Aurubis AG (NDA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Aurubis AG conference call on the occasion of the publication of the interim report of first 6 months 2019 and 2020. [Operator Instructions] Let me now turn the floor over to your host, Ms. Angela Seidler.

Yes. Good afternoon, ladies and gentlemen. My name is Angela Seidler. I'm heading the IR department at Aurubis. I warmly welcome you to the conference call of the occasion of the presentation of our half year results, which we published this morning at 7 a.m. We are sitting here in Hamburg together on site, not in the home office, together with my colleagues from Investor Relations, Controlling and Accounting. We're all taking part in the conference call, and we'll be ready to answer your questions after the presentation. And now I would like to hand over to Roland Harings.

Thanks, Angela. Welcome to all to this conference call. Good afternoon. It's for me now the first physical meeting, meeting in persons, with my colleagues here since quite a while, and also discussions with different stakeholders during this time indicate that we probably should start this time with some reporting on how Aurubis is actually making its way through this crisis, what we are doing for our employees, how production is running and how the pandemic is really impacting our markets. Interesting, on February 28, 2020, we were one of the few companies in Germany that was still able to hold its annual general meeting live in person with our shareholders because, as you know, we end our fiscal year end of September and report it ahead of most of the German companies. Beginning in March, as we all know, the situation in Germany and also around the world changed so quickly that we immediately implemented a group-wide task force that since then meets daily to discuss the current situation and also take the measures as needed. The safety and the health of our employees has the highest priority of course. And even more with a 24-hour shift operation in most of our plants, working from home, as many of you experienced now since several weeks, is only an option for a very few percentage of our employees. Our smelters, our plant have to run 24 hours each day, so we were faced with very special challenges to manage and ensure the health and safety of our employees. The Executive Board and also the whole management team was completely involved in putting the right measures in distancing, rules of conduct and also hygienic measures in place. I don't want to go into all the details of these measures. I think important is, as a result of this very early, very clear action taken, Aurubis is largely unaffected by the COVID-19 effects at this moment. The production at our sites continued and continues without any disruption. We had only one very slight impact in Italy, which was mandatory by the government, which didn't harm our supply to customers or our overall production volumes. Also important, as we are running our operations 24 hours every day, the supply chain for concentrates and also recycling materials is a top priority. As we all have seen, South America was late but also massively impacted by the virus and logistic chains and also mines were impacted. I'm very pleased to report that our supply chain team together with the plant teams were able to cope with these problems, and we had all plants well supplied with concentrates and also recycling material throughout these very difficult days, although the outlook forward is that we don't see any shortage, which will impact our production capacity. Clearly, on the product side, wire rod demand, to some extent, going directly to the automotive industry has cooled off. We have taken the advantage of this reduced demand, and we moved some maintenance shutdowns, which were planned for the summer time frame already ahead of schedule so in order to benefit from some lower demand there. What we see now in Europe is a slight positive trend. I will talk about this later. But we see from our customer base, from the product side and also from our mining partners and recycling partners that the worst in Europe seems to be behind us. We remain optimistic, yet we have to say it's a snapshot if these lockdowns now ease and the opening starts, we hope that this will not have another effect on the increase of the infection rates and will lead to some other measures there. But so far, to summarize, Aurubis went -- until now, came well through this crisis and we are doing, in all aspects, good. Now to address the company's economic development. While it didn't influence our results in the first half of the fiscal year, the approval of the European antitrust authorities, the unconditional approval of the Metallo acquisition is, of course, the most notable event during the period. This acquisition is extremely important -- an extremely important step in our multimetal strategy. We are very pleased. And I'm, as you can imagine, as I stated several times, I'm confident and optimistic that this acquisition will be approved. I'm also personally very, very proud of the team who worked in, let's say, many intensive weeks and months with the commission in Brussel to get this unconditional approval. We will push forward with the integration. Closing will be on the 29th of May, and from 1st of June, Metallo will be part of the Aurubis family. Looking at the results. Our operating EBT of the first half year is EUR 91 million. The corresponding ROCE is 7.5% based on the EBIT of the last 4 quarters. And just to remind, the quarter of the last fiscal year -- the last quarter of the last fiscal year was burdened by impairments in the FRP segment in the amount of around EUR 50 million. So this has to be taken into consideration, but Rainer will also talk about this in his part. The net cash flow improved significantly from minus EUR 334 million last year to only minus EUR 25 million this year. Despite the pandemic, Aurubis, can confirm its 2019, '20 forecast of an operating EBT between EUR 185 million and EUR 250 million. We have, as we announced last -- in the last calls, made very good progress in our performance improvement program, and we will talk about this in more detail in the later part of this presentation. Also, again, I want to repeat, we paid our dividend of EUR 56 million, and we started a share buyback program, which Mr. Verhoeven -- Rainer will talk about in more detail later. Coming now to Metallo. The Metallo acquisition, which was already mentioned briefly is, of course, again, I repeat, a very important strategic success for us. With Metallo, we acquire a technology leader in processing of low metal containing waste streams, and it also strengthens our footprint in processing of nonferrous recycling materials. We will diversify our business model towards more multimetal recovery, and we will strengthen our portfolio specifically in nickel, zinc, tin and also in lead. And comparable to our approach of 0 waste, Metallo's zero waste model will boost our sustainability position. Metallo's plants are additionally strategically well positioned and close to our main customers and, in the case of -- in Belgium, also close to our other plant in Belgium in Olen and also to our suppliers. With the integration of Metallo, 540 new colleagues will join the Aurubis family, and we will have an addition of more than 300,000 tonnes of processing capacity for very specific and additional scrap materials and waste materials coming from all different players. And with this, Rainer will talk and I hand over to Rainer. He will talk in more detail about the acquisition.

