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 full year results. [Operator Instructions] Let me now turn the floor over to your host, Ms. Angela Seidler.

Thank you and good afternoon from Hamburg. On behalf of Aurubis AG, I would like to welcome you to the conference call on the occasion of the publication of our financial statements for fiscal year 2019-'20. You will find all today's documents and presentations on our website at aurubis.com. My name is Angela Seidler, and I would like to give you a few organizational details. First of all, our CEO, Roland Harings; and CFO, Rainer Verhoeven will guide you through the figures of the past fiscal year, give you an insight into our market and provide an outlook for the current fiscal year. Afterwards, you have the possibility to ask questions, which we are happy to answer. [Operator Instructions] But now I would like to hand over to Roland Harings.

Thanks, Angela. Also good afternoon from my side, and welcome to our annual results call. The year 2020 was a challenging year for many companies. I'm pleased that our crisis management has been effective, and there has been no production restrictions in our plants and, just to remind, where work is carried out 24/7. Nevertheless, the pandemic is not yet over, and we will continue to pay the greatest attention to the health of our employees. We are proud that we have succeeded in increasing our earnings in these challenging times. Our 12-month result shows a 15% increase operating EBT of EUR 221 million and an ROCE of 9.3%. In a difficult year with COVID-19, these are very stable results with a good operating performance in challenging and changing market conditions. Our stable business model and the confident outlook for our markets leads us to look to the future with optimism. This is why we have increased our forecast range for this fiscal year to EUR 210 million to EUR 270 million. We also decided to maintain our dividend policy and increase this year dividend proposal to EUR 1.30, which is EUR 0.05 more than last year. The payout ratio remains at a high level of 35%. The outstanding EUR 459 million of net cash flow was based on precious metal sales and increased sales of cathodes to Asia. Market conditions, of course, in '19-'20, were mixed again. Increased RCs for scrap and recycling, while sulfuric acid and product markets conditions worsened compared to prior year. We compensated the weak European product market, specifically in April and June -- April, May, June with the shutdowns, through direct cathode sales to Asia. This market, as we, I think, all know, recovered quite quickly after the first pandemic wave. One important milestone, the Metallo acquisition is closed, current focus lies on the integration and the first synergies have already been realized. In our numbers, this company is consolidated for the last 4 months of our fiscal year. Just to remember, the competition authorities, after an intensive Phase 1 and 2 approval process, gave us the green light on May 4, 2020, and we closed this transaction end of May. And consolidation, as already mentioned, started on 1st of June. The current focus on the integration is with Metallo and also the different flow sheets, and we are very confident after the first couple of months that we are generating significant synergies from this acquisition above our initial expectations. Important to mention is also our efficiency improvement, the implementation phase of PIP, Performance Improvement Program, as we name it. The ONE Aurubis business improvement efficiency program was transitioned successfully into this new program with a focus on cost reduction and cost optimization and also the reduction of FTEs. The provisions to take the necessary -- to finance the necessary action in the coming years, have been fully booked in the last fiscal year. Despite these one-off personnel restructuring costs, the PIP program has made its first successful contributions to this year's result. The objective -- the overall objective is to counteract both inflation and the weaker economic and market conditions that are expected. Also important, I would like to highlight sustainability. Aurubis applied for the Copper Mark, which is a responsible production seal in the copper industry across the whole value chain. We improved our sustainability ratings, EcoVadis, using this for our ESG-linked Schuldschein loan, with which we financed the Metallo acquisition. And the last news which came in yesterday is the message from CDP, which is, as you know, the nonprofit organization. They published the new rating of Aurubis, and we improved to an A- level compared to B last year and we are very proud of this achievement. And to put this into context, these standards are increasing for companies year-over-year. So I think we made good progress in this aspect of sustainability. And to repeat, you have heard this before, our intention to sell FRP is unchanged. But under the accounting conditions of IFRS 5, we had to return this business into the normal accounting principles. If I move now to the next slide regarding to production volumes for our last fiscal year. Input materials regarding concentrate processing, you see the numbers. Throughput was at a good level, 7% above last year. And again, to remind, we had this standstill in Hamburg in October for about 1 month. So very good performance for the rest of the year and specifically also in Pirdop. Regarding the copper scrap input, we are -- we processed -- in total, if you take scrap #2 and other recycling materials, we processed about 660,000 tons. And we will achieve together with Metallo, again, remind you, it's only 4 months of Metallo included, we will get close or exceed even 1 million tons of recycling material inputs going forward. Regarding output, the capital output was slightly below last year's volumes by minus 4%. This is due to the tank house issue, the crane issue that we have in Olen, which was, to a large extent, compensated in our smelter network. And with the pandemic slowdown of economy, the rod shape and flat-rolled product markets were below last year's level. And as I stated already, April and May, with a significant shutdown of major industry in Europe, we couldn't compensate this. However, as mentioned, we were able to sell cathodes in significant volumes to Asia during this period and benefited from that. Sulfuric acid output was higher, which is in line with the increased input of concentrate. If you look on this chart on the right side, you see our multi-metal production. The metal we recover depends -- the amount of metals we recover depends on the content of the concentrates and also the recycling materials. But as you can see, in many categories, our multi-metal strategy shows the increase and new metals, like, for example, zinc, were added with the acquisition of Metallo. If I go now to the next slide, to the market conditions in 2019 and '20, clearly, it has been a volatile and also a mixed picture, and sure, as for many companies, challenging. Regarding TC/RCs for concentrate, we saw an overall good supply situation despite some disruption and issues with mines, especially specifically in South America. The production of 20.5 million tons of copper content in concentrate was only slightly below prior year. It's about minus 2% according to Wood Mackenzie, and with -- despite slightly increased disruption rates. We saw throughout the year, it was more challenging -- but we had no problem, and you saw the concentrate throughput numbers -- to source the right quantities and qualities of concentrates. This is also underlined by quite stable spot levels in the high 50s to low 70s, which were quite stable throughout the period. And we have been, as you heard before, not active in the spot market because our focus is to have long-term contracts with our mining partners across the world. Currently, the benchmark negotiations for 2021 have not been concluded and therefore, in a moment, I think the industry is waiting for the outcome of the discussions, the negotiations in Asia. If you look at the scrap RCs, in the reporting period, metal prices, specifically the copper prices, was very volatile over the course of the fiscal year. Due to trade tensions, which led an overall good availability of scrap on the global sourcing market, RCs went up and material availability was good in Europe and also was good for the European market participants in the U.S. market. Refining charges stayed on a very good level which continued through the end of this year and even increased with the beginning of this year. To give you an indication, CRU announced average RCs for the scrap #2 and without logistics for Q4 of last year -- so 2019 -- of 382, and this year, for the same quarter, to 400. So we saw a slight increase which is continuing, as I said, in this actual quarter. Again, this is only the scrap RC for scrap #2, but it gives you an idea in which direction scrap RCs overall are heading. Clearly, we are already supplied with material at very good refining charges beyond our first quarter of this fiscal year. Sulfuric acid. The sulfuric acid market showed a stable development in Q1 of the fiscal year, with the outbreak of the pandemic and shutdown of the region of Hubei, which is a major region of Chinese fertilizer industry and thus, sulfuric acid demand, increased supply flooded into Europe. Prices went down significantly in March on the one hand, due to lower demand, especially from the fertilizer and chemical industries in Europe, and on the other hand, due to this oversupply. However, spot prices rebounded in our fiscal year Q3 and Q4. European spot prices also came back to a level of spot [ chiller ] of $50 to $59 CFR due to the overall economic recovery. Despite correction from the record high levels, sulfuric asset conditions to be -- continue to be a profitable earning contributor to us. Talking now about the ACP, the Aurubis Copper premium. It’s set for 2020 at USD 96 per ton, reflecting the good demand that we saw in 2019 and also in the beginning of 2020. We have maintained this premium for the following year and decided to make a rollover. U.S. dollar, Aurubis has a long position of approximately USD 500 million in the fiscal year 2020-'21. This position is increased due an increase of natural hedges and all the expenses -- despite the expenses that occur in U.S. Within our scope of our hedging, we aim to secure roughly about 2/3 of these U.S. dollars. And for the current fiscal year 2021, we have hedged 83% at a rate of 1.128 and also already for the year 2021-'22, we have hedged 45% at a rate of 1.124. And with this, I would like to hand over to Rainer Verhoeven.

