and property, plant and equipment –135 0 3 –132 –135 0 6 –129
Other operating expenses –259 0 0 –259 –243 0 0 –243
Operational result (EBIT) 463 –158 3 308 177 46 6 229
                 
Result from investments measured using the equity method 11 –3 0 8 6 2 0 8
Interest income 3 0 0 3 3 0 0 3
Interest expense –20 0 0 –20 –27 0 0 –27
Other financial expenses –1 0 0 –1 0 0 0 0
Earnings before taxes (EBT) 456 –161 3 298 159 48 6 213
                 
Income taxes –104 43 –1 –62 –35 –11 –2 –48
                 
Consolidated net income 352 –118 2 236 124 37 4 165
              
Adjustment for measurement effects deriving from the use of the average cost method in accordance with IAS 2 and for impacts from purchase price allocations, primarily on property, plant and equipment, from fiscal year 2010/11 onwards.

The Aurubis Group generated operating consolidated earnings before taxes (EBT) of € 298 million in fiscal year 2016/17 (previous year: € 213 million). The business performance was influenced by a significantly higher concentrate throughput than in the previous year, despite the legally required maintenance shutdown in the first quarter of 2016/17 in Hamburg. The previous year had been affected by the major shutdown and the associated optimization of capacity at the Pirdop site, which had a positive impact in the current fiscal year. In addition, we were able to achieve significantly higher refining charges for copper scrap in a good supply environment. We were also able to benefit from an advantageous input mix as well as good availability for copper concentrates. By contrast, sulfuric acid prices were weaker due to a surplus on the global markets, particularly in the first half of the fiscal year. Shapes and flat rolled products recorded sales levels that were generally above those of the previous year, while the copper premium was lower. Only wire rod sales volumes were below the prior-year level. The business performance was also impacted by increased metal yields and higher metal prices. Moreover, our efficiency enhancement program had a positive effect on the result. As in the previous year, Aurubis was again able to benefit from a strong US dollar in this year.

IFRS earnings before taxes of € 456 million were adjusted for inventory measurement effects of € –161 million (previous year: € 48 million) (Sum of the following items: changes in inventories of finished goods and work in process, cost of materials and the result from investments measured using the equity method) as well as for effects deriving from a purchase price allocation since 2010/11 of € 3 million (previous year: € 6 million) in order to achieve operating earnings before taxes of € 298 million (previous year: € 213 million).

The Group’s revenues increased by € 1,565 million to € 11,040 million during the reporting period (previous year: € 9,475 million). This development was primarily due to the higher average copper price compared to the previous year.

Breakdown of revenues

T 011
 
in % 2016/17 2015/16
     
Germany 35 35
European Union 36 38
Rest of Europe 5 3
Other countries 24 24
 
Total 100 100

The inventory change of € –65 million (previous year: € 120 million) was primarily caused by a reduction in copper inventories.

In a manner corresponding to the development of revenues, the cost of materials increased by € 1,250 million, from € 8,612 million in the previous year to € 9,862 million.

After taking own work capitalized and other operating income into account, the residual gross profit was € 1,169 million (previous year: € 1,050 million).

Personnel expenses rose from € 449 million in the previous year to € 470 million in the current reporting period. The increase was due in particular to wage tariff increases and a higher number of employees.

At € 132 million, depreciation and amortization of fixed assets was slightly above the prior-year level (€ 129 million).

Development of revenues by products

Other operating expenses were € 259 million compared to € 243 million in the previous year. The increase was caused in particular by higher transport costs.

The operational result before interest and taxes (EBIT) therefore totaled € 308 million (previous year: € 229 million).

The net interest expense was € 17 million compared to € 24 million in the previous year. The decrease was primarily due to lower interest rates combined with a slightly lower level of gross debt.

After taking the financial result into account, operating earnings before taxes (EBT) were € 298 million (previous year: € 213 million). The following significant factors were decisive for the reported fiscal year’s development compared to the previous fiscal year:

  • Significantly higher concentrate throughput than in the previous year, despite the legally required maintenance shutdown in the first quarter of 2016/17 in Hamburg. The previous year had been affected by the major shutdown and the associated optimization of capacity at the Pirdop site, which had a positive impact in the current fiscal year,
  • an advantageous input mix and good availability of copper concentrates,
  • significantly higher refining charges for copper scrap with a good supply,
  • weaker sales prices for sulfuric acid due to a surplus on the global markets, particularly in the first half of the fiscal year,
  • a higher metal yield with increased metal prices,
  • a lower copper premium,
  • higher sales volumes for continuous cast shapes and flat rolled products,
  • weaker sales volumes for wire rod,
  • positive contributions from our efficiency enhancement program,
  • the strong US dollar.

Operating earnings before taxes are significantly above those of the previous year, and thus correspond to the forecast in the last Annual Report.