Good afternoon, ladies and gentlemen. On Page 7, you can see the development or the movements of our metal output after the acquisition of Metallo. So you can see on the arrows that in the precious metals -- in the field of precious metals, PGMs, there's pretty much no movement. However, in the metals like lead, for instance, and nickel and tin, we have a boost. Copper will increase as well although not that much, but we will have an additional metal in our flow sheet, which is zinc, which we did not have so far. And this clearly strives and adds to our multimetal strategy and therefore, also from my side, absolutely happiness that we've got the approval from the European Commission on that end. On Page 8, the key factors of the transaction, as you can see, again, EUR 380 million purchase price. We are talking about, in general, synergies of EUR 10 million to EUR 15 million, adding to the EBITDA run rate that we see from Metallo of about EUR 50 million per year roughly. So from day 1 on, this is EPS accretive to us and, therefore, even more happiness on the CFO side. Looking to the financing. We have the bridge -- the financing -- the bridge financing in place for the time being. However, as the liquidity or the capital markets are undergoing quite some stress in the corona times, we have put forward the, let's say, the financing via Schuldschein loan, how it's called, I've learned, and it is CSR linked. We have started the campaign in -- on the 7th of May. We will have an investors conference on the 18th of May and hope to finalize the transaction by the 23rd of May. So that is it -- about the financing. What did I say?

June. May.

23rd of June, I'm sorry. Then, of course, the closing will be on May 29, and we will expect that we are having the figures for the next quarter reporting completely consolidated. Going to the next page. We see the key KPIs of the Aurubis Group. Starting with the revenues. Year-on-year, we have a growth of revenue by 6%, roughly EUR 350 million, here, mainly coming from metal prices, precious metal prices, which have really gone up substantially, especially palladium has been shooting high. Looking to the gross profit. Also here, we see a bit of an improvement. It's a bit of a mixed picture actually. We did have lower concentrate throughput due to our planned shutdown in the Hamburg plant. You remember that, last year, we had series of unplanned shutdowns, so that compares one to each other so to say. Nonetheless, we are a bit lower in concentrate throughput. We were, for the rest, Q2, pretty much on a good level with regards to concentrate throughput. We do see sulfuric acid output also on a good level, however, with really substantially lower sales prices compared to last year and still, especially on the flat rolled business, we do see a significantly weaker market in the first half compared to last year. If we look to the positives, ending up to an EBT of EUR 91 million, we did have a higher throughput in recycling materials in the KRS in Lünen. Mainly we had a shutdown there in the last year, so therefore, also nothing special there. But we did also participate in much higher refining charges for copper scrap. Roland will, when it comes to the market, later on talk a bit more in detail about especially the scrap markets, which is quite interesting. And as already said, we contributed or we gained a lot on the contribution on the metal prices mainly for precious metals. You see a slight increase in depreciation, though that is the effect of the first-time application of IFRS 16 on the leasing. Also nothing special to mention here. We have, with EUR 33 million adding from the leasing, only less than 1% of the total balance sheet volume added here under IFRS first-time application. Going to Page 10. We see the main KPIs. The ROCE is still a bit under the impression of the effects of the impairment from end of last fiscal year, so EUR 50 million. Without that effect, the ROCE would have been at a level of 9.4%. In principle, the key figures here on that page are still very robust. The equity ratio, well above 50% and pretty much still debt free. That will, for sure, change once we have Metallo onboard. The CapEx is higher than in the previous year mainly due to the shutdown that we have experienced here in Hamburg but also some effects from the leasing and, of course, also the electrolysis plant in Lünen where we did the refurbishment here. The net cash flow has increased to EUR 25 million, and we expect it to be on a very good level. Whether we can reach the level of last year, which was at EUR 270 million net cash flow at the end of the year is to be seen, but we are for sure above EUR 200 million, so also on the full year quite positive. Going to Page 11. I'd like to give a bit of an overview on what did we do on the share buyback. As already announced, we are in a quite positive and strong balance sheet and liquidity position, and with that, we saw a good timing to do a share buyback, which we want to use as, for instance, acquisition currency or for future financing purposes, for instance, in a convertible bond. So far, we have bought back about 1.6% of our own shares, so 714,000 shares at a share price of below EUR 36 per share, and we have spent roughly EUR 26 million on that. The shares, for sure, will not be canceled, which means the total share outstanding will remain the same. And also, the dividend policy is not going to be changed. With that, I hand back to Roland and the markets.

