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 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 2014/15 and for the comparable prior-year period are determined.

Reconciliation of the consolidated income statement

        T 009
         
in € million 2014/15 IFRS 2014/15
adjustment 1)
2014/15 operating 2013/14 operating
         
Revenues 10,995 0 10,995 11,241
Changes in inventories of finished goods and work in process 15 61 76 (115)
Own work capitalized 6 0 6 6
Other operating income 60 0 60 55
Cost of materials (10,067) 103 (9,964) (10,250)
Gross profit 1,009 164 1,173 937
         
Personnel expenses (431) 0 (431) (415)
Depreciation and amortization of intangible assets and property, plant and equipment (136) 6 (130) (121)
Other operating expenses (242) 0 (242) (234)
Operational result (EBIT) 200 170 370 167
         
Result from investments measured using the equity method 1 3 4 4
Interest income 4 0 4 5
Interest expense (31) 0 (31) (36)
Other financial expenses (4) 0 (4) (3)
Earnings before taxes (EBT) 170 173 343 137
         
Income taxes (36) (50) (86) (38)
Consolidated net income 134 123 257 99
          
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

Prior-year figures have been adjusted.

The Aurubis Group (Aurubis) generated significantly improved operating consolidated earnings before taxes (EBT) of € 343 million in the very good fiscal year 2014/15 (previous year: € 137 million). The business performance was influenced by the good overall conditions on the markets relevant to us. Good availability on the copper concentrate procurement markets led to considerably higher treatment and refining charges compared to the prior year. The refining charges on the copper scrap markets and revenues for sulfuric acid rose significantly again compared to the previous year. In contrast, copper products recorded a slight overall sales decline with higher cathode premiums. Only sales for continuous cast wire rod increased again slightly compared to the prior year. Business performance was also impacted by the much higher metal gain year on year.

IFRS earnings before taxes, which amounted to € 170 million, were adjusted for inventory measurement effects of € 167 million (previous year: € 72 million), as well as for impacts of € 6 million (previous year: € 7 million) deriving from the allocation of the purchase price for the former Luvata RPD (Rolled Products Division), resulting in operating earnings before taxes of € 343 million (previous year: € 137 million).

The Group’s revenues decreased by € 246 million to € 10,995 million during the reporting period (previous year: € 11,241 million). This development is primarily due to lower sales of copper products.

Breakdown of revenues

    T 010
     
in % 2014/15 2013/14
     
Germany 32 30
European Union 38 40
Rest of Europe 2 3
Other countries 28 27
     
Total 100 100

The change in inventories amounted to € 76 million (previous year: € –115 million), primarily due to an increase in ­copper inventories.

In a manner corresponding to the development for revenues, the cost of materials decreased by € 286 million, from € 10,250 million in the previous year to € 9,964 million. After taking the change in inventories, own work capitalized and other operating income into account, the residual gross profit is € 1,173 million (previous year: € 937 million).

Personnel expenses rose from € 415 million in the previous year to € 431 million in the current reporting period. The increase was due in particular to wage increases, higher provisions for profit-sharing and higher personnel costs, expressed in euros, at the Buffalo/USA site.

Depreciation and amortization of fixed assets amounted to € 130 million and was therefore € 9 million up on the ­previous year (€ 121 million). The increase is mainly due to impairment losses recorded by Aurubis Switzerland as well as higher charges in Bulgaria.

Development of revenues by product groups

Chart: Development of revenues by product groups

Other operating expenses rose from € 234 million in the previous year to € 242 million in the current reporting period. Among other factors, the increase was the result of higher research expenditures and exchange rate impacts.

The operational result before interest and taxes (EBIT) therefore amounted to € 370 million (previous year: € 167 million).

The net interest expense was € 27 million compared to € 31 million in the previous year. The decrease was primarily due to a lower level of gross debt and a decline in interest rates.

After taking the financial result into account, operating earnings before taxes (EBT) were € 343 million (previous year: € 137 million). The following significant factors were decisive for the past fiscal year’s development compared to the previous fiscal year: 

Operating earnings before taxes were considerably up on those of the previous year and exceeded expectations at the beginning of the fiscal year, when weaker conditions were still anticipated in all of the relevant markets.

Operating consolidated net income of € 257 million remains after tax (previous year: € 99 million). Operating earnings per share amounted to € 5.68 (previous year: € 2.17).

Results of operations (IFRS)

The Aurubis Group generated consolidated net income of € 134 million in fiscal year 2014/15 (previous year: € 44 million).

