Business performance in the segments

The main factors driving earnings in Segment Metal Refining & Processing (MRP) are treatment and refining charges (TC/RCs) that are negotiated as deductions from the purchase price of the metals for converting raw materials and recycling materials into the exchange product – copper cathodes – and other metals. Additional earnings components include revenues from precious metal and sulfuric acid sales, as well as the metal gain. Furthermore, the Aurubis copper premium and the so-called product surcharge charged for processing copper cathodes into copper products are also significant earnings components.

Segment MRP generated total revenues of € 10,742 million during the reporting period (previous year: € 10,407 million). This development was primarily due to the higher average copper price and higher precious metal prices. Lower sales volumes of copper products had a countereffect.

Operating EBT for Segment MRP amounted to € 304 million during the reporting period, down significantly on the very good previous year (€ 353 million). The development of operating EBT was substantially influenced by planned and unplanned shutdowns at our smelter sites, which led in particular to considerably lower concentrate throughput and thus to lower revenues from treatment and refining charges. At the start of the fiscal year, unplanned shutdowns at our Hamburg, Pirdop, and Lünen sites led to an impact of approximately € 25 million on earnings. A scheduled maintenance shutdown at our Pirdop site in May/June had a negative effect of € 15 million. Higher processing volumes compensated for significantly lower refining charges for copper scrap compared to the previous year. Higher energy costs weighed on the operating result. Furthermore, a weakening economic environment led to significantly weaker demand for shapes products, driven by the flat rolled products sector especially.

Positive impacts included a good metal gain in Q4 with increased metal prices, higher sulfuric acid revenues due to considerably higher prices despite lower production volumes stemming from the shutdown, and contributions from our efficiency improvement program.

Overall, at € 304 million, Segment MRP’s operating result was 14 % below the prior-year level (€ 353 million). At 15.5 % (previous year: 19.4 %), the segment’s operating ROCE was less than the previous year, due primarily to the lower result of the fiscal year. The full-year forecast for operating EBT and operating ROCE from the Annual Report 2017/18 was reduced accordingly in the Interim Report published for the first half of 2018/19.

Satisfactory treatment and refining charges for copper concentrates

In fiscal year 2018/19, good mine output was met by rising demand among smelters, especially in China, despite isolated smelter shutdowns. The copper price level served as an incentive for the mining industry to fully utilize its production capacity, a development that also benefited from the absence of any significant production disruptions. While TC/RCs for standard copper concentrates on the spot market were above the benchmark of US$ 80.8/t and 8.08 cents/lb at the start of the fiscal year, stronger demand for standard copper concentrates starting in March 2019 led to a substantial reduction in spot TC/RCs, down to levels of US$ 55/t and 5.50 cents/lb in August 2019, according to Wood Mackenzie. Due to planned and unplanned shutdowns, Aurubis was hardly active on the spot market during the fiscal year.

Generally speaking, we are only marginally dependent on the spot market thanks to our long-term supply strategy.

Refining charges for copper scrap remain at a good level

During fiscal year 2018/19, the copper scrap market was characterized by a good supply due to relatively constant metal prices and a stable economic situation throughout longer periods of the fiscal year. The trade conflict between the US and China and the introduction of import quotas for high-quality scrap (referred to as category 6 scrap) led to a shift in metal flows towards Europe, among other regions. Because of the good availability, refining charges for copper scrap were at a good level, though much lower than in the very good previous year.

The availability of complex recycling materials, including industrial residues and electrical and electronic scrap, was stable with good refining charges, positively influenced in part by China’s import ban on copper scrap with higher levels of impurities (referred to as category 7 scrap), which started in early 2019.

Due to different import and export restrictions global, material streams are changing steadily on the market for recycling materials. Aurubis is actively adjusting to the changes in market circumstances and was able to supply the production facilities with recycling materials at good conditions in the reporting period.

Throughput significantly below the very good previous year due to shutdowns

Concentrate throughput was 2,225,000 t in fiscal year 2018/19 due to the smelters’ restricted performance, which was 12 % less than the very good previous year (2,522,000 t). Unplanned shutdowns due to boiler damage at our Hamburg and Pirdop sites affected production in Q1 2018/19. A scheduled maintenance shutdown carried out at our Pirdop site in May/June 2019 negatively impacted concentrate throughput as well.

Concentrate throughput in the previous year was negatively influenced by a scheduled repair shutdown in the anode furnace in Hamburg in Q3 2017/18 as well as unplanned shutdowns at the Hamburg and Lünen production site in Q4 2017/18.

With 259,000 t, our recycling plant in Lünen was unable to achieve the good throughput level of the previous year in its Kayser Recycling System (KRS) due to various maintenance and repair shutdowns.

The Olen site also has recycling facilities and a tankhouse for the production of copper cathodes. During the reporting year, both recycling sites benefited from a good supply of copper scrap, blister copper, and other recycling materials. Overall, the Group-wide input of copper scrap and blister copper in fiscal year 2018/19 was slightly above the good prior-year level.

Sulfuric acid output considerably below prior-year level

Corresponding to the concentrate throughput, the sulfuric acid output was 2,101,000 t, considerably below the prior-year level. Consistently high demand on the global market for sulfuric acid led to correspondingly high prices until April 2019. The supply of sulfuric acid was limited, a situation that was reinforced by isolated smelter shutdowns, especially in South America and Asia. Toward the end of Q3, sulfuric acid demand from the chemical and fertilizer industries cooled off noticeably and led to a significant price decline on the spot market.

