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 Second Quarter Results 2022. [Operator Instructions] Let me now turn the floor over to your host Elke Brinkmann.

Welcome also from my side. Joining me on this call, are our CEO, Roland Harings; our CFO, Rainer Verhoeven, and my colleagues from Investor Relations. Roland Harings and Rainer Verhoeven will give an overview of the half year results and current developments at Aurubis in a moment. Afterwards, we will start with the Q&A. [Operator Instructions] And with that, I turn over to Roland Harings.

Okay. Thanks Elke. Also from my side, warm welcome to this afternoon, and thanks for participating in our half-year call this afternoon. We closed over the second quarter successfully. As already announced in the ad hoc release on April 21st, we were in a position again to raise our forecast corridor for the fiscal year. We now expect to achieve an EBT between EUR 500 million and EUR 600 million. The good operating performance of our smelter network, a very good supply of input materials and a very high stable demand for our products, in combination with metal prices -- with high metal prices are the basis for this. Operating EBT for the first 6 months of EUR 345 million and the ROCE of 19% speak for themselves, we had a very strong quarter in the first half year. However, we feel the pressure of rising energy costs. At present, we are still very successful in compensating for these, and of course we underline that our upwards adjusted forecast is based on a secure gas supply, especially for our German sites, but we will come to this in more detail in a moment. On the next slide, you can see the quick overview of our key year-to-date operating figures. Revenues increased significantly by 23%, driven by significantly higher copper and industrial metal prices. Higher sales of copper products and higher sulfuric acid revenues. Gross profit increased by 22% due to very strong market conditions and an outstanding performance. Over here we will come to more details in the course of this presentation. Despite higher especially energy costs, we achieved an 86% increase in our operating EBT overall compared to last year and our ROCE of 19.5% well exceeds our target figure. Coming to the next slide and a bit more deep dive into the market conditions. The copper price continued its upward trends from Q1, '21-'22 and averaged around the level of $10,000 well above Q2 of the past fiscal year. The other industrial metals, especially nickel and tin, developed very positively over the past quarter. Just some brief comments about the concentrate models. Our smelter network was fully supplied during Q2 '21-'22 with concentrates and we did see a stable supply from the mining side. Since the newly set benchmark for clean concentrates in December '21 at $65 per ton and $0.065 per pound, spot market conditions have seen a slow and steady improvement of treatment and refining charges during the reporting period. This trend is also underpinned by the newly set buying floor by the Chinese smelters purchase teams at $80 per ton and $0.08 per pound for Q2 of this calendar year. The non-benchmark increase is well supported by expectations of strong mine output over the course of this calendar year. The latest update by Wood MacKenzie confirms the expectation that additional mine output will outpace anticipated growth of smelter demand during this calendar year. Aurubis is well supplied with concentrates beyond of the current quarter and in line with our long-term sourcing strategy for materials -- for input materials. Talking now about recycling markets. Over the course of the first half year, of this fiscal year, we saw a stable supply and availability of copper scrap, blister copper, and other complex recycling materials on a global -- on our global sourcing markets. In the first half of the fiscal year, we benefited from strong RCs for complex recycling materials and also from satisfying RCs for copper scrap for smelting. The availability of copper scrap number 2 during Q2 was stable compared to Q1, but below the previous year's availability. Consequently, RCs remained stable during Q2, and I'll reference as you know CRU estimates the average RC of scrap number 2 at around EUR 278 per ton in Europe. The availability of complex recycling materials remained stable during the first half of the fiscal year with RCs above levels of the last year. Looking forward, our production sites are already supplied with material into Q4 of fiscal one of the current fiscal year. Some statements regarding sulfuric acids. The sulfuric acid markets remained tight during the reporting period. Similar market dynamics as in Q1, led to a stable price