Results of operations, net assets, and financial position of the Aurubis Group
In order to portray the Aurubis Group’s operating success independently of measurement influences for internal management purposes, the presentation of the IFRS 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.
Aurubis has intended to sell Segment FRP since fiscal year 2017/18. Therefore, the special presentation and measurement requirements specified in IFRS 5 must continue to be applied for Segment FRP, as they were in the previous year. These include, among other things, a separate, aggregated disclosure of the consolidated net income/loss deriving from discontinued operations in the consolidated income statement, as well as a separate, aggregated disclosure of assets and liabilities held for sale for the discontinued operations in the consolidated statement of financial position. Furthermore, additional disclosures must be made in the Notes to the Consolidated Financial Statements. With respect to measurement in accordance with IFRS 5, among other things, any impact on income deriving from scheduled depreciation and amortization in Segment FRP, or from the application of equity accounting for the purpose of consolidating the investment in the joint venture Schwermetall Halbzeugwerk GmbH & Co. KG, must be discontinued in the IFRS consolidated financial statements.
The Executive Board continues to treat Segment FRP as an operating reporting segment and, consequently, the financial reporting for operating purposes will remain unchanged until the sales transaction is finalized.
As a result, the accounting impacts deriving from IFRS 5 in the financial statements are reversed in the reconciliation between IFRS reporting and operating reporting.
As regards the reconciliation of the consolidated income statement, the items reported as discontinued operations are again shown separately. For purposes of measurement, the impacts on income deriving from scheduled depreciation and amortization of fixed assets, or from the application of equity accounting for the purpose of consolidating the investment, are accounted for, as in the past. In order to demonstrate the Aurubis Group’s operating success, subsequent adjustments are also made to inventories and non-current assets.
In order to adjust the measurement impacts in inventories resulting from the application of IAS 2, metal price fluctuations resulting from the application of the average cost method are eliminated in the same manner as any non-permanent write-downs or appreciation in value for copper inventories at the reporting date. Furthermore, fixed assets have been adjusted for non-cash-effective impacts deriving from purchase price allocations.
As regards the reconciliation of the consolidated statement of financial position, assets and liabilities held for sale as discontinued operations are again disclosed in a disaggregated form and the measurement effects on the relevant items in the statement of financial position are recognized as they have been in the past.
The following table shows how the respective operating results for the 2018/19 fiscal year and for the comparative prior-year period have been determined.
Results of operations (operating)
Operating EBT in fiscal year 2018/19 amounts to € 192 million (previous year: € 329 million) and is derived from continuing and discontinued operations of the IFRS result before income taxes, as follows:
The Aurubis Group generated IFRS earnings before taxes of € 260 million from continuing operations in fiscal year 2018/19 (previous year: € 322 million). IFRS earnings before taxes from discontinued operations amount to € -16 million (previous year: € 46 million).
The accounting impacts of IFRS 5 were reversed to derive the operating result. Accordingly, scheduled depreciation and amortization (€ -14 million) and the recognition in income of the shares of Schwermetall Halbzeugwerk GmbH & Co. KG consolidated using the equity method (€ -2 million) were taken into account in the reconciliation to the operating result, as in the past.
Moreover, to derive the operating result, the IFRS result was adjusted for inventory measurement effects of € -54 million (previous year: € -42 million) (the total of the following positions: “Changes in inventories of finished goods and work in process,” “Cost of materials,” and “Result from investments measured using the equity method”), as well as for impacts of € 2 million (previous year: € 3 million) deriving from allocations of the purchase price, resulting in operating earnings before taxes of € 192 million (previous year: € 329 million).
Operating EBT was negatively influenced by:
- Planned and unplanned maintenance shutdowns at smelter sites, which led in particular to considerably lower concentrate throughput and thus to lower revenues from treatment and refining charges
- The change in the definition of our operating result, which led to recognition of an ongoing impairment loss of € 31 million against copper inventories held within the Group
- A € 20 million impairment loss recognized against Segment FRP’s non-current assets
- Higher energy costs
- Expenses after the termination of our internal investment project Future Complex Metallurgy (FCM)
- Weaker demand for shapes and flat rolled products
Positive effects on operating EBT included:
- A good metal gain in Q4
- Precious metal sales, taking advantage of high precious metal prices
- Higher sulfuric acid revenues due to considerably higher prices, despite lower output volumes resulting from the shutdowns
- Positive contributions from our efficiency improvement program
- A receivable from Wieland-Werke AG arising from the prohibited sale of Segment Flat Rolled Products
The Group’s revenues increased by € 203 million to € 11,897 million (previous year: € 11,694 million) during the reporting period. This development was primarily due to higher precious metal prices and higher precious metal sales volumes. Lower sales volumes of copper products had a counteracting impact.