Operating consolidated net income of € 236 million remained after tax (previous year: € 165 million). Operating earnings per share amounted to € 5.21 (previous year: € 3.64).

Results of operations (IFRS)

The Aurubis Group generated a consolidated net result of € 352 million in fiscal year 2016/17 (previous year: € 124 million).

Consolidated Income Statement

T 012
 
in € million 2016/17
IFRS
2015/16
IFRS
     
Revenues 11,040 9,475
 
Changes in inventories/
own work capitalized
14 106
Other operating income 47 58
Cost of materials –9,774 –8,635
Gross profit 1,327 1,004
 
Personnel expenses –470 –449
Depreciation and amortization of intangible assets and property, plant and equipment –135 –135
Other operating expenses –259 –243
Operational result (EBIT) 463 177
 
Financial result –7 –18
Earnings before taxes (EBT) 456 159
 
Income taxes –104 –35
Consolidated net income 352 124

The Group’s revenues increased by € 1,565 million to € 11,040 million during the reporting period (previous year: € 9,475 million). This development was primarily due to the higher average copper price compared to the previous year.

The inventory changes decreased by € 92 million, compared with the previous year, to € 5 million (previous year: € 97 million) and were primarily attributable to a reduction of copper inventories, which was partially offset by higher copper prices.

In light of higher revenues, the cost of materials increased by € 1,139 million, from € 8,635 million in the previous year to € 9,774 million.

After taking own work capitalized and other operating income into account, the residual gross profit was € 1,327 million (previous year: € 1,004 million).

Personnel expenses rose from € 449 million in the previous year to € 470 million in the current reporting period. The increase was due in particular to wage tariff increases and a higher number of employees.

As in the previous year, depreciation and amortization of fixed assets amounted to € 135 million.

Other operating expenses were € 259 million compared to € 243 million in the previous year. The increase was caused in particular by higher transport costs.

Earnings before interest and taxes (EBIT) were therefore € 463 million (previous year: € 177 million).

The change in the consolidated result according to IFRS was driven by the material effects already enumerated in the reporting on the operating results of operations. In addition, the metal price trend influenced the change in the IFRS consolidated result. 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.

The net interest expense was € 17 million compared to € 24 million in the previous year. The decrease was primarily due to lower interest rates combined with a slightly lower level of gross debt.

After taking the financial result into account, earnings before taxes amounted to € 456 million (previous year: € 159 million). Consolidated net income of € 352 million remained after tax (previous year: € 124 million). Earnings per share amounted to € 7.80 (previous year: € 2.71).

Net assets of the Aurubis Group

Net assets (operating)

The following table shows the derivation of the operating statement of financial position as at September 30, 2017, and as at September 30, 2016.

Reconciliation of the consolidated statement of
financial position

T 013
         
in € million 9/30/2017
IFRS
9/30/2017
Adjustment for
inventory effects
9/30/2017
Adjustment for
effects from PPA
9/30/2017
Operating
9/30/2016
IFRS
9/30/2016
Adjustment for
inventory effects
 9/30/2016
Adjustment for
effects from PPA
9/30/2016
Operating
                 
ASSETS                
Fixed assets 1,489 –11 –34 1,444 1,450 –8 –38 1,404
Deferred tax assets 6 25 0 31 10 48 0 58
Non-current receivables and other assets 32 0 0 32 26 0 0 26
Inventories 1,752 –366 0 1,386 1,700 –206 0 1,494
Current receivables and other assets 511 0 0 511 369 0 0 369
Cash and cash equivalents 571 0 0 571 472 0 0 472
                 
Total assets 4,361 –352 –34 3,975 4,027 –166 –38 3,823
                 
EQUITY AND LIABILITIES                
Equity 2,366 –254 –25 2,087 1,991 –134 –28 1,829
Deferred tax liabilities 205 –98 –9 98 151 –32 –10 109
Non-current provisions 307 0 0 307 386 0 0 386
Non-current liabilities 344 0 0 344 357 0 0 357
Current provisions 39 0 0 39 32 0 0 32
Current liabilities 1,100 0 0 1,100 1,110 0 0 1,110
                 
Total equity and liabilities 4,361 –352 –34 3,975 4,027 –166 –38 3,823
           
Adjustment for measurement effects deriving from the use of the average cost method in accordance with IAS 2 and for impacts from purchase price allocations, primarily on property, plant and equipment, from fiscal year 2010/11 onwards.

Total assets increased from € 3,823 million as at September 30, 2016, to € 3,975 million as at September 30, 2017, due in particular to higher trade accounts receivable at the reporting date.

The Group’s equity increased by € 258 million, from € 1,829 million as at the end of the last fiscal year to € 2,087 million as at September 30, 2017. This was largely due to the operating consolidated net income of € 236 million and effects recognized with no impact on profit or loss, deriving from the remeasurement of pension obligations. The dividend payment of € 58 million had an offsetting effect. Overall, the operating equity ratio (the ratio of equity to total assets) was 52.5 % compared to 47.8 % as at the end of the previous fiscal year.