Okay. Thanks, Rainer. Now moving to Page # -- to Slide #12, talking about the copper price. The copper demand saw a big drop during the first quarter of 2020 with the copper consumption in China falling by nearly 20% year-over-year. From March onwards, however, the situation has been continuously improving. And many, many fabricators, the users of copper, came back to nearly normal operating levels already in Q2. The improvement is really noticeable. We see this in the demand for cathodes and also the bonded warehouse stocks were just over 300,000 tonnes, which was the lowest level in the last 2 months. However, with about 30% of the copper semis produced in China being exported as wires, cables and other components in various different finished products, there is a very big exposure of this demand to the overall economic situation or, let's face it, the economic downturn the world is seeing at the moment, and the improvement in demand has to be stated as fragile. Europe, so far, especially if we look at our first half year, has not been that much impacted in the demand until end of March, as our customer base build up safety stocks and the supply chain continued to be, let's say, running until end of March. However, since then, we see noticeable -- a very noticeable drop in demand in our products, specifically for wire rods, and I will talk about this in the outlook at the end of this presentation. Talking about TC/RCs. As I stated before, we had a more challenging but overall a good supply situation, so we could procure the concentrates that we needed. Even the production stops or problems at certain mines in South America did not lead to any impact on our -- on the sourcing and the supply to our plants. The supply of concentrates were slower to the market, but you have to take into account that other production was limited and reduced, and the main consumer of concentrates in China where smelters were -- have reduced their production or went into even maintenance. What really helped us is we have a very diversified supplier portfolio. We are not, to an extent, exposed to spot market purchase but more to long-term relationships and contracts. And we have with our network a very flexible material planning, which all paid really to maintain our production and all plants running during this crisis. Also important, until mid of February, also due to the maintenance we had in Hamburg in October, we still benefited from the higher concentrate TC/RCs of the calendar year 2019, and only from then on, we saw more the impact in our purchasing volumes of the benchmark of 2020. Scrap RCs, refining charges for copper scrap remained stable in our first half year at a high level recorded -- as recorded in our last reporting year. The reason is good supply of recycling materials in Europe and in the U.S., also due to some current import restrictions of copper scrap to China. We were utilizing this good market situation, and we were able to fully supply and even build some safety stock and buffer stocks in our systems in order to maintain our plants better sourced going forward. Rainer already mentioned about the sulfuric acid. We saw a robust demand in the first quarter of our fiscal year with stable pricing, good prices, but in the second quarter of our fiscal year, things have really changed. Specifically, the impact in China in the province of Hubei where the majority of the fertilizer production in China is located had an impact on the sulfuric markets, and we saw pressure from spot offers into the European market at very, very aggressive pricing and competitive pricing, which had an impact on our pricing. Even again, as we state around the concentrates, we are only, to some extent, exposed to spot market as we also have here long-term contracts in relationship with customer in place. But we are not completely isolated from these market developments. That's for sure. To the ACP. The cathode market recorded a stable demand in the first half of 2019 and '20. Spot premiums in Europe were stable. The quotations in Shanghai edged downward because of the pandemic. However, since then -- since March -- since end of March, we see a recovery, and the, again, as I said, copper processing industry came back on stream. And so we saw also better spot pricing in Shanghai at this point in time than we saw during the crisis peak. U.S. dollar, we have a long position of, as you know, about USD 600 million in our fiscal year. And with our hedging strategy, we have secured, for this fiscal year, 68% at a rate of 1.155. And for the next fiscal year, at the same rate, 68% of our exposure at a rate of 1.122. Moving now to Slide #13, talking a bit more about the balance and the situation with concentrate supply and mining as the TC/RCs are a very important driver of our earnings. If you look at the outlined possible impacts and you see the tax there, it's quite similar to the experience in the last years. There's always a bit around the 0 -- around the balanced market where it's either CRU -- you see the number there of Wood Mackenzie, what kind of smelter is going to restart or not to restart. There are different school of thoughts always. But again, we see that the supply losses are relatively small on the mining side. And we see a balanced market going forward, and very interesting mining projects are coming on stream. So we are not facing any shortage of supply for our smelters going forward. And if I go then to Slide #14, which is the forecast, on the left side, you see the concentrate supply by geography. Clearly, South America and Central America are the leading areas in the supply of concentrate. And if you look at the numbers coming from Wood Mackenzie and CRU, you see there is a healthy pipeline of mining projects, significant mining projects, which are increasing in the years to come, and they are being executed and invested as we speak. If you look at the right side of the slide, you see the concentrate demand by geography. And despite some additional investments, which we see in China, the market is more or less balanced if you look around the total volumes that are being supplied in this market of around 25 million -- sorry, a bit short of 20 million tonnes per year. So a healthy project pipeline meets in sync demand for -- coming from the smelter operators around the world. And with this, I would like to hand over back to Rainer to talk -- no, sorry, we are going to Slide 15. There's one slide still. I don't want to -- Rainer was just looking at me. So also here, we talk about the different price developments and the scrap discounts. And generally, the scrap discounts are expected to range in between EUR 220 per tonne and EUR 280 per tonne, which is lower to what we have seen in the last 6 months. But again, let's be clear. This is a good level and it's an attractive business for Aurubis going forward. Still, some question marks around the Chinese import bans. Because it's in discussion, things will change, but again, we see this as a plausible assumption for the month -- for the next months, 12 to 18 months, so certainly for our fiscal year to bounce around in this range going forward. And now with this, I would like to hand over to Rainer to talk about the segments.