Thanks, Roland, and good afternoon, everybody. Let's have a closer look at our results. Compared to the previous year, the operating results, '19/'20, increased considerably due to a good performance of our plants despite the challenging market conditions. Revenues increased by 4% due to higher precious metal prices, which were also a main contributor for the good '19-'20 result overall. Lower sales of copper products had the contrary effect. The gross profit increased by 6%, even beyond the revenue increase. Due to good market conditions on the scrap markets, the high precious metal prices and the first-time consolidation of Metallo for 4 months in ‘19/‘20, we were able to compensate several one-off effects such as the goodwill impairment in the MRP segment of EUR 17 million, the restructuring costs for the Performance Improvement Program of EUR 35 million. But in general, our costs against the prior year were almost at the same level. We benefited from lower energy prices, for sure, which drove down costs, and stringent cost management in the FRP segment resulted into overall lower costs for that segment. And we have adjusted our operating EBT definition, which had a small positive effect of EUR 11 million, and I'm trying to explain a bit on the changes in the operating EBT definition. As you know, internal and external reporting is based on that operating EBT and the operating ROCE, which deviates from the plain IFRS figures as we eliminate any not realized metal price volatility in the physical stocks and the derivatives that we incur for hedging purposes. Compared to last year, we changed the definition by 2 topics. First, [ until ] last year, we eliminated short-term price volatility, so the lower of cost or market test, only for copper. From this year on, we will do this for all metals as we see a constant rise and permanent increase of pretty much all metals and thus, would create unnecessary volatility if we continued that lower of cost or market test. We only correct the book value of metals if we see a permanent price reduction of a specific metal over a longer period of time. The second topic relates to the derivatives that we incurred to hedge the price volatility in our metals. As we value our physical stock based on the LIFO method, we consequently eliminate the mark-to-market effects of the hedging activities for those derivatives until maturity of the derivatives, that means until we also realize the economic effect of the hedged metals in our income statement. These adjustments led to a slight positive effect of EUR 11 million as compared to the former definition of our EBT operated. On the next slide, Aurubis continued to have a solid financial position with an equity ratio of almost 50%, and a debt coverage ratio of 0.2, which means that on a net basis, Aurubis continues to be debt-free despite the acquisition of Metallo Group in the last fiscal year. All in all, the key figures of Aurubis remain very robust. The ROCE increased based on the improved EBIT. However, capital employed also increased on the one side due to the PPA effects from the Metallo acquisition; furthermore, an increase in fixed assets, which is the last year's investments were exceeding the depreciation; and we did have an elevated inventory level to ensure, on the one side, operational stability by adding more concentrate and to use market opportunity with the high scrap RCs for our recycling material. The net cash flow was at EUR 459 million and exceeded the prior year level by almost 70%. This was affected, in particular, by precious metal sales at higher prices and the cathodes sales to Asia. Coming to the balance sheet. Overall, the balance sheet items on both the asset and the equity liability side are influenced by the Metallo acquisition by almost EUR 490 million year-on-year. On the asset side, this is evident in the higher fixed assets and the inventories. The increase in receivables is in part due to higher metal prices. On the equity and liability side, the equity ratio of nearly 50% speaks for itself. Furthermore, it should be pointed out that provisions decreased due to decreased pension liabilities. Financial liabilities increased mainly due to the placement of the 400 million ESG-linked Schuldschein, though we also repaid another debt in March 2020 in the amount of EUR 127 million. Furthermore, the accounting of leasing transactions under the new IFRS 16 led to an increase of EUR 35 million. The increase in other liabilities is due to higher concentrate and recycling material volumes. While on the one side, the concentrate deliveries got postponed towards the end of the fiscal year, which led to higher payables, we intentionally stocked up our recycling materials to benefit from the very good market conditions here. The scrap RCs have already been mentioned. Coming to the segments and starting with MRP. MRP includes all smelter locations, that is Hamburg, Pirdop, [ Olen and Lünen ]; and for 4 months, now the smelters of Metallo in Beerse and Berango; furthermore, also the group-wide rod and shapes sites. A couple of factors such as market drivers, we already touched on when we talked about the group, so let me be quite brief. Operating performance was very satisfactory after the scheduled maintenance shutdown in Hamburg during the first quarter of the fiscal year. Operating EBT was at EUR 313 million, thus 3% above the previous year, mainly influenced by significantly higher refining charges for copper scrap and a good metal gain, especially in quarter 4, due to very high precious metal prices. Sulfuric acid prices were very volatile during the fiscal year. Roland already mentioned the corona pandemic and the effects here. And we took a significant hit due to the outbreak of the pandemic. Since September, the prices are recovering there a bit. Acid continues to be a profitable earnings contributor for us despite weakening market conditions in '19-'20. Despite the higher production volumes due to high concentrate, sulfuric acid revenues decreased by roughly 33%, 1/3 versus the previous year. At 759 Kt, rod demand and production is significantly below the very good prior year level due to the weaker economic conditions also owing to the COVID-19 pandemic. Shapes, also significantly below previous year due to weaker economic conditions and lower demand from the flat-rolled business in general all over Europe. All in all, we were able to compensate for the lower product sales through temporary high sales in the Asian market, especially in the months of May and June of the last fiscal year. The Performance Improvement Program fully compensated the necessary provisions that we have built for the restructuring expenses. And the capital expenditure of EUR 202 million -- in the last year, it was EUR 203 million -- so on the same level as last year. Major investments with regards to the planned shutdown here in Hamburg and further investments in -- for environmental recourses, for example, the investment here in Hamburg for the reduction of diffuse emissions. Coming to the segment FRP on the next page. First of all, let me point out that our intention to sell FRP is still valid despite the reclassification that was necessary based on accounting principles as we don't see a high probability to have a signed and sealed sales contract by the end of February 2021, which is the end of the 12-month period under IFRS 5. There has been an intention to sell FRP since fiscal year '17-'18, although this is still intended, and the sales negotiations are at an advanced stage. IFRS 5 is no longer applying to the segment FRP as of Q4 of the past fiscal year. The operative EBT of EUR 1 million for the FRP segment is a significant improvement compared to previous fiscal year where we had a minus of EUR 47 million. However, last year's operating EBT was significantly impacted by one-off impairment losses. Despite significant reduction of production and sales, we were down by like 15%, we were able to realize a positive EBT in this segment. Market conditions were impacted by overall weakened economic conditions, and these overall weaker economic conditions lowered demand due to the weakening automotive sector. We prevented a further drop in earnings with the Performance Improvement Program and a very high cost discipline in the second. The operating ROCE was at 3% versus previous year, minus 10.6%. However, last year's operating EBT was heavily impacted by the impairment losses already mentioned. In the segment FRP, the capital expenditure was at EUR 18 million, a bit higher than last year, but this is all replacement investments. On the next page, please allow me a couple of statements to our share buyback program. Based on our solid financial position, we started a share buyback program in March 2020. So far, we've bought back roughly 2.9% of our own shares at an average price of EUR 46.39 per share. Currently, we have paused the share buyback as we entered the quiet period. We will reconsider on the continued of the buyback program in due course. With that said, I hand back to Roland.