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

Borrowings declined, due to the repayment of a bonded loan, from € 495 million as at September 30, 2016, to € 351 million as at September 30, 2017.

Development of borrowings

T 014
 
in € million 9/30/2017 9/30/2016
     
Non-current bank borrowings 317 321
Non-current liabilities under finance leases 23 16
Non-current borrowings 340 337
     
Current bank borrowings 8 156
Current liabilities under finance leases 3 2
Current borrowings 11 158
 
Borrowings 351 495

Return on capital (operating)

The ROCE shows the return on the capital employed in the operating business or for an investment.

Operating ROCE (taking operating EBIT for the last 12 months into account) increased slightly from 10.9 % in the previous year to 15.1 % in the current fiscal year. This was particularly due to the significantly higher operating earnings. The figure thereby corresponds to the Group forecast in the last Annual Report.

Return on capital employed (ROCE)
Operating

T 015
 
in € million 9/30/2017 9/30/2016
     
Fixed assets excl. financial assets and investments measured using the equity method 1,375 1,343
Inventories 1,387 1,494
Trade accounts receivable 357 242
Other receivables and assets 216 211
– Trade accounts payable –905 –798
– Provisions and other liabilities –388 –379
Capital employed as at the reporting date 2,042 2,114
 
Earnings before taxes (EBT) 298 213
Financial result 10 16
Earnings before interest and taxes (EBIT) 308 229
 
Return on capital employed (operating ROCE) 15.1 % 10.9 %

Net assets (IFRS)

Total assets increased from € 4,027 million as at the end of the past fiscal year to € 4,361 million as at September 30, 2017, due in particular to higher trade accounts receivable at the reporting date.

Structure of the statement of financial position of the Group

T 016
 
in % 9/30/2017 9/30/2016
     
Fixed assets 34 36
Inventories 40 42
Receivables, etc. 13 10
Cash and cash equivalents 13 12
     
  100 100
 
Equity 54 49
Provisions 13 14
Liabilities 33 37
     
  100 100

The Group’s equity increased by € 375 million, from € 1,991 million as at the end of the last fiscal year to € 2,366 million as at September 30, 2017. This was largely due to the consolidated net income of € 352 million and effects recognized with no impact on profit or loss , deriving from the remeasurement of pension obligations. The dividend payment of € 58 million had an offsetting effect. Overall, the equity ratio (the ratio of equity to total assets) was 54.2 % compared to 49.4 % as at the end of the previous fiscal year.

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

Borrowings declined, due to the repayment of a bonded loan, from € 495 million as at September 30, 2016, to € 352 million as at September 30, 2017.

Development of borrowings

T 017
 
in € million 9/30/2017 9/30/2016
     
Non-current bank borrowings 317 321
Non-current liabilities under finance leases 23 16
Non-current borrowings 340 337
     
Current bank borrowings 8 156
Current liabilities under finance leases 3 2
Current borrowings 11 158
     
Borrowings 351 495

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. Existing credit facilities and lines of credit can be utilized to compensate for fluctuations in the cash flow development at any time.

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

We use the operating result for control purposes within the Group. Accordingly, the Group’s key operating financial ratios are presented as follows:

Operating Group financial ratios

T 018
 
  9/30/2017 9/30/2016
     
Debt coverage =
net borrowings/EBlTDA
–0.5 0.1
Interest coverage =
EBlTDA/net interest
26.1 14.6
  

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. It highlights how funds are generated and used.

The net cash flow as at September 30, 2017, amounted to € 480 million, compared to € 239 million in the previous year. The increase in net cash flow resulted primarily from the significantly higher earnings.

Investments in fixed assets (including financial fixed assets) amounted to € 165 million in the reporting period (previous year: € 143 million). The largest individual investment related to our long-term electricity supply agreement. With this individual investment, we reduced the ongoing costs of long-term electricity consumption. Plans for securing the electricity supply to our German production sites remain intact.

After deducting investments in fixed assets from the net cash flow, the free cash flow amounted to € 315 million (previous year: € 96 million). The cash outflow from investing activities totaled € 155 million (previous year: € 128 million).

The cash outflow from financing activities amounted to € 225 million (previous year: € 92 million) and includes the repayment of a bonded loan of € 136 million due to maturity.

Cash and cash equivalents of € 571 million were available to the Group as at September 30, 2017 (previous year: € 472 million). Cash and cash equivalents are utilized for operating business activities, investing activities and the redemption of borrowings.

Source and application of funds

Graphic: Source and application of funds

Net borrowings amounted to € –220 million as at September 30, 2017 (previous year: € 23 million).

Net borrowings in the Group

T 019
 
in € million 9/30/2017 9/30/2016
     
Borrowings 351 495
– Cash and cash equivalents 571 472
 
Net borrowings –220 23

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.