Thanks, Roland. So ladies and gentlemen, let's have a look at the result of the segments starting with MRP. So MRP includes all smelter locations. So the big primary smelters in Hamburg and Pirdop; the secondary smelters, Olen and Lünen plus the group-wide rod and shapes plants. On the operating side, we see an EBT of EUR 142 million (sic) [ EUR 140 million ], which is significantly above the previous years despite the shutdown actually in Q1 in Hamburg. This one had an impact of EUR 34 million on the EBT as compared to EUR 25 million due to the unplanned shutdowns that we had last year overall. This is also the reason why the concentrate throughput is below the previous year. We were able to make up for this somewhat in Q2 but haven't reached the prior year level so far. Production in Hamburg and Pirdop was at a good level, and main contributor is a higher metal gain with increased precious metal prices that had a very positive impact on our results. I already talked about palladium, but it was also holding true for gold. Significantly higher refining charges in the copper scrap area and considerable increase in the KRS in Lünen where we do our recycling business and also -- or contributed also to the very positive effect. Sulfuric acid, we have talked about that. The revenues fell. We do have pretty much the same volumes or a bit lower volumes due to the standstill, but volume is fine. Prices are subdued here. Dampened demand also on the product sector. Also it's now influenced and becoming more and more -- Roland will talk about it later, becoming more and more under the influence of the coronavirus impacts on the business. Overall, we have invested roughly EUR 100 million so far. Of course, the maintenance shown here has a significant impact and also the electrolysis plant in Lünen. Going to Page #17, a short glimpse at the FRP segment operating earnings before tax here at minus EUR 2 million. Pretty much maintained at the prior year level. This was only possible due to very, very stringent cost management because sales volumes, as you can see here, have gone down compared to last year by 18,000 tonnes, so really stringent cost management. And the market for flat rolled business is still under certain pressure, and one main influence is, for sure, the automotive industry with the connector strip business. With that very short overview on the segments, I would like to hand back to Roland.

Okay. Thanks, Rainer. So me again. So moving now to Slide #18, Page #18, some statements around our market outlook for this fiscal year. Copper price, Reuters sees the price as from the 9th of April latest pool of $5,200 per tonne and if you look at today's market price, probably not completely off. Copper concentrate, as I stated before, we see a stable supply at the right mix compared to last calendar year at a lower benchmark level. Copper scrap, we are well supplied already in Q3 at good conditions, but you saw our range forecast we will see in the rest of -- so in our Q4, some impact on scrap pricing on the RCs of scraps pricing. But we are confident that we be able to source the necessary volumes for our plant system. Sulfuric acid, there is an oversupply in the market, very much depending now on how the restart of important industries will happen around the globe. In the moment, spot pricing is under pressure, remains under pressure, but we see no further deterioration of the pricing at this point in time. Our ACP, our copper premium, has been set at USD 96 per tonne, similar to what we did in last calendar year. And this is the number for the calendar year 2020, which we have been able to pass on, and it was accepted by the market. Copper demand. For copper itself, there is a stable and good demand. Still, the demand from the automotive sector is subdued. However, what we see is a significant increase in the production of electric cars, which, as we stated before, have higher copper content, so therefore, the direct reduction of overall production numbers will not have a similar one-to-one reduction in the copper demand, but will be compensated to some extent. FRP. I think, Rainer, you talked about this. We do not expect in this -- in our fiscal year, any significant market recovery in the second half. Okay. Moving now to Page #19 about our Performance Improvement Program. As you know, we launched in 2016 our efficiency improvement program with the overall target of EUR 200 million of improvements and savings. And we announced that significant achievements have been already reported about the efficiency improvement, and we transferred this program into a performance and, clearly, a cost improvement program. We have focused our activities on the maintenance area, on procurement area and also on the important areas of administrative processes, so SG&A, where we saw also with the investments that we did in the past in improving our IT landscape, integrated ERP systems, really going -- becoming more digital as a company so that we see now the opportunity to also be more competitive in the way we do our business. The coronavirus did slightly impact our program. It's not that we are -- that we have lost the full number of weeks where we are in this crisis, but we are slightly, slightly lagging in the schedule. However, we have restarted the discussion with the workers' council on the different measures. And the details of the measures are being discussed, are being decided, and we are on track with delivering these improvements in the time frame. Coming out to Page # -- Slide #20. So after the first 6 months, after Q2, we confirm our forecast. And as we stated before, Metallo results are not yet included in our forecast. For the Aurubis group, the operating EBITDA is forecasted and confirmed at a range of EUR 185 million to EUR 250 million with an ROCE -- operating ROCE between 8% and 11% for the fiscal year. The segment numbers, MRP, EUR 230 million to EUR 310 million EBT and an ROCE of 11% to 16%. However, this development will be influenced by weaker market conditions, especially with copper concentrate or asset markets compared to the previous year. Due to the market outlook we talked about, we have adjusted our forecast for the FRP segment from EUR 11 million to EUR 15 million to EUR 3 million to EUR 7 million operating EBT and ROCE between 0 and 3%. This correction will be compensated on a group level as a whole and will not lead to any adjustment of the overall forecast of the group. Perhaps to remind, the consensus for our annual result, operating EBT is EUR 195 million, so well in line with what we expected before. With this, I come to the last slide, #21. And clearly, in this period of crisis, our top priority is and will remain to keep our people in the plants, in the production and in the office as healthy and safe. And as I said, we have been very successful so far to maintain the situation and have not any real numbers of infections in our population. The other priority now starting finally, after we got the approval, is the integration of Metallo, starting with the closing on the 29th of May. Preparation is well advanced, and we will have a running start of the integration teams after this closing has taken place. Operational excellence. You heard from Rainer that production in our plants, in our smelter network did run well in Q2. It remains our top priority to keep our plants running at top performance. Performance improvement, improve our competitiveness, reduce our cost base is the priority in order to frame and detail the program in the coming weeks and months so that we are in a full execution mode at the end of this fiscal year. Sustainability. It's our day -- bread and butter, to be a sustainable company. We have -- as you saw, we have launched a green bond. So although we walked the talk in making statements and action to our sustainability commitment. And here, you will see further activities in improving our CO2 footprint, and also the whole supply chain is an active element in this agenda. And then additional growth projects, we are working on them and will announce in -- at the right time and point in time when the next growth project is being implemented. First, we are very happy that we got the approval of Metallo, and I'm sure, after our last call, not everybody was firmly believing as we that this approval will be unconditional. So it's a good quarter for us with this highlight coming from the European Commission. With this, I would like to close this call and hand over to Angela.