Thanks. Okay. Thanks, Rainer. Looking at the next slide and talking about dividend. As a result of a challenging year, but positive year, we recommend a dividend of EUR 1.30. The dividend yield is lower than previous year, yet with a closing price of EUR 58.14 on September 30, 2020, the dividend yield is 2.2%. Previous year, it was 3.1%. This year's dividend yield is reduced to the significant increase of the stock price. And therefore, it has to be seen in perspective. This corresponds to a payout ratio of 35% of the operating consolidated net income. Talking now about the market outlook for 2020-'21, starting with the copper price. You know that we refer to Reuters usually. The copper price poll for 2021 is at USD 6,705 per ton. At this point, we always mention that this is one voice of the market, and others see the market being much higher. And if you look at the current copper price, it runs at a rate of USD 7,700 per ton. What we see is a stable copper demand based on the industrial activity. The Europe increase -- the Europe demand probably will increase by 5%, that's according to Wood Mackenzie. China is stated to be flat, however, it was good in 2020. And globally, an increase of 2.8%. The demand for the automotive sector is expected to pick up as e-mobility and also the overall production volumes are increasing. Talking about the copper concentrate market. Despite the COVID-19-related risks with some shutdowns of mining production, we saw and we do expect a good supply of the concentrate markets. Wood Mackenzie global mine production is projecting an increase of 4%. Up to now, as I stated before, the new benchmark has not been announced. Despite efforts from Chinese smelters to push up terms prior to the making season for 2021, the concentrate market showed stability during October 2020. The terms for standard copper concentrate remained unchanged from the previous reporting period at the range of the high 40s to low 50s. Again, Aurubis was able to purchase clean concentrates in early November, well above market terms. Based on the expected stock levels, Aurubis is fully supplied until at least March 2021. Let's have a look at the scrap RCs. CRU states that in term of demand, many secondary smelters in Europe are currently holding high inventories of copper. Europe remains well supplied with copper scrap as major secondary smelter has reached storage capacity. Discounts range, again, quote here CRU, between EUR 470 to EUR 510 per ton delivered compared to EUR 360 in July. We are already supplied with material at very good refining charges, well beyond our first quarter. Sulfuric acids. It's a mixed global picture, always difficult to forecast. Market has slightly recovered from very low price level in summer or late summer. Global spot prices are expected to remain stable to higher over the coming weeks due to firm prices in downstream markets for fertilizer and metals as well as higher sulfur prices. Limited spot availability from producers is also supportive, although a lack of spot demand will limit price upside. Aurubis copper premium, just to repeat, we have set the copper premium for the next calendar year to the same number like this calendar year, $96 per ton, and reflecting positive expectation regarding the demand. Coming to our copper products. In general, we expect stable copper demand based on the industrial forecasts. At this point in time, speaking today, these positive developments in the first quarter have continued, and we have seen a good demand for wire rod, for shapes and also significant improvements in demand for the FRP business. With the continued recovery as we hope the pandemic will not have a negative effect again on the industrial activity, we do expect that this is going to continue for the coming quarters. Based on this, we expect for the Aurubis Group an operating EBT for this fiscal year between EUR 210 million and EUR 270 million and an operating ROCE between 8% and 11%. If I break this down into segments, MRP, respective, EUR 250 million to EUR 330 million, ROCE of 9% to 15%. And for FRP, EUR 4 million to EUR 12 million, and ROCE of between 2% and 6% for the fiscal year. If I go to the next slide and talk about our strategy, our key pillars of our strategy: growth, efficiency and responsibility. Our growth focus is on processing and increasing the capabilities and capacity of processing recycling materials. We see market potential in Europe and also outside of Europe in the future. Efficiency, we talked about PIP in all areas, which includes high metal recovery. As we are leading in this area, we want to further intensify our leading position and clearly through digitalization and also standardization as we have started with our PIP program. And the third pillar, responsibility. Aurubis is and aims to be the most sustainable integrated smelter network worldwide. And if you look at the next slide, talking about circle economy and our recycling footprint. You see where our secondary smelters in Europe are now located with the addition of the 2 plants, Berango in Spain and Beerse in Belgium and what kind of input materials can be processed. What we stated with the acquisition shows here, clearly, we are now able in the complementary addition of the capabilities of Metallo shows that we can now process and produce various metal and input materials even for those with very low metal content. Important, again, to underline with this footprint, we have now capacity installed to process more than 1 million tons of recycling material per year. And if I go to the materials, you have seen this in the last reviews of our quarters. You see now the list of multi metals that we are producing and the significant contribution. And again, to highlight, this is only 4 months. So 1st of June until end of September of the numbers contribution -- or the contribution we saw from Metallo. This will be significant additional volumes in the full fiscal year. And specifically, you see that zinc is completely additional to what -- to our portfolio coming from Metallo. Talking now specifically about the significant investment into Metallo and the integration. It was, for sure, a challenging task during the corona pandemic with the limited possibility to meet and have face-to-face discussion. However, we have made very good progress in the integration, and we have achieved significant financial goals already and increased our confidence that we will exceed our set target of EUR 10 million to EUR 15 million of synergies per year in the next 3 years. More than 50 detailed projects have been identified and are being worked on. And just to give you a magnitude of the size of the integration, about 100,000 tons of materials