momentum during Q2. A strong ongoing demand, again met by reduced temporary supply, helped to sustain this good price level. The strong market performance, coincident with a very good throughput and strong asset production on our both sites Hamburg and in Pirdop. Additional capacities could be sold at very favorable spot market terms. ICIS reported new Q1 in H1 contracts for Northwest Europe at around EUR 135 to EUR 175 per ton. Global markets remained tight during the first half of our fiscal year. Coming to the ACP, our copper premium for the calendar year 2022, was set at $123 per ton. We presented this already in our Q1 call. Current spot premium levels in Europe and Asia developed in opposite directions, whilst Europe premiums developed strongly upwards on the back of low inventory levels and strong demand, Asian premiums declined on the back of new COVID variants in China. And last but on least talking about the U.S. dollar, Aurubis as you know has a long position of approximately $500 million in the fiscal year. With the scope of our -- within the scope of our hedging strategy, we have hedged 70% for the current fiscal year at EUR 1.147, and around 70% at a rate of EUR 1.134 for the coming fiscal year '22-'23. Coming to now the next slide, which is new in our pack, which you have not seen before, we want to provide with this overview, a new datapoint and also more transparency has been often requested by you in our main income components on the Group and also on a segment level. What we show here, the gross margin represents Aurubis income component and does not include paid metals. The figure is composed of metal gains, income for treatment and refining charges, as well as premiums and products, including sulfuric acids. In contrast to the legal gross profits, the gross margin only includes metal-related material expenses. Additional income and cost components like energy consumables are not considered. I'm sure we will have some discussion and some question regarding this new view, and we're happy to share and hope you are positive about this additional transparency that we have provided, with this new view. Coming to the next slide, energy costs, a very important topic, I'm sure for all industries, especially energy-intensive industry. The cost inflation remains very broadly discussed in all sectors and businesses. Although Aurubis faces inflation costs, mainly from price peaks on the energy markets. Also, if you see on the slides, the energy costs have risen, they account now for 17% of our total cost. In the brackets, you see last year it was 11%. All other cost components at Group level stayed relatively stable, in comparison to previous year's figures. Measures from our cost saving program PIP continue to positively contribute to the bottom line. We maintain our outlook for the current fiscal year and expect cumulative cost savings of about EUR 90 million arising from the program. The very positive developments on the earnings drivers markets combined with a good operating performance could more than compensate for the energy cost inflation we were facing during the first half of fiscal year '21-'22. Having shown -- now the next slide, I think you -- this one, yes. Thanks. Having shown the overall cost situation, now let's have a more detailed look into the energy cost of the Aurubis Group. In the first half of the fiscal year, we faced energy cost inflation, year-over-year, made worse by the war in the Ukraine. The trend from Q1 continued into Q2 for electricity and natural gas prices. Following our new reporting format, with more details of the energy costs on a Group level, we continue to show the compensated energy costs to the capital markets. Just as a reminder, deductions arise from indirect CO2 electricity compensation and state refunds, which are included in the overview. Looking forward, we will introduce different projects and measures to continue, to reduce our overall carbon footprint across the value chain. For our German production site as one example, we will optimize our electricity sourcing portfolio. We will decarbonize roughly 30% of our electricity consumption per year from calendar year 2022 onwards, and switch to renewable energy sources. We will also continue to work on the expansion of our own PV plants, the PV plant capacities in Bulgaria. This will help with our goal to reduce -- sorry, to produce 20% of our electricity consumption from self-produced renewable energy sources in Bulgaria. Yet again, overall energy costs and secure supply of all energy sources remain very relevant topics for Aurubis. We will give more details of, later in the presentation. With this, I would like to hand over to Rainer Verhoeven.