Yes. Thank you, Mr. Harings. Thank you, Mr. Verhoeven. Ladies and gentlemen, also thank you for your attention. We are now looking forward to your questions. [Operator Instructions]

[Operator Instructions] And we have first questions coming in. The first question is from Mr. Ingo Schachel from Commerzbank.

Congratulations on a quite good quarter in challenging times. My first question would be on your full year guidance and your expectation for the earnings trajectory. I think your guidance would pretty much imply 2 pretty normal quarters. I guess other companies see a pretty weak June quarter and then a stronger September quarter. In your case, there might also be reasons to expect it the other way around because recycling charges might be a bit lower in the fourth quarter. Just curious whether you would expect, let's say, June quarter performance, which is, let's say, more than half of what you need to get to your full year guidance or less? So how do you think about the trajectory?

Thanks for your question. Roland Harings speaking. Sure. I understand that you would like to see some more details about the next quarter. But I think if you take the key fact, which you already stated, that we are well sourced with scrap, that we are well sourced with concentrate also going forward and we have stable operation, there is not such a big difference in our quarters going forward. So therefore, we look at our half year results and also at the perspective for us. I wouldn't make a big distinction between quarter 3 of our fiscal year and quarter 4. We are a stable, solid operation, and our business model has various components of earnings. The major ones are very stable going forward. And product, we see some lower demand, but as you know, it's only one part and not the most important part of our earnings contribution.

Okay. That's very clear. And talking about the, let's say, more volatile or bigger swing factors on the result. Clearly, scrap and recycling premier would be one swing factor probably in the next few months. You told us that you are well supplied. But can you tell us maybe, during the month of April and May, how much scrap you've been able to source, what sort of percentage of normal sourcing levels and whether you're sourcing that in April, May, also at the EUR 200 per tonne plus conditions or whether you've enforced to accept also slightly lower prices during this period.

So they're well supplied at decent terms, and the range that we mentioned, I can state we were more to the higher end of this range. And we have not to make any kind of spot -- aggressive spot sales. Again, our strength is we have long-term partners. We are a reliable business partner for many, many players, and the buffers and the inventory that we also were able to build up in the last quarter did help us to mitigate here some lower collection rates that we saw due to the lockdowns in the marketplace. So no kind of sacrifice were necessary to keep our plants running.

Okay. Just a quick housekeeping question on Metallo. I think when the deal was signed, you gave us a ballpark number for the EBITDA run rate that the asset was making. Now with all the impact of corona or maybe not, is it still the same EBITDA run rate that you're seeing? Or would the number from today's perspective be a bit lower or higher than that?

I can confirm it's the same run rate, similar without having opened the book yet, but we know Metallo, as we were able to maintain the operation running, they had no reduction in production. And also, we're able to source the required input materials, so they confirmed the run rate.

And the next question comes from Mr. Ioannis Masvoulas from Morgan Stanley.

Yes. First of all, in terms of downstream demand, you flagged the negative impact on rod and shapes, especially from the automotive industry. Should we expect you to match production with demand in the coming months? And what would that mean for cathode sales? And related to that, are you seeing a shift in cathode sales between end customers and traders? I'll stop here for the first one.

Yes, we see a lower demand in rod, but our exposure or, let's say, the volume of wire rod going to the automotive market is only a portion of the supply into the market. So energy markets, investment markets and building industry were, also during this crisis, some stable segments. So we are only partly impacted by the automotive downturn. And as you know, it has restarted now not to the level before crisis, but at least production is up and running again. And yes, you're right. Less demand in wire rod means we are selling more cathodes to the market. And I referred to better market conditions in Asia with some better spot prices in the Chinese market in Shanghai, and we are using this -- also this demand to balance our system and sell the necessary quantities.

That's very helpful. And just a couple of follow-ups in terms of Ingo's question on the concentrate side. So I appreciate that you're able to procure sufficient quantities of concentrate. I'm just trying to figure out, in terms of your ability to maximize your realized TC/RCs, as are you able to procure the optimal mix of concentrates, either towards the end of fiscal Q2 or into fiscal Q3? And related to that, should we expect any working capital investment in fiscal Q3 to make sure you have sufficient concentrate supply?