between the different sites of the new network, smelter network, have been rerouted and optimized to extract more metal and increase capacities and capability. Also just one aspect, just internalizing certain production volumes like the anodes, which Metallo sold to third parties in the past, they are now completely processed within our smelter network in Olen and also in other plants. The next strategic move is a joint venture, which we announced in September. We are adding our Cablo, our cable recycling facility, into a joint venture that we are going to launch with TSR, part of the Remondis Group. We see here a significant benefit in the complementary skills of these partners: TSR coming with a very, very strong collection network around Europe; and Aurubis with strong capabilities in processing and extracting the metals from the different used cables that we are processing. This JV will have a capacity of processing up to 40,000 tons of cable recycling materials. And important, we will have the metallurgic competence, but also the competence of processing the plastics, which are coming from the cable insulation, which is a key capability of TSR. We will hold a 60% -- TSR will hold a 60% share of the joint venture, and Aurubis will take a 40% share. We are expecting to close this transaction in the first quarter of next calendar year, subject to merger approval process. Another acquisition we did in the fiscal year is azeti. It's a company which offers an IoT, Internet of Things platform, which connects and enables the data processing within our production and also with the analytics and visualization capabilities to optimize production efficiency and also maintenance process. This company has 20 employees and brings significant knowledge and expertise and, as I said, the necessary software and resources to accelerate our process of becoming a more digital company. Efficiency, the third pillar -- or the second pillar in our growth strategy -- cost reduction. We have to and we will achieve an improvement of results of at least EUR 100 million per year from the PIP program in the fiscal year 2022-'23. We have developed a large number of measures in the last year to start this program to make Aurubis a leaner, better connected and more digital company. We didn't take a blanket approach in this process, but instead, analyzed in a very targeted way, together with the employees, where we could improve the individual areas and how. Our implementation concept shows, first, and significant contributions already in the result of the last FY '19-'20, for example, in non-metal procurement, significantly optimizing maintenance and increasing throughput at our plants as well as optimizing and having a leaner access or leaner process in the SG&A area. The overall target and staff reduction, FTE reduction, was set at 300 FTE. And this is achieved in the most social responsible manner by first looking at [ non ] replacing vacant position, but also with a program of early retirement in order to bridge the years into retirement for elderly members of our teams. This has been well received, and 90 of these reductions have already been implemented in the fiscal year and 210, as we announced, are still to be done. Coming to the third pillar, sustainability. Sustainability is part of our group strategy. I have talked in the beginning about it, and you will find a lot of information in our nonfinancial report, which is, as you know, part of the annual report. This slide shows our ratings and rankings. And perhaps, again, to repeat, CDP has just re-rated our company to an A- in this calendar year. Sustainability comes hand-to-hand with reduction of CO2 footprint. And here, just a nice picture, which I always like to share with anybody interested in Aurubis, is our CO2 footprint. We are well below the global average footprint, and we are emitting only half the amount of CO2 per ton copper than the global average. However, we still have a whole range of ideas, and we are asking and are in intensive discussion with policymakers that we get the boundary conditions, the energy price conditions so that we can accelerate the implementation of these measures. Just to highlight some of them, you see them on the list. We are going to test hydrogen in an industrial scale and the reduction process of the anode furnace, where we will substitute natural gas and also will check if we can change the combustion engines of concentrate ships, which are shuttling concentrate here in the Hamburg plant from the hub in Brunsbüttel with the use of hydrogen. We have, since many years, a group-wide introduction and focus on energy management. We are part of research projects like the Norddeutsche EnergieWende, so the North German Renewal Energy initiative. We are part of different initiatives and so on and so on. So our clear ambition is to further continue this path of CO2 reduction. And with the right conditions of our green electricity and green hydrogen, we can decarbonize our company well before 2050. I would like also to take a minute to talk about the Copper Mark, which is a quality seal for the copper sector. It was developed by the International Copper Association, ICA, with the participation of 25 companies, including Aurubis. Today, already first companies have received the Copper Mark. And many of them as we, with our Aurubis Bulgaria, are participating and working on the certification. For the time being, mines and smelters can be evaluated in a multistage process up to cathode production on a voluntary basis. In a later step, processors along the entire value chain can follow. The 32 sustainability criterias of the risk-ready assessment of the Responsible Minerals Initiative apply, which cover topics like compliance, child labor, environmental protection and occupational safety. Important, again, the Copper Mark is oriented to the United Nations’ framework of Sustainable Development Goals. As I said, we started in Bulgaria, and we are -- have the target to fulfill this initiative, to finalize this initiative in the -- in 6 months to come. The participation is voluntary, but the LME also requires companies to fulfill sustainability standards by the end of 2023. So things are getting really connected, and I'm very convinced that the copper value chain has demonstrated here its responsibility and will make significant steps forward in improving the focus here. Talking now or looking at the last slide, priorities to 2021. I think we touched on all these subjects already in our presentation, Rainer and my presentation. I think priorities are clearly set for 2021. And with this, I would like to thank you for your interest and your attention and hand over back to Angela.