Thanks a lot, Roland and good afternoon, ladies and gentlemen, also from my side. Looking to the financials they continue to be very strong. Our ROCE improved to 19.5% as a result of very good earnings situation in both segments, with a slightly reduced capital employed year-over-year. At EUR 50 million, the net cash flow was lower than in the previous year, mainly due to the inventory build-up for the maintenance shutdown in Hamburg in May-June, which just started. Stock buildup, always takes place before the major planned shutdowns, because we want to fully utilize the capacity of our tank houses for the subsequent process steps. In addition, we increased stocks and finished goods to be able to supply our customers additional demand during the standstills of our rod line in the upcoming months. We expect the net cash flow between EUR 400 million to EUR 500 million at the end of this fiscal year. Let's move on to the segments. Let me highlight some financials and production figures from the MMR segment, Multi-Metal Recycling. The operating EBT was at EUR 148 million, 51% above the previous year's figures. The strong results came from higher metal gains, based on strong metal prices, especially for the industrial metals like copper, tin and nickel, and significantly higher refining charges for other recycling materials. The RCs for scrap number 2 normalized year-on-year at lower, but still acceptable level. The consumption of other recycling materials and the cathode production increased, due to the good operational performance of all our plants. Only the input of copper scrap and blister copper was reduced, due to the planned shutdown in Lunen and temporarily reduced availability in Q1. As a result of the good earnings performance, ROCE improved to 45.6% compared to 16.8% in the previous year. Please also bear in mind that the capital employed on the MMR segment was reduced by more than EUR 180 million here. The gross margin split on the right hand side for the MMR segment illustrates the development of the main income components. We will have a look at the CSP segment, the operating EBT increased significantly by 92% to EUR 229 million in the CSP segment as well. Significantly, higher metal gains, combined with higher metal prices for industrial metals, higher sulfuric acid revenues and the strong demand for copper products, had a positive impact on the results of CSP. The ongoing strong performance of our smelters in Hamburg and Pirdop led to higher concentrate throughputs and higher sulfuric acid production as a result. On the product side, ROCE demand was stable at a very high level and shapes production rose 26% compared to the previous year. On the flat rolled side, we were still impacted from the flooding in the first half year. However, we are ramping up Stolberg continuously, and expect that by the end of June, we should be back on plan. Operating ROCE was at 12.7% at the end of Q2. The capital employed was increased by EUR 130 million here. High energy prices had a negative impact in both segments as already explained earlier. Let's move on to the outlook for our earnings slide, starting with the concentrate market. The concentrate market remains on a growth track, both from the supply and demand side. Both CRU and WoodMac expect global mine production volumes to be outpaced with the gross demand of the smelters. WoodMac make expects global mine production to increase in calendar year '22, by around 7%, while additional smelting capacity is expected to be only 2%. In summary, WoodMac expects a well balanced global customer smelter concentrate market. Aurubis was able to fully supply its production plants with clean concentrate throughout the first half of '21-'22 and based on our expected stock levels, all smelters are already well supplied beyond the end of this quarter. Let's have a look at the scrap RCs. Our core markets of Europe and the U.S. have seen the dip in availability during the first quarter of the fiscal year '21-'22. The availability of input materials for copper scrap for smelting improved during Q2, and we expect a sufficient supply with RCs on good levels for the rest of the fiscal year. CRU estimated an average of around EUR 275 per ton, and an operating ROCE of 17% to 21%, it was previously 15% to 19%. We updated the forecast range for the Multi-Metal Recycling segment accordingly. We expect an operating EBT between EUR 200 million and EUR 260 million. Previously it was EUR 190 million to EUR 250 million and an operating ROCE between 23% and 27%, previously 22% and 26% For the Custom Smelting & Products segment, we now expect an operating EBT between EUR 350 million and EUR 410 million, up from EUR 280 million to EUR 340 million, and an operating ROCE between 17% and 21%, which was prior 14% and 18%. With this, I'd like to hand back to Roland.