Consolidated income statement 1

    T 011
     
in € million 2014/15
IFRS
2013/14
IFRS
     
Revenues 10,995 11,241
     
Changes in inventories/own work capitalized 21 (205)
Other operating income 60 55
Cost of materials (10,067) (10,226)
Gross profit 1,009 865
     
Personnel expenses (431) (415)
Depreciation and amortization of intangible assets and property, plant and equipment (136) (128)
Other operating expenses (242) (234)
Operational result (EBIT) 200 88
     
Financial result (30) (30)
Earnings before taxes (EBT) 170 58
     
Income taxes (36) (14)
     
Consolidated net income 134 44
     
Prior-year figures have been adjusted.

The Group’s revenues decreased by € 246 million to € 10,995 million during the reporting period (previous year: € 11,241 million). This development is primarily due to lower sales of copper products.

The change in inventories showed an increase of € 226 million compared to the previous year, to € 15 million (previous year: € –211 million), primarily due to an increase in copper inventories.

In a manner corresponding to the development for revenues, the cost of materials decreased by € 159 million, from € 10,226 million in the previous year to € 10,067 million.

After taking the change in inventories, own work capitalized and other operating income into account, the residual gross profit is € 1,009 million (previous year: € 865 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 € 415 million in the previous year to € 431 million in the current reporting period. The increase was due in particular to wage increases, higher provisions for profit-sharing and higher personnel costs, as expressed in euros, at the Buffalo/USA site.

Depreciation and amortization of fixed assets rose from € 128 million in the previous year to € 136 million in the reporting period. The increase is mainly due to impairment losses recorded by Aurubis Switzerland as well as higher charges in Bulgaria.

Other operating expenses rose from € 234 million in the previous year to € 242 million in the current reporting period. Among other factors, the increase was the result of higher research expenditures and exchange rate impacts.

The net interest expense was € 27 million compared to € 31 million in the previous year. The decrease was primarily due to a lower level of gross debt and a decline in interest rates.

After taking the financial result into account, earnings before taxes amount to € 170 million (previous year: € 58 million). A consolidated net income of € 134 million remains after tax (previous year: € 44 million). Earnings per share amounted to € 2.95 (previous year: € 0.95).

Net assets of the Aurubis Group

Net assets (operating)

The following table shows the derivation of the operating balance sheet as at September 30, 2015 and September 30, 2014.

Reconciliation of the consolidated balance sheet

        T 012
         
in € million 9/30/2015
IFRS
9/30/2015
adjustment1)
9/30/2015
operating
9/30/2014
operating
         
ASSETS        
Fixed assets 1,440 (53) 1,387 1,407
Deferred tax assets 8 (5) 3 3
Non-current receivables and other assets 15 0 15 14
Inventories 1,627 (253) 1,374 1,298
Current receivables and other assets 495 0 495 553
Cash and cash equivalents 453 0 453 187
Assets “held-for-sale” 6 0 6 0
         
Total assets 4,044 (311) 3,733 3,462
         
EQUITY AND LIABILITIES        
Equity 1,969 (204) 1,765 1,550
Deferred tax liabilities 183 (107) 76 71
Non-current provisions 281 0 281 292
Non-current liabilities 509 0 509 306
Other current provisions 35 0 35 32
Current liabilities 1,067 0 1,067 1,211
         
Total equity and liabilities 4,044 (311) 3,733 3,462
         
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

Prior-year figures have been adjusted.

Total assets increased from € 3,462 million as at September 30, 2014 to € 3,733 million as at September 30, 2015. This was primarily due to the increase in cash and cash equivalents.

The Group’s equity increased by € 215 million, from € 1,550 million as at the end of the last fiscal year to € 1,765 million as at September 30, 2015, mainly due to the operating consolidated net result of € 257 million and a decrease due to the dividend payment of € 46 million. Overall, the operating equity ratio is 47.3 % compared to 44.8 % as at the end of the previous fiscal year.

Borrowings rose from € 433 million as at September 30, 2014 to € 506 million as at September 30, 2015, primarily due to the take-up of new bonded loans totaling € 300 million, reduced by the repayment of bonded loans of € 210 million owing to maturity. In this connection, current borrowings amounted to € 25 million as at September 30, 2015 (previous year: € 156 million) and non-current borrowings were € 481 million (previous year: € 277 million).

Return on capital (operating)

Operating ROCE (rolling EBIT for the last four quarters) increased from 8.5 % in the previous year to 18.7 % in the current fiscal year due to the improvement in the operating result.

Compared to the forecast in the Annual Report 2013/14, which anticipated a slightly higher ROCE, Aurubis achieved a significantly higher ROCE due to the improved operating result in the fiscal year reported.