Yes. Thank you, Roland and Rainer. We are now happy to answer your questions. [Operator Instructions]

And the first questions are coming in. The first question is from Mr. Ioannis Masvoulas from Morgan Stanley.

A few questions from my side. The first one on the EBIT -- EBT guidance for 2021, which seems somewhat lower than market expectations. I'm just trying to assess what are some of the key assumptions you have included here. So if I were to take, for example, the midpoint of the guidance, should we expect that scrap RCs and sulfuric acid will be tailwinds or headwinds relative to the past fiscal year? And I'll stop here for the first question, if that's okay.

Thanks, Ioannis. Yes, I think you picked a good point here, but there are a couple of comments here. When we announced this guidance, this is already several weeks ago. And we see some, I would say, tailwinds in the market regarding RCs. But on the other side, markets are volatile. And you know our policy, we tend to, let's say, under promise, over deliver, and therefore, I would put it in perspective. And the range is relatively wide from EUR 210 million to EUR 270 million. So I think we are well positioned. And it's the statement that we make today, if we have the confirmation or if we are confident that markets will consistently improve, we are going to review this and we might revise this going forward. But again, I agree, it's a conservative, cautious approach that we have taken.

Understood. That's very clear. And a couple more questions on Metallo. The first one, I was looking at the throughput rates for fiscal Q4. And they look quite a bit lower than the June run rate. Any reasons for that? And how is November, December shaping up? And then the second question on Metallo. You've talked a lot about the upside to your synergy target. Should we expect you to be able to hit the 15% return target once you fully realize those synergies?

First, your question regarding throughput. Metallo, since June, operated at the plant levels and I have no fact here that counter these statements. It's well performing. It’s contributing to the bottom line. Integration is running well. And I mentioned this amount of projects and integration synergy contributing projects we have identified. So there is absolutely no surprise and no downside to the Metallo acquisition. Regarding your question, our ROCE target, we see -- we stated that the EBITDA of Metallo as a stand-alone has been confirmed after we did the closing. After 6 months now in the integration work, we can state that we see a very good upside to the stated synergy potential of EUR 10 million to EUR 15 million. However, again, we are conservative here. We will show the numbers in our results when they are there. And hence, we will also show what ROCE we are going to achieve there.

The next question comes from Mr. Christian Obst from Baader Bank.

First of all, when you're talking about capital employed, the last capital employed was something about EUR 2.7 billion if I see it right. What is the underlying capital employed you are talking about when you are targeting an ROCE of 8% to 10% for the current business year? Then the next one is a little bit again on the reporting. It's not -- of course, not very transparent with MRP, FRP and others. And looking to others, it came in with minus EUR 93 million this year. Can you give us some kind of an idea, which really triggered that kind of elevated level, especially in Q4, when you reported minus EUR 33 million? And going forward, into your guidance you have for others included between EUR 44 million and EUR 72 million. What brings you to the lower or to the upper end there? And then third one is on free cash flow. So despite a very promising free cash flow in the fourth quarter of approximately EUR 220 million, there is still a very high net working capital of EUR 1.8 billion. So does this relate to the restocking or high stocks in the scrap business? And what is some kind of a normal working capital in the new structure?

Thanks, Mr. Obst. Quite a lot of questions. I'll try to answer them. So first of all, first question was on the capital employed of roughly EUR 2.7 billion. And whether this is going forward also to be considered or more or less. And I think I can answer it more or less together. The fact is that, yes, we have some additional concentrate in our books at the end of the fiscal year. This was due to, let's say, delays in shipments of the corona crisis, which came in, let's say, August, mid-September and continued to be in our books at the end of September. That was 1 effect. The second effect on inventories was that we have, let's say, deliberately stocked up our recycling materials, especially the scraps, copper scrap in Olen, but also in Lünen, because of the very high scrap RCs that we could see in the markets. So yes, I would say the inventories, to a certain extent, are somehow a bit elevated. So therefore, you could expect a reduction throughout the year, I wouldn't say, but towards the end of this fiscal year, at the end of September, pretty much, we expect, if not market turns completely to the wrong side, we expect a reduction here. Amount to be seen, but we are not talking about EUR 0.5 billion here. That's also clear. If we look to the fixed assets, I have repeatedly said that we have invested more than our depreciation. This holds true for the last fiscal year, which also holds true for this fiscal year, which means step-by-step, the fixed assets will be increasing. However, and that is not -- probably not mentioned here yet. We have, of course, through the purchase price allocation of Metallo, of course, stepped up the value of Metallo in our books, and I've mentioned it already, we added about EUR 490 million in total to our balance sheet. And you see that in fixed assets and in the inventories also. And on page, what is it, Page 97 of the annual report, you will have a breakdown in principle on the developments here of the different asset categories. So I hope that answers pretty much the question on where do we go with our capital employed?