No clear statement. We were able to source our optimal mix for our plants. No compromise was necessary. And again, our business model is long-term relationship with our mining partners and long term or at least annual contracts and our exposure to spot is minimal. Hence, our mix was not really influenced. Second -- your second question regarding working capital, no, we don't have to make any additional buffer stocks or procurement activities as we are well sourced and then we are not seeing -- I would say, the worst is behind regarding the things that we saw as disruption in the mining or the logistic chain.

That's very clear. And maybe just a last question on sulfuric acid. You mentioned the weakness in spot prices and the fact that you don't have a significant exposure there. Can you perhaps help us understand the sort of mix -- contract mix you have here? I mean if we were to look at, let's say, realized sulfuric price for the Aurubis Group, what sort of sequential decline should we expect on a euro per tonne basis? Or maybe if you can give us some color on the P&L headwind in Q3 relative to fiscal Q2, that would be very helpful.

So yes, there is pressure on the pricing of -- especially for spot quantities in the market. But given our position here in Europe that we are, again, a major supplier to key producers with very established supply logistic chains and supply contracts, we are only partially exposed to the spot pricing, which remains under pressure. And if you ask for the specific numbers, it's really something we are not disclosing in detail, but if you take -- our exposure to spot market is limited, and we are talking here a low digit number of impact coming from the sulfuric acid pricing.

The next question comes from Ms. Olivia Du from Bank of America.

So I have 3 short questions, please. The first one is just a quick follow-up on the downstream. So would you be able to disclose roughly how much of the end markets that you're exposed to auto? And what is a rough split between cathode sales and sales direct to the end markets like customers now, please?

So just to your first question -- sorry, you need to repeat the second one. The acoustic was not too good. But your first question was regarding our exposure to automotive in the downstream markets. It's less than 20% of our business is with, let's say, directly or finally going to the automotive segment. And please repeat your second question.

Yes, sure. So can you give us a rough split between how much you're selling as cathodes and how much you're selling as products because of the change in, I guess, product mix at the moment, please?

Yes. So if you -- it's about -- it's a bit, say, look at the different times, say, or quarters but if you take about 15% of our sales is shifting from products into cathode sales. It's 1-5.

Okay. So my second question is on your full year guidance, which is maintained at the same level. So I'm just a bit curious because copper price seems to be going lower and spot TC, I guess, going lower but maybe can recover and PGMs and acid price also falling. So I guess in terms of the earnings drivers, the free copper component and byproducts are probably going to be under some sort of pressure. So how do you expect the full year profit still be maintained?

So Olivia, thanks. Rainer here. Trying to answer that question. It's an interesting question actually. But one thing -- what we saw, especially in Q2, is a very stable operation or even better than planned operation. That is one part, which adds positively to the equation. And the second part that, for sure, despite the situation with corona adds positively, is the precious metal prices and with that, of course, very positive metal gain for the full year.

Sorry, so I just clarify my question. If -- in terms of the outlook, do you expect the by-product prices and also acid prices, et cetera, to be weaker in the rest of the year? And if that is the case, the selling -- this has already been captured in your base case scenario when you provide the guidance.

No. Surely, we have taken what we stated around our outlook, how we see pricing. How we see demand has been fully taken into account. When we made -- or the base -- or is the basis for the statement, we made around our prognosis of the range, EUR 185 million to EUR 250 million. This is all factored in.

Okay. So last one just on metal. Can you just briefly give us a bit of color on where do you see the key synergy areas between the existing for Aurubis operations and Metallo, please?

Yes. Sure. I do it quite high level. Clearly, our smelter network is based on integrating the different flow sheets, flow streams and also the processes of different metal treatments, if it's hydro and pyrometallurgic treatment, where the improvements will come with better recovery by integrating Metallo into the 4 plants that we're already running into this flow sheet and extract more metal and adding metal, as you saw in our presentation, like tin, like nickel, like zinc and also lead in our system. So it's really optimizing the material flows and integrating the different capabilities and technologies that Metallo has specifically on these metals and also specifically on input materials with a very low metal content, which is one of the expertise and complementary to what Aurubis is already able to do. So as we stated before, this acquisition is -- complements our technology portfolio and complements also, in some areas, our metal portfolio. And that's where we are going to intervene and integrate their capabilities into our smelter network.

And we have a few more questions. The next question is coming from Mr. Bastian Synagowitz from Deutsche Bank.

I've got a few questions left, and my first 1 is on the FRP business where I found your performance quite impressive given the 16% decline in volumes. You're still guiding for an improvement in FRP in the second half of this year when the market is probably getting worse pretty much anywhere. What is the volume trajectory, which you see in the third quarter? And should we expect volumes to drop again by a similar amount? And then could you please let us know what makes you so confident you're basically able to do better in an environment like that? That is my first question.

So Mr. Synagowitz, Rainer Verhoeven here. On FRP, what we did see, especially in the last couple of weeks last month, that the order book was quite filled up again. So we do see, going forward, unclarity, and we do see some pressure there. But for the time being, next 2 months, we expect that the order book is quite full, and with that, we do see that we can get to the guidance that we have given there. We had to reduce it, and we will not catch up there. That's for sure because the market is -- remains complicated here.

But do you still expect a net drop in volumes in the third quarter versus the second from the order book you see?

Well, it is -- at this time, it's difficult to say. Yes, currently, we have in our forecast a drop in volumes, but the order books don't reach that far at this point in time. So we cannot oversee the full quarter at this point in time, especially not looking into Q4 of the fiscal year. We don't have a view there.