Breakdown of revenues
| in % | 2018/19 | 2017/18 |
| Germany | 40 | 34 |
| European Union | 33 | 37 |
| Rest of Europe | 4 | 4 |
| Other countries | 23 | 25 |
| Total | 100 | 100 |
The inventory change of € 79 million (previous year: € -8 million) was due to a build-up of copper and precious metal inventories.
In a manner corresponding to the development for revenues and inventory changes, the cost of materials increased by € 354 million, from € 10,536 million in the previous year to € 10,890 million.
At a level of € 20 million (previous year: € 19 million), own work capitalized was slightly above that of the previous year.
Other operating income increased by € 17 million to € 62 million (previous year: € 45 million). This includes income from the recognition of a receivable from Wieland-Werke AG, amounting to € 20 million, which derived from the rejected sale of Segment FRP.
Consequently, gross profit was slightly lower at € 1,168 million (previous year: € 1,214 million).
Personnel expenses increased from € 484 million in the previous year to € 505 million. The increase was due to wage tariff increases and a higher number of employees. We particularly strengthened our personnel resources in order to address certain future issues.
At a level of € 151 million, depreciation and amortization of fixed assets was significantly above that of the previous year (€ 130 million). The figure includes impairment losses of € 13.5 million recognized against Segment FRP’s fixed assets.
Other operating expenses rose by € 36 million, from € 268 million in the previous year to € 304 million. This figure includes some € 30 million in previously capitalized project costs relating to the terminated FCM project, which were recognized as an expense.
Earnings before interest and taxes (EBIT) therefore amounted in total to € 208 million (previous year: € 332 million).
The reduction in the result from investments measured using the equity method mainly derives from the recognition of an impairment loss, amounting to € 6.5 million.
At a level of € 16 million, the net interest expense was slightly above that of the previous year (€ 15 million).
After taking the financial result into account, operating earnings before taxes (EBT) were € 192 million (previous year: € 329 million).
Operating consolidated net income of € 138 million remained after tax (previous year: € 265 million). Operating earnings per share amounted to € 3.08 (previous year: € 5.87).
Result of operations (IFRS) from continuing operations
The Aurubis Group generated consolidated net income of € 191 million in fiscal year 2018/19 (previous year: € 263 million).
Consolidated income statement
| in € million | 2018/19 IFRS | 2017/18 IFRS |
| Revenues | 10,763 | 10,424 |
| Changes in inventories/ own work capitalized | ||
| 200 | 19 | |
| Other operating income | 61 | 43 |
| Cost of materials | -9,997 | -9,464 |
| Gross profit | 1,027 | 1,022 |
| Personnel expenses | -374 | -352 |
| Depreciation of property, plant, and equipment and amortization of intangible assets | -125 | -119 |
| Other operating expenses | -254 | -217 |
| Operational result (EBIT) | 274 | 334 |
| Financial result | -14 | -12 |
| Earnings before taxes (EBT) | 260 | 322 |
| Income taxes | -69 | -59 |
| Consolidated net income | 191 | 263 |
The Group’s revenues increased by € 339 million to € 10,763 million (previous year: € 10,424 million) during the reporting period. This development was primarily due to higher precious metal prices and higher precious metal sales volumes. Lower sales volumes of copper products had a counteracting impact.
The inventory change of € 180 million (previous year: € 0 million) was due to a build-up of copper and precious metal inventories. Furthermore, measurement effects from the use of the average cost method had an impact.
At a level of € 20 million (previous year: € 19 million), own work capitalized was slightly above that of the previous year.
In a manner corresponding to the development for revenues and inventory changes, the cost of materials increased by € 533 million, from € 9,464 million in the previous year to € 9,997 million.
Other operating income increased by € 18 million to € 61 million (previous year: € 43 million). This includes income from the recognition of a receivable from Wieland-Werke AG, amounting to € 20 million, which derived from the prohibited sale of Segment FRP.
Gross profit was slightly higher at € 1,027 million (previous year: € 1,022 million).