Yes. In a certain extent, of course, what I can calculate, but can you give me some kind of a number where you are basing on for the targeted 8% to 10%?

I would rather keep it flat. I would rather keep it flat. I think that would be a good attempt going forward, maybe a bit increase because of the -- so then you asked on the other segment, what was the topics here? And why was it such a negative result of minus EUR 93 million, EUR 94 million even. We had a couple of extraordinary items here in this fiscal year. One part was the costs incurred for consulting in the different transactions that we have done, for instance, the acquisition of Metallo, for sure, consulting expenses, but also for the still ongoing FRP transaction, also consulting expenses. On the other side, we had a revaluation of our energy contract, which, to a large extent, contributed with a negative effect here in the operating EBT for the segment others.

How much was that?

I don't have the figure with me. The point is that we have a market valuation on the part that we are also selling to the market, and that market valuation has turned negatively. So we have a negative book value here for that derivative.

Okay. And what brings you then to the -- when I calculate your guidance with MRP, FRP and group, then the others differs going forward between EUR 44 million and EUR 72 million. So what should bring us to the upper or to the lower end?

Yes. First of all, let me also give more clarity to what is that effect. That onetime effect here is EUR 26 million in the segment others, on the energy part. Yes. Sorry -- and as we have internally discussed, I missed your question, please repeat it again. I'm sorry.

So when I look to the guidance for MRP and FRP and to the group, so the difference is others, and it differs there between EUR 44 million and EUR 72 million. What would bring us to the upper end or to the lower end of that guidance in the current business year?

Well, I can only make a rough guess here. I would say we had one-off effects, and I have mentioned now pretty much all of them in this fiscal year and most probably, they are not recurring in the next fiscal year. So therefore, we should rather see there the guidance to the upper end, upper or lower, however, you look at it, lower, lower.

Of course, one in the region of EUR 40 million, EUR 40 million something? Okay.

I think that's -- if I underline what just Rainer said, that's clearly our expectation. We know the cost in the sector, if there are no extraordinaries, which we haven't envisaged, and we don't see them, then we will be at the number you just mentioned.

Okay. And then the last one I have. Calculating the normalized depreciation is approximately EUR 180 million. You invested approximately EUR 2 million. At EUR 200 million last year, there was some kind of a guidance going forward going towards EUR 240 million in kind of CapEx. What is your expectations for the current business year? What do you like to invest?

Yes. Our investments, we are aiming at EUR 255 million, including, of course, the big standstill in Pirdop this year. And of course, additional investments that we have still with our electrolysis plant in Lünen and the reduction of the diffused emissions here in Hamburg. So that are, let's say, quite big chunks of that, that are the investments. And of course, we have the scheduled shutdowns calendar that you all have in your materials.

Yes. And it includes Metallo.

And of course, Metallo, yes.

The next questioner is Mr. Rochus Brauneiser of Kepler Cheuvreux.

A few questions from my side. The one is concerning the wide range of the guidance. Can you give us a sense conceptually, what are the -- let's say, the 2 main items leading to this high variance? And on the low end of the range, would you bake in the assumption that the TC/RCs for 2021 remaining kind of flattish versus the 2020 terms? That’s the first question.

Yes. Sure. The question is well based, Mr. Brauneiser. The range, I think it's not as large as you stated. I think given the business we are in and the uncertainty of the economy and pandemic, I think it's a range which is even modest. So as there are many influences, and you know, we have many different pillars in our company, regions and markets, it's really -- I wouldn't speculate here what's the one or the other. I think it's taking various aspects into account. And sure, if everything goes to the one side, we will end up of the lower range. If we are a bit more optimistic on certain key elements, it goes to the other range. So please excuse that I will not make a direct reference to one of the elements of our business model here and kind of discuss what leads to a lower or the higher range or a number of this range. And your specific question on TC/RCs. We see, as I stated also, a very good and balanced market in quantity and quality for concentrates in the world. We see improvement. And also now with high LME prices, copper LME prices, there is also a very good incentive for mining companies to produce the maximum in their mines. So therefore, we are optimistic on a good supply situation going forward. And also, as I said, we saw even through the difficult days of the pandemic, we had enough quality -- quantity and quality of concentrates available for our plants, proven or a proof point is the increased throughput of concentrate as we have managed in the last fiscal year.

If you allow, Roland, I would like to add a couple of points, which can give maybe a bit of guidance, at least. As Roland mentioned earlier, we did that budget approach and also that guidance quite a couple of weeks ago. And we did not know how would, especially also the metal prices, continue to develop and they turn out be for the time being, very strong and very bullish. And that is, of course, giving a bit of guidance to the more positive side. But in the moment that we gave that guidance, we couldn't expect and we can't expect still going forward that this high precious metal prices and also the high copper price of $7,700, which we are talking about at the moment, will continue in the months. I think that is also quite an important thing. And also the scrap RCs, plus the product business turn out to be holding for the time being, as we speak, very bullish, very positive.

And again, perhaps repeat what I said to the first question of Ioannis. In case -- we acknowledge that this range has been more to the conservative cautious side, given the pandemic in which we are still, in case we see -- we are confident that numbers will improve, we will also revise our guidance going forward. But given again this pandemic, we are cautious and rather a bit more conservative than we might be in normal days.

Okay. No, I think that makes a lot of sense. Just to clarify, I think if I got you right, so you're not only positive in the -- on the copper concentrate market in terms of availability and supply for your plants, you're also sounding quite positive on the outcome of this benchmark negotiations, even though I think the market is and also, on the other hand, eventually some considerations at the EU level about some restrictions of scrap exports. What are your thoughts at the moment on the direction of the global market and maybe the EU, in particular?