Thanks Rainer. Next slide please. So due to the Ukraine war and its implication and the effects on business, we implemented an active crisis management at Board and management level at day 1 when this -- really this war started. But first and foremost, it's important that Aurubis has a very low exposure to Russian and Ukrainian business partners. To put it in perspective, it's less than 0.1%, I repeat 0.1% of our revenue that we generated with Russian and Ukraine companies. Nevertheless Aurubis is also affected by the war. Since the start of the conflict, we managed to keep all smelting facility supplied with input materials, be it concentrate or recycling materials. Specifically challenged was our smelter in Pirdop, and as we didn't know about the development in the Black Sea, we investigated and build up alternative logistic routes, in case navigation through the Bosporus or the Black Sea becomes impossible. Ports in Greece or in other Mediterranean cities, should however have appropriate unloading capacities and capabilities. But important to mention is also, then in addition to these backup routes established, we sourced 30% to 40% of the build-up concentrates, regionally from Southeastern Europe, which is not affected by transport routes overseas. In a moment and I want to stress that this was raised, we see a stable supply and material supply also by our port facilities in Burgas, from the different mining companies around the world and at this point, we don't see any limitations or even cancellations. So we have the back up, but at the moment, the normal supply chain works well. Looking into the energy supply, our production sites continue to rely on a stable and steady energy supply for scrap number 2, during the reporting period. First positive momentum shown here in April 2022, which is still far away from the extremely high levels of last year but also well above the long-term average. The availability of complex recycling materials like shredder materials, PCBs, residues, slags and ashes was more stable than the availability of scrap number 2. Accordingly RCs for complex recycling stayed at beneficial levels for Aurubis. We foresee a stable market with good RCs, as these volumes rather follow long-term agreements. Our production plans are well supplied with recycling materials at good refining charges beyond the end of this quarter. Let's move to the sulfuric acid; ICIS and CRU expect an ongoing tight supply of sulfuric acids for the remainder of this fiscal year '21-'22, for Northwest Europe, due to planned shutdowns among other reasons. Other markets like the U.S. and North Africa have similar market estimations. Given the subdued supply and current high demand, we foresee a continuation of the positive earnings contribution for the remainder of this fiscal year. As mentioned before, the copper-premium for calendar year 2022 has been set at $123 per ton, reflecting the ongoing strong demand for refined copper, with a tight market expectation. Coming to our copper products, rod shapes and FRP. We see the strong market demand trend from Q1, continue in Q2 and expect ongoing positive contributions from the product business. We saw strong demand from all customer segments during Q2, with the trend expected to continue for the rest of the fiscal year '21-'22. Product demand for rods, our main outlet for the copper cathode and shapes remain at high levels, being close to sold-out. The flat-rolled business is in a similar market situation. We expect to reach full production at our Stolberg site in 1 or 2 months, from today. With a very positive momentum from the markets combined with an ongoing good operating performance, our preliminary figures for Q2 came in with a record result and we informed the capital markets on April 21st, 2022 about the increase in our forecast range for this fiscal year. Based on the renewed assumptions, we now expect an operating EBT between EUR 500 million and EUR 600 million, up from EUR 400 million to EUR 500 million last year - the last forecast, sorry of electricity and natural gas. In the first half of our fiscal year, all of our productions rights continue to be fully supplied with energy. It is holding of gas deliveries to Germany from Russia which has different impacts on our smelter sites, that are difficult to foresee. We need to distinguish the 2 German smelters in Hamburg and Lunen, are relying partly, as all companies in Germany on Russian gas deliveries, due to the sourcing from the German companies. Other sites like in Belgium or in Bulgaria are not or very limited dependent on supplies from Russian gas pipeline network. However, the current energy crisis underpins and underlines the high demand for metals, required for the energy transformation. Currently, we continue to benefit from the high demand and from the intensive decarbonization and the move away from fossil energy activities, which leads to high demand for our products, hence our metals. Despite this crisis and war situation, we have continued and have not slowed down our activities on sustainability. We have received already some initial rating results for '22, which confirm our very strong position. We were able to improve our already good position in Sustainalytics rating. We remain a strong performance range year. Hence we made good progress in the last quarter regarding our announced Copper Mark certification of our 2 smelter sites in Hamburg and Lunen, and we expect the confirmation of the certificate by June/July of this year. Talking about investments, last time we talked about the investment in the U.S., and I'll give a short update later. But, here is a new announcement or decision we have taken on February 16, to set up and build, BOB which is the acronym of a bleed treatment facility, Olen Beerse, with a clear aim to increase our nickel capabilities. The process is integrated into our process to extract impurities from electrolyte of bleed and optimize material streams of nickel and copper. This project and you see in the right side the pictures, a bit difficult to spot. This is one area of a tank-house, where bleed, the electrolyte, has been collected. But looking at the total project, it's a very good and prime example of how Aurubis realizes synergies in the smelter network after the integration of the Metallo sites Beerse and Berango to further materialize all valuable metals from our complex input material streams. To give you some KPIs about the projects, some facts and figures, BOB will recover valuable metals such as nickel and copper contained in electrolyte streams, that are generated in the tank houses