Operating return on capital employed (ROCE) 2

    T 013
     
in € million 9/30/2015 9/30/2014
     
Fixed assets 1,327 1,341
Inventories 1,374 1,298
Trade accounts receivable 307 414
Other receivables and assets 212 156
– Trade accounts payable ( 761) ( 797)
– Provisions and other liabilities (480) ( 451)
Capital employed as at the balance sheet date 1,979 1,961
     
Earnings before taxes (EBT) 343 137
Financial result 27 30
Earnings before interest and taxes (EBIT) 370 167
Return on capital employed (operating ROCE) 18.7 % 8.5 %
     
Prior-year figures have been adjusted.

Net assets (IFRS)

Total assets increased from € 3,943 million as at the end of the previous fiscal year to € 4,044 million as at September 30, 2015. This was primarily due to the € 266 million increase in cash and cash equivalents; a decrease in working assets had the opposite effect.

Balance sheet structure of the Aurubis Group

    T 014
     
in % 9/30/2015 9/30/2014
     
Fixed assets 36 37
Inventories 40 44
Receivables, etc. 13 14
Cash and cash equivalents 11 5
  100 100
     
Equity 49 48
Provisions 12 14
Liabilities 39 38
  100 100
     
Prior-year figures have been adjusted.

The Group’s equity increased by € 92 million, from € 1,877 million as at the end of the last fiscal year to € 1,969 million as at September 30, 2015, mainly due to the consolidated net result of € 134 million and a decrease due to the dividend payment of € 46 million. Overall, the equity ratio is 48.7 % compared to 47.6 % as at the end of the previous ­fiscal year.

Borrowings rose from € 433 million as at September 30, 2014 to € 506 million as at September 30, 2015, primarily due to the take-up of new bonded loans totaling € 300 million, reduced by the repayment of bonded loans of € 210 million owing to maturity. In this connection, current borrowings amounted to € 25 million as at September 30, 2015 (previous year: € 156 million) and non-current borrowings were € 481 million (previous year: € 277 million).

Return on capital (IFRS)

ROCE refers to the return on capital employed.

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. It is the task of the Group’s Treasury function to provide adequate credit resources and lines of credit. In this manner, fluctuations in cash flow developments can be compensated at any time.

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 financial ratios.

The main key ratio for controlling debt is debt coverage, which calculates the ratio of net borrowings 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 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:

Group financial ratios

    T 015
     
Operating 9/30/2015 9/30/2014
     
Debt coverage =
net borrowings/EBITDA
0,1 0,9
Interest coverage =
EBITDA/interest
18,3 9,2
     
Prior-year figures have been adjusted

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.

As a result of the very good business result, the net cash flow was € 365 million. In contrast, the net cash flow in the prior year (€ 401 million) was also influenced by an inventory reduction after the large-scale shutdown in Hamburg was concluded.

Investments in fixed assets (including financial fixed assets) totaled € 112 million in the reporting period (previous year: € 128 million). The focus of capital expenditure in Hamburg was on the lead refinery and on the construction of a new employee locker room and health center. Investments were also made in connection with the impending shutdown in ­Pirdop (Bulgaria) in 2016, as well as in continued improvement and expansion of production capacities in the fiscal year reported.

Source and application of funds

Chart: Source and application of funds

After deducting investments in fixed assets from the net cash flow, the free cash flow amounts to € 253 million (previous year: € 273 million). The cash outflow from investing activities totaled € 104 million (previous year: € 121 million).

The cash inflow from financing activities amounted to € 4 million, compared to a cash outflow of € 126 million in the previous year. The cash inflow compared to the cash ­outflow in the prior year was primarily due to the take-up of new bonded loans totaling € 300 million, reduced by the repayment of bonded loans of € 210 million owing to ­maturity.

Cash and cash equivalents of € 453 million were available to the Group as at September 30, 2015 (€ 187 million as at ­September 30, 2014). Cash and cash equivalents are utilized in particular for operating business activities, investing activities and repayment of borrowings.

The Group’s borrowings rose to € 506 million as at September 30, 2015 (previous year: € 433 million). After deducting cash and cash equivalents of € 453 million (previous year: € 187 million), net borrowings amounted to € 53 million as at September 30, 2015 (previous year: € 246 million).

Net borrowings in the Group

    T 016
     
in € million 9/30/2015 9/30/2014
     
Borrowings 506 433
– Cash and cash equivalents (453) (187)
     
Net borrowings 53 246
     
Prior-year figures have been adjusted.

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.