Yes. I think it's a very volatile environment, specifically with the Chinese regulation being announced but not really implemented to some time. But perhaps a couple of comments about the overall global trade flows. When China imposed this ban, we saw immediately significant new processing capacity being installed in Malaysia in Indonesia, in Southeast Asia in general and significant volumes, which went traditionally into China were rerouted into these markets. So overall, the input, if you look at copper content in China, the mix has changed, but the input of total copper into China-sourced from scrap has not changed so fundamentally. So therefore, we see some stable markets. And again, now also with Metallo, we see ourselves as a very competitive player in the scrap recycling market in Europe, offering capabilities to process whatever kind of metal-containing scrap or waste you're offering to our partners. So I think even with this uncertainty of China and regulations there, we are a strong and competent player here in the European industry. What I think, regarding to your point, the European regulation, I think it's important that also in this area, we'll have a level playing field. That we all play according to the same environmental and also economic standards. And that's what we are discussing with policymakers that not for some, let's say, political or whatever reasons in China, certain products are being at let's say, unfair conditions being sourced in Europe with the effect that the circular economy and capacities of the recycling industry in Europe will come under threat. But this is a big discussion that we have also started in the framework of European Raw Materials Alliance, where these concepts of primary production, but also secondary and circular economy, are addressed. It's a complicated topic with all these different waste and scrap streams, but it needs to be addressed, and we are in the midst of this discussion on Berlin and also on a [ profit ] level.

Okay. Overall, would you say that the trends in the high-grade copper scrap market would be similar to the low-grade market? Or are you seeing a divergence in one or the other direction?

So today's view, and also, I'd say, talking for the coming months, they are very, very going in sync. We don't see any significant deviation here from the, let's call it, market dynamics.

Okay. Got it. Then finally on FRP. I think I'm still not sure how to think about this evolution on the evolution of the M&A opportunities you're facing. I think it has been classified as discontinued operations for quite a while. But there was always the disclaimer that negotiations are well advanced. And this is still the case. So can you help us to understand a little bit what is the obstacle in this process? Is it the price? Is it the market at the moment? What is making this transactions difficult?

It's quite astonishing, but it's really, I would say, the mechanics. If you see these -- the plants, the FRP plants are spread in various countries in Europe and also 1 in the U.S. and just to do the normal due diligence visit and discussion and processes with all these travel bans and restrictions is extremely difficult to organize. And even if they have been organized, they had to be canceled. And just clearly, we had cases where visits had to go to [ quarantine ] on both sides, traveling there and traveling back. So we had a lot of, I would say, obstacles in order to run a normal M&A, or I'd say, process here. So therefore, it takes much more time to get this all in place than we originally envisaged. And we always seen that the pandemic came back quite strongly at the beginning of winter. And so therefore, we took the decision that it's more -- it's less likely that we have a signed and sealed SBA agreement before the end of February, which you know according to IFRS 5 is the hard stop in the process. And so therefore, we decided to not, let's say, put too much effort into convincing our auditors in this, but accept that there are some uncertainties due to pandemic, and we will continue and will have a closure of the sales process when it's really finished.

Okay. Maybe another last one. Can you give us an update on situation around this intended joint venture in Korea? I haven't heard anything about that the last few months.

Okay. This is about the nickel, battery-grade nickel processing plant, the joint technology that we have developed with [ Elise ] Nickel. So we have concluded the development work and have developed a very, very attractive technology in order to process the nickel -- the crude nickel sulfate, which is a product of our process already today, to the next quality grade, which is required for battery producers. Given the market dynamics now, as significant investments in battery production is happening in Europe, which was not the case or not envisaged when we started the discussion with [ Elise ] Nickel, we have now, I would say, transformed this project into considering what are we going in Europe. And there is significant demand for this quality of nickel in Europe, and we don't need to pursue an outlet of these materials in Asia going forward. So having said this, we have, let's say, in very friendly terms, concluded the project with [ Elise ] Nickel. We have the technology, and it's part of our strategic discussion how to move this forward in our flow sheet.

Can you give us a time frame until when you give a go ahead for that project?

It's part of our overall strategy review. And it’s now premature to give you a fixed date on this. It's part of the over review of our investment plan.

Next, we have Mr. Bastian Synagowitz of Deutsche Bank.

I have got a couple of questions left. So maybe firstly, on your guidance and -- or maybe more related to your inventories. You obviously had almost a hockey stick type of quarter in the fourth fiscal year quarter. And I guess, it’s mostly been particularly driven by the strong metal gains as one of the key drivers. Is it generally fair to assume that you're still sitting on a large number of extra metal units here in your inventory? I think you've already been stressing that you've been stocking up, obviously on one scrap and also concentrate. But are you also still having a lot of excess metal units in there?

Yes. It's part -- a very important part of our business model, Mr. Synagowitz, that we have free metal components in our inventory. And that's also one part of the change of our operating EBT, so you would see a more linearized effect in our P&L over the quarters now and not that year-end raise anymore. By the way, this happened also not in the last year. Yes, there is still quite an amount of free metal, which is not yet sold and we look at it on a regular basis, on a weekly basis, actually, with the Executive Board and with our group financial meeting, and we will decide on further sales there.

Okay. Then my second question is related to that. So how should we think about your next quarter in the context of your guidance? Will we see a very front-end loaded earnings performance, i.e., Q1 being possibly closer to Q4 levels, which were very strong on an underlying basis already? Or will we rather see like a stronger shortfall in the first quarter and then possibly another very back-end loaded earnings trajectory throughout the quarters, very similar to what we saw in the last past few years?

Yes, I'll try to answer it. In general, we would see a linearized approach. However, we still have our standstill in Pirdop, which will, of course, put a dent into our profitability, which will happen in May, June. I mean there, of course, the quarter will be a bit lower, that's clear, we'll have an EBT effect of EUR 25 million, which needs to be considered -- sorry, I'm wrong -- I'm in the wrong line here, EUR 23 million. But on -- in principle, you will see a linearized approach. So the other quarters should be pretty much flattened out. However, at the end of the year, tendency will be a bit higher as always, but not that high as we have seen it last year.

Okay. Then my very last question just is related also to your ambition in terms of CO2 neutrality, which you really separate and single out in your press release as well, and I think you touched on it in your presentation. So which are basically the technical measures, which you are looking at to become CO2 neutral? And then maybe also, could you already share, and I appreciate if we're at a very early stage, what the CapEx would be to basically implement this? And also what it would mean for your operational costs? So what we're seeing obviously in other sectors, such as steel, obviously, is that we are seeing very high CapEx related to those measures and then OpEx will go up. So I would be very interested to see and hear what you could say at this point.