In addition to the effects on earnings already described in the explanation of the operating results of operations, the change in gross profit was also due to metal price developments. The use of the average cost method leads to metal price valuations that are close to market prices. Metal price volatility therefore has direct effects on changes in inventories/the cost of materials and hence on the IFRS gross profit. The depiction of this volatility in the IFRS gross profit is not relevant to the cash flow and does not reflect Aurubis’ operating development.
Personnel expenses rose from € 352 million in the previous year to € 374 million. The increase was due to wage tariff increases and a higher number of employees. We particularly strengthened our personnel resources in order to address certain future issues.
At a level of € 125 million, depreciation and amortization of fixed assets was above that of the previous year (€ 119 million) in keeping with higher investments in fixed assets.
Other operating expenses increased by € 37 million, from € 217 million in the previous year to € 254 million. This includes some € 30 million in previously capitalized project costs relating to the terminated FCM project, which were recognized as an expense.
Earnings before interest and taxes (EBIT) therefore amounted to a total of € 274 million (previous year: € 334 million).
At a level of € 14 million, the net interest expense was slightly above that of the previous year (€ 12 million).
After taking the financial result into account, earnings before taxes were € 260 million (previous year: € 322 million).
Consolidated net income of € 191 million from continuing operations remained after tax (previous year: € 263 million). Earnings per share from continuing operations amounted to € 4.25 (previous year: € 5.81).
Net assets (operating)
The table Reconciliation of the consolidated statement of financial position shows the derivation of the operating statement of financial position as at September 30, 2019 and as at September 30, 2018.
Total assets decreased slightly from € 4,077 million as at September 30, 2018 to € 4,059 million as at September 30, 2019. Among other factors, cash and cash equivalents decreased by € 38 million compared to the previous year, from € 479 million to € 441 million.
The Group’s equity fell by € 27 million, from € 2,261 million as at the end of the previous last fiscal year to € 2,234 million as at September 30, 2019. The decline was due to the dividend payment of € 70 million and the remeasurement of pension obligations amounting to € 94 million, included in other comprehensive income. The operating consolidated net income of € 138 million had a positive effect.
Overall, the operating equity ratio (the ratio of equity to total assets) was therefore 55.0 % compared to 55.5 % as at the end of the previous fiscal year.
Current liabilities from trade accounts payable decreased by € 86 million for reasons relating to the reporting date, from € 904 million to € 818 million. At a level of € 302 million as at September 30, 2019, borrowings were also slightly below those at the end of the previous fiscal year-end (€ 314 million). A bonded loan (Schuldscheindarlehen) of € 127 million is due in February 2020 and is thus classified under current liabilities.
The following table shows the development of borrowings:
Development of borrowings
| in € million | 9/30/2019 | 9/30/2018 |
| Non-current bank borrowings | 116 | 248 |
| Non-current liabilities under finance leases | 33 | 33 |
| Non-current borrowings | 149 | 281 |
| Current bank borrowings | 150 | 30 |
| Current liabilities under finance leases | 3 | 3 |
| Current borrowings | 153 | 33 |
| Borrowings | 302 | 314 |
Return on capital (operating)
The return on capital employed (ROCE) shows the return on the capital employed in the operating business or for an investment. It was determined taking the operating EBIT of the last four quarters into consideration.
The substantial decline in operating ROCE, from 15.0 % in the previous reporting year to 8.6 %, is primarily due to the lower earnings for the fiscal year.
Operating return on capital employed (ROCE)
| in € million | 9/30/2019 | 9/30/2018 |
| Fixed assets excluding financial fixed assets1 | 1,485 | 1,450 |
| Inventories | 1,532 | 1,549 |
| Trade accounts receivable | 390 | 374 |
| Other receivables and assets | 196 | 191 |
| – Trade accounts payable | -818 | -904 |
| – Provisions and other liabilities | -367 | -371 |
| Capital employed as at the reporting date | 2,418 | 2,290 |
| Earnings before taxes (EBT) | 192 | 329 |
| Financial result | 16 | 3 |
| Earnings before interest and taxes (EBIT) | 208 | 332 |
| Investments accounted for using the equity method1 | 0 | 11 |
| Earnings before interest and taxes (EBIT) – adjusted | 208 | 342 |
| Return on capital employed (operating ROCE) | 8.6 % | 15.0 % |
| 1 The shares of Schwermetall Halbzeugwerk GmbH & Co. KG accounted for using the equity method have been included for this reporting year. This adjustment should improve the depiction of Segment FRP’s profitability. Prior-year figures have been adjusted accordingly. | ||
Net assets (IFRS)
Total assets increased from € 4,502 million as at the end of the previous fiscal year to € 4,532 million as at September 30, 2019. In addition to the effects already described in the explanation on the operating net assets, measurement effects from the use of the average cost method increased the figure for inventories.