And if I might add too, Rainer, to this question, what is also, say -- as Rainer stated already, it's remarkable how we were able to reduce our cost position in the FRP system. And we are seeing more benefits on the cost reduction side coming in the second half because we started after we saw the demand is not coming back as we originally planned in FRP to a level of the years before, hence, we started with cost reduction, which not fully showed bottom line results in the first half year. So we expect also here an additional compensation to a market on the same level.

Okay. So then to be clear, your positive view on the second half on the business to do better versus the first half is basically based on your cost measures rather than an improvement on the volume side? Is that basically the case?

Yes. That's -- we see -- in some areas, as Rainer said, we see a very interesting demand, increasing demand. And I referred to in the wire segment regarding e-mobility. There are some products, some ranges where we have also very good leading positions in the FRP system where we see additional demand. And also, there are segments like the building industry, like infrastructure build. There is also not this extreme exposure in the FRP segment to the automotive market. So therefore, we have not seen this kind of effect on the order books overall, and combined with a very good cost management and cost reduction, we are seeing these numbers for FRP going forward.

Okay. And my next question is on your plans to sell the business. How are your conversations going with regards to the sale process? Are you still confident that you can sell it within the current fiscal year given that it's obviously not particularly a seller's market? Could you maybe give us a quick update there?

Yes. I think it's quite polite to say it's not a seller's market these days. It's a difficult market environment, and for sure, there is no tailwind. However, the discussions, as I stated in the last call, are progressing well. We are in advanced discussion. As you know, it's a different sell given the setup and given also antitrust issues that we need to solve before we make any kind of firm contract with any buyer. But I don't make any statement in this very difficult crisis period that we are going to sign something, but we are very -- I remain very confident that we will find a good solution for FRP going forward.

Okay. Then my very last question is on your PIP program. Is there any quantification you could give us with regards to the program and how much cost savings you target versus -- as far as I remember, EUR 60 million, which you were originally targeting under the previous program. Is there any color you could give us on that side?

Yes, Mr. Synagowitz. So we are still in discussions with the workers' council here. Please understand that we cannot give any concrete figures here at this point in time. What we know is that our One Aurubis PI program is coming to an end this year, and we have already achieved quite something there. And we're adding and moving to a cost reduction there. And when the time allows, we will talk about the figures.

Okay. But then if you're in discussions with the workers' council, is it correct to infer that this means that there will be potentially also a significant contribution coming from job reductions?

We can -- we are not excluding that at this point in time. So we are talking about SG&A. And if you talk about SG&A, you, in principle, talk about FTE. You talk about positions. But that is a minor part. We are also talking about the nonmetal procurement, so general procurement where we expect biggest savings, and we are talking about -- currently about the operations here in Hamburg. And there, we are talking about optimizing maintenance and improving the throughput in our smelter in Hamburg.

And the next question comes from Mr. Christian Obst from Baader Bank.

And all the best to Hamburg. I have 3 questions left. One is the more strategic approach concerning complex material. You stated that you would like to double your complex material treatment from '16, '17 to '22, '23 approximately. So if I take 400,000 to 450,000 tonnes complex material at the time back, now you added Metallo, reaching 750,000 to 800,000 tonnes there, is the target still above 900,000 tonnes of complex material until 2022? Is that some kind of a right thinking of that. Then the EBIT loss in others. There is an ongoing decline. It's minus EUR 16 million, minus EUR 21 million. Now it's minus EUR 62 million. Can you give us an idea what is the main driver here? Do you have still booked some provisions for possible reduction of the workforce? And can you give us an idea how you are treating your energy contracts there? These are the first 2 questions. And afterwards, I come with the third one.

Yes. Roland Harings speaking. No, thanks for your question. Complex material, sure. The acquisition of Metallo is one major milestone in our approach to increase the amount of complex material input. And as you rightly said, there is still against our ambition level in 2022, '23. There is still a gap to be filled. And as we stated before, we are working on additional investments not yet at the point to be announced but making progress there, and that's exactly our element of the multimetal strategy in order to increase the input of complex materials. So more to come. And for next question, I would hand over to Rainer.

Yes, yes. Second question, on the other segment. So we had been at EUR 6 million last year, and we are at EUR 47 million this year, so a swing of EUR 41 million. EUR 41 million is about EUR 20 million the receivable that we had booked in last year in -- with regards to the sale of the FRP segment, so that -- unfortunately, we cannot book that receivable every year. So that's why we are missing EUR 20 million this year. We had been -- for sure, we had consulting costs, quite substantial amounts of consulting costs on the one side for the Metallo transaction; on the other side, still ongoing for FRP. We do have, as you rightfully stated, provisions -- already first provisions, for some kind of restructuring costs but still on a very low level here because we don't have yet the clarity. As said, we are talking with the works' council. We first need the clarity on what and how it's going to happen, and then we can, let's say, fully go into the provisions and provision the amount. And another amount in the middle 2-digit figure was our so-called cutback [ slices ]. So the portion of the amount of our power plant slice here, which has to be marked to market. And given the fact that the prices have come down on the [ EX ], it's mainly as compared to our mainly coal-based power plant slice, there was a negative market valuation, also mid-1 million -- or mid-1-digit million figure.

Okay. Then I have a third one on KRS. You gave a guidance concerning the EBIT impact of the shutdown in April and September, and it was EUR 11 million in the first quarter, and now you increased that to EUR 16 million in the second quarter. Can you give us some explanation about the EUR 5 million that is there?

Yes. Yes. So what we decided on the KRS, we put some additional packages to the standstill and extended the timing from 16 to 28 days because we see -- we saw the need that we improve and increase our capability to treat more complex materials, to your first question, which often come with certain impurities. So we changed specific heat exchanger elements, some significant components in the KRS. And just taking the additional days led them to the effect on the stencil of this equipment.

And of course, this new guidance is included in the overall guidance of the group.

Yes, of course.

And we have one more question coming from Mr. Marc Gabriel from Bankhaus Lampe.

Yes. Congrats to the good results and the approval for the takeover. The first question is in addition to Olivia's question on the forecast. Your answers imply that without COVID-19 crisis, you would have had a potential to increase the guidance on the back of the precious metal price development. Is that correct? And with regards to the precious metal prices, can you give us an idea whether you have increased your stock of precious metals or are you continuing to sell every tonne produced immediately to the market? So first question or second question. I can come up with the next one. Probably, where will we see any effects from the COVID-19 crisis in Q3? Could you give us a sense of how much amount for whatever reason you are planning in for the third quarter? And just the final question, just supposing that your employees in the production process were infected by corona, similar to cases in some meat factories we saw in Germany or even in the U.S., would it then be conceivable that your production might also be interrupted by the authorities? Or is such a case completely ruled out? Because, I mean, that's clearly the advantage that your business is running 24/7, and then that has helped coming better through the crisis than other companies.

So Rainer Verhoeven again. So first question on -- it was the precious metal prices and whether we could not increase our guidance without the existence of COVID. Let's put it in a nutshell. We have had very strong tailwinds from the precious metals. And yes, that helped, contributing very positively to the overall forecast that we're seeing right now. On the other side, we had strong headwinds and do see some difficulties also on the product side, as already explained. So we are looking, going forward, into reduced product sales in the vicinity of 15%, some months even higher, but throughout until the end of the year, products will be rather seeing a 15% drop, which is then -- and that is the flexibility of Aurubis, which is then made good for by selling cathodes into different markets, for instance, which also gives a bit of an indication why we are until now still sailing quite strongly and stable through the whole crisis, I would say, from the market's perspective. As long as we are steadily supplied with concentrate and find good scrap availability, the situation will be okay. And of course, we have to make sure that we find channels to get rid of assets, even though the prices might be depressed, but with our network, our sales network that we are having in the world, pretty much in Europe but in the world, we are not seeing difficulties in not getting rid of the sulfuric acid. And then on the COVID question, maybe Roland can answer.

Yes. No. Thanks, Rainer, Mr. Gabriel. So Q3, what we know today about the impact of the virus, this is all factored into our forecast. But this assumes, as we see now some release -- some reduction of lockdowns that we see a restart of certain industries not to the level before crisis, but we are not assuming a second significant outbreak of infections going forward. But the situation, at least in Europe, can be maintained with the actions taken now. So that's -- as a cautionary mark, that's what was the basis for our forecasting process. And I have to say I smile a bit with your meat factory example. So clearly, our -- fortunately, our production is very different as people are not working naturally -- that close to each other like in these processing or, let's say, also in assembly industries. So we have been able very successfully to implement distance and hygienic rules in our plants. And I'm very glad to report that we have hardly any infections in our manufacturing system. And in our whole plant and not just in manufacturing, obviously, also in the offices. And in the very few cases we have, we could immediately detect the people in contact and take the appropriate measures there. So I think our situation is very different, and we can -- running -- we can run the operations and keep our people at the highest level of security, safe and healthy in our plants.

There are no further questions in the queue. Therefore, I will repeat. [Operator Instructions] We have one more question coming from Mr. Christian Obst.

Yes. Sorry, I forgot one question before. One additional question is concerning Metallo. In the EUR 380 million purchase price you still mentioned, can you give us an idea how much of working capital is included in that? How much are you paying for the -- for metal included in Metallo?

Sorry, Mr. Obst, not yet. Next quarter, we are still doing -- we still have to have the opening balance, do the purchase price allocation and so forth. Please wait until next quarter. Then we have more information.

The next question comes from Mr. Ioannis Masvoulas.

Just a quick follow-up on my side. It's -- given where we are in the fiscal year and a relatively wide range for the full year EBT guidance, can you give us an indication on what would need to happen to -- for you to land at the high end of that range?

I think it's quite -- I don't want to speculate about what and so on. I think the range, we stated several times. It's a wide range, I have to admit. I would put more reference to the consensus, which I also stated with EUR 195 million. And again, given the crisis and the very difficult environment we are operating in, it's -- in the remaining part of the fiscal year, you need a lot of fantasy to believe we could reach the upper limit. But again, reference point, I would state here again is the consensus of EUR 195 million.

Mr. Harings, Mr. Verhoeven, there are no further questions in the queue.

Okay. Thank you very much, ladies and gentlemen. Thanks for your questions, for your interest, and I -- yes, stay healthy. Have a lovely weekend, and goodbye from my side.

Yes. And goodbye from mine. Thanks for your interest in the company and your questions. Appreciate it, and have a nice weekend from my side, too.

Thanks a lot, ladies and gentlemen. Bye-bye.

Bye.