Yes. No, clearly, we see with the technology that we have available, and we are working on replacing natural gas in the metal processing by hydrogen. So we see really a clear path how to decarbonize our company specifically when we talk about Scope 1 emissions here and as you know, Aurubis has already decarbonized significantly since 2000. And you saw the footprint graph. So we are already today at half the CO2 footprint compared to the global average. So we have done a lot. We know how to move forward. And consistently, we stayed at competitive electricity prices. For green electricity and also for hydrogen, we can accelerate this path going forward. This would mean the melting of copper today in our products portfolio done by natural gas which we replace by electricity and -- which is available technology. And the processing of copper, with natural gas, the reduction of the oxygen level and copper with natural gas would be replaced by using hydrogen instead. Here, we are talking about some significant CapEx numbers. That's correct. I will not give you today a detailed number. Because timing and also what we do when are still very -- let's say, very unclear, again, given the boundary conditions. But we have a clear idea how to move forward. Also important, it will be investments, which are doable for Aurubis. We are not talking about a fundamental complete change of the processing, as you see this in other industry, mainly also talking about the steel industry, where billions of investments are required. So again, we can become carbon neutral based on long-term, reliable supply of green competitive energy. And then we have the very significant area of Scope 2. So the carbon -- the CO2 emissions, which are allocated or coming from the electricity production. Here, it's clearly our interest to move forward with some renewed contracts, which are based on renewable energy and we are in discussion with our energy providers, electricity providers in order to have here, again, competitive pricing for renewable energy electricity going forward.

Okay. And for clarify, just on -- with regards to the CapEx. Is this something which you're also in discussion with the government to possibly get some funding support? Or do you basically aim to do this all pretty much stand-alone?

Yes, we are in discussion here. But again, we are not talking about the magnitude, which is even close to what the steel industry has to invest here as an example. And there are some technology funding. There are some -- but it's relatively minor thing, let’s say, volumes. I think important is the initiative that we see here in Hamburg to come up with a hydrogen network and also -- and with this, the availability of competitive and green produced hydrogen. I think that's much more important in order to switch to hydrogen to get the supply and also the reliable supply of energy because one -- again, one important criteria for us is the reliability supply of the availability of electricity and hydrogen going forward as we are operating 24/7.

There are no more questions in the queue.

[Operator Instructions] If there no further questions -- oh, there's one.

Yes. There is one question coming from Jatinder Goel from Exane BNP Paribas.

Just a couple of questions. First one, looking at Slide 3. You've got 7% higher concentrate processing and 7% higher scrap #2 input, but cathode output has dropped by 4%. Wondering if you could put this into your concentrate grades, scrap grade and also efficiency smelters, if anything was impacted due to your different sourcing of concentrate? That's the first question. If you could help to understand the divergence between input and output, please?

Yes. Sure. As you know, the input mix varies with the copper content, so therefore, there is in concentrates, but also in scrap, there's a variation of tons of copper. And the change in cathode output is mainly due to the reduced production in Olen with the crane incident that we had at the end of the last calendar year, which was in November, December 2019 and took quite a time to completely put this operation back into full production. So really, it's about, let's say, concentrate, scrap mix. And we also use the opportunity then if we see in the total smelter network, that there is less cathode production capacity that we source different type of scraps, different types of concentrate in order to optimize the overall system.

Sure. And related to that, what's your spread versus benchmark TC on 20 -- '20 FY realization versus FY '19 realization? So obviously, underlying benchmark of TCs dropped massively. But in terms of your spread of realization, are you able to give any sense if that was materially different year-on-year?

Yes. I think this question has been asked before. We are not disclosing this business details. I can just assure that we have long-term relationships and long-term contracts, and we are sourcing -- benchmark is the orientation for very clean concentrates. And we are strong focused on more complex, more demanding and different types of concentrate. So we are sourcing clearly above the benchmark, but we are not disclosing the exact difference.

Sure, no worries. Just a last question. On your EUR 11 million adjustment to EBT definition, that would have been negative EUR 2 million in FY '19 based on the annual report. It just adds another layer of uncertainty in terms of how we forecast things. Are you able to provide any building blocks to calculate this difference so that we don't get caught blindsided by these adjustments because it's already a difficult business model.

Yes. Absolutely right. Jatinder. So Rainer Verhoeven here. I have tried to explain what we do exactly. So it is 2 components that we have adjusted here. One component is this lower of cost on test that we now have eliminated. So it's -- if temporarily metal prices on the market for one certain metal drop, we will not adjust the inventory downwards, which is under IFRS obligatory. We don't do that anymore under EBT operator. So it should actually stabilize our business going forward, it's not creating more volatility. We are trying to reduce the volatility from metal prices. The second component is we are using the LIFO method, which means we have pretty much stable inventory prices even if the metal prices are going up in our operative figures. What we now eliminated also is the derivative effects or more derivative effect, the price effect actually from those derivatives that are not yet realized. So we only take things into the income statement under the operating EBT, if they are really realized, and we try to eliminate all this non-realized effects, which come from the metal price volatility. So therefore, going forward, I -- we believe that it should be a better readable business model now also for you guys on the other side.

Okay. That's clear. Hopefully, we'll get some color on just what these adjustments are making an impact into your EBT line at least for the next fiscal year, and then we can probably get better clarity about it.

Mr. Christian Obst of Baader Bank has one more question.

You mentioned your strategic review CapEx or investment review, can you give us a time frame for that when we can hear more details concerning that kind of strategic review?

Yes. Thank you, Mr. Obst. So what we have in the phase that we have -- we are closing to finalize end of this year is a complete review of the pack, if I like. So we have reviewed the whole markets of, let's say, concentrate, mining developed segments and scrap markets. And [Audio Gap] for your questions and also your interest in Aurubis. And finally, as we're heading towards the Christmas vacation, I wish you some wonderful weeks of it this year, very different without any Christmas market and the things we love to do during this period. I wish you a Merry Christmas with your family, a good start in 2021, and please stay healthy. Goodbye.

Goodbye.