Structure of the statement of financial position of the Group
| in % | 9/30/2019 | 9/30/2018 |
| Fixed assets | 31 | 30 |
| Inventories | 38 | 37 |
| Receivables, etc. | 10 | 10 |
| Cash and cash equivalents | 9 | 10 |
| Assets held for sale | 12 | 13 |
| 100 | 100 | |
| Equity | 57 | 57 |
| Provisions | 12 | 10 |
| Liabilities | 27 | 29 |
| Liabilities deriving from assets held for sale | 4 | 4 |
| 100 | 100 |
The Group’s equity rose by € 27 million, from € 2,566 million as at the end of the previous fiscal year to € 2,593 million as at September 30, 2019. This was largely due to the consolidated net income of € 191 million from continuing operations. The dividend payment of € 70 million and the remeasurement of pension obligations amounting to € 94 million included in other comprehensive income had a counteracting effect.
Overall, the equity ratio is 57.2 % compared to 57.0 % as at the end of the previous fiscal year.
The following table shows the development of borrowings for continuing operations:
Development of borrowings
| in € million | 9/30/2019 | 9/30/2018 |
| Non-current bank borrowings | 116 | 248 |
| Non-current liabilities under finance leases | 33 | 33 |
| Non-current borrowings | 149 | 281 |
| Current bank borrowings | 150 | 30 |
| Current liabilities under finance leases | 3 | 3 |
| Current borrowings | 153 | 33 |
| Borrowings | 302 | 314 |
At a level of € 302 million as at September 30, 2019, borrowings were slightly below those at the end of the previous fiscal year (€ 314 million). A bonded loan (Schuldscheindarlehen) of € 127 million is due in February 2020 and is thus classified under current liabilities.
Return on capital (IFRS)
The operating result is used for control purposes within the Group. Operating ROCE is explained under Return on capital (operating).
Financial position of the Aurubis Group
The following comments include both continuing and discontinued operations.
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. These fluctuations result from operating business in particular and primarily serve to finance net working capital.
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 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
| 9/30/2019 | 9/30/2018 | |
| Debt coverage = net borrowings/EBlTDA | -0.4 | -0.4 |
| Interest coverage = EBITDA/net interest | 21.9 | 32.3 |
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. It highlights how funds are generated and used.
The Aurubis Group continued to generate a good operating net cash flowof € 272 million in fiscal year 2018/19 (previous year: € 203 million). This was due in particular to sales of precious metals at higher prices.
The cash outflow from investing activities totaled € 208 million (previous year: € 143 million). The higher investment in fixed assets in the fiscal year included payments for the now terminated Future Complex Metallurgy project, for the planned maintenance shutdown in Pirdop, for preparations made for the planned maintenance shutdown in Hamburg (October 2019), and for the construction of a new Innovation and Training Center at the Hamburg site. Furthermore, the sale of investment property had a positive effect of some € 8 million on the cash flow from investment activities in the previous year.
After deducting the cash outflow from investing activities of € 208 million from the net cash flow of € 272 million from operating activities, the free cash flow amounts to € 64 million (previous year: € 60 million).
The cash outflow from financing activities amounted to € 102 million (previous year: € 151 million) and, in fiscal year 2018/19, mainly comprised the € 70 million dividend distribution.
Cash and cash equivalents of € 441 million from continuing and discontinued operations were available to the Group as at September 30, 2019 (€ 479 million as at September 30, 2018). Cash and cash equivalents are utilized for operating business activities, investing activities, and the redemption of borrowings.
Net surplus financial funds amounted to € 139 million as at September 30, 2019 (previous year: € 165 million).
Net borrowings in the Group
| in € million | 9/30/2019 | 9/30/2018 |
| Borrowings | 302 | 314 |
| – Cash and cash equivalents | 441 | 479 |
| Net borrowings (minus = assets) | -139 | -165 |
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.