Cathode output down on prior-year level due to shutdowns

The cathode markets recorded good ongoing demand in reporting year 2018/19. While spot premiums in Europe were relatively stable, the quotation in Shanghai remained substantially lower than the very high level of the previous year. At US$ 96/t, the Aurubis copper premium for calendar year 2019 is US$ 10/t higher than the previous year. We were generally able to implement this premium for our products in the reporting period.

Copper cathode output in Segment Metal Refining & Processing was 1,075,000 t in 2018/19, below the prior-year level (1,162,000 t).

Processing of complex input materials rises again

Within the scope of our multi-metal strategy, we have been reporting sales volumes for lead, nickel, tin, minor metals, and platinum group metals since the start of fiscal year 2017/18, in addition to gold and silver.

The recovery of our metals depends on the metal contents in the processed copper concentrates and recycling materials. Lower concentrate throughputs due to shutdowns therefore impact the volumes that are recovered. A portion of the metals is sold in the form of intermediate products.

Rod output slightly above prior-year level

Continuous cast wire rod is used as a preliminary product for processing, especially in the cable and wire industry, as well as for special semi-finished products. Following robust demand for rod in the first half of 2018/19, the level cooled off considerably in the second half of the fiscal year. Rod demand in the individual sectors developed differently. Demand among magnet wire producers declined substantially in particular, while the decrease in demand in the automotive sector caused only a slight reduction for rod. In contrast, demand in both the construction industry and in energy cable was nearly stable.

Taking the full integration of Deutsche Giessdraht GmbH into account since January 1, 2019, rod output was 804,000 t and thus slightly above the prior-year level (774,000 t).

Shapes output considerably below prior-year level

Following stable demand for high-purity shapes at the start of the fiscal year, the situation dampened toward the end of Q2 in light of the general economic trend. Restrained demand from the automotive sector in particular influenced the flat rolled products sector, a key outlet for shapes.

At 174,000 t, continuous cast shapes output in fiscal year 2018/19 was significantly below the previous year (196,000 t).

Bars and profiles output stable

The production volume for bars and profiles, which are produced exclusively at the Olen site, were at prior-year level at 14,800 t (previous year: 14,600 t).

Capital expenditure

Capital expenditure in Segment MRP amounted to € 203 million (previous year: € 152 million). Significant individual investments included investments in connection with the maintenance shutdown carried out in Pirdop, investments to prepare for the scheduled maintenance shutdown in Hamburg (October 2019), and investments in the construction of the new Innovation and Training Center at the Hamburg site.

In Segment Flat Rolled Products (FRP), copper and copper alloys – primarily brass, bronze, and high-performance alloys – are processed into flat rolled products and specialty wire. The main production sites are Stolberg (Germany), Pori (Finland), Zutphen (Netherlands), and Buffalo (USA). Furthermore, the segment also includes slitting and service centers in Birmingham (UK), Dolný Kubín (Slovakia), and Mortara (Italy), as well as sales offices worldwide.

The market situation for Segment FRP cooled off significantly in fiscal year 2018/19 compared to the previous year. This was true for all regions and most sales segments; demand for connector strip for the European automotive industry developed negatively in particular. Revenues in the segment declined considerably in the reporting period as a result, amounting to € 1,300 million (previous year: € 1,452 million).

Segment FRP generated operating earnings before taxes (EBT) of € -47 million (previous year: € 21 million).

Operating EBT was substantially strained due to the change in the definition of the operating result (refer to the explanation in the section “Corporate control”), which led to recognition of an impairment loss of € 31 million against copper inventories. Furthermore, a € 20 million impairment on Segment FRP’s non-current assets had a negative impact.

Without these effects, operating earnings before taxes (EBT) would have been slightly positive (€ +4 million), but were instead substantially below the previous year. This was mainly due to a lower sales volume and less favorable conditions on the buying market compared to the very good previous year. We prevented a further drop in earnings with the ongoing efficiency improvement program.

Overall, at € -47 million, Segment FRP’s operating result during the reporting year was significantly below the prior-year level (€ 21 million). Operating ROCE (taking the operating EBIT of the last four quarters into consideration) was also well below the previous year at -10.6 % (previous year: 7.4 %). The full-year forecast for operating EBT and operating ROCE from the Annual Report 2017/18 was reduced accordingly in the Interim Report published for the first half of 2018/19.

After the European Commission blocked the sale of Segment FRP in February 2019, we are now reviewing different strategic options for the sale of the segment.

The market for flat rolled products has cooled down distinctly since summer 2018, especially in Europe. Demand for connectors from the European automotive industry was impacted in particular. Individual sales segments in the US market also lagged behind expectations.

The availability of input materials was good in fiscal year 2018/19. Nevertheless, conditions weakened compared to the very good previous year.

Flat rolled products output down due to demand

Output of flat rolled products and specialty wire decreased to 210,000 t due to demand (previous year: 235,000 t). All of the sites continued to work on implementing the programs to improve efficiency and to enhance productivity and quality.

Capital expenditure in Segment FRP amounted to € 16 million (previous year: € 17 million). This was primarily used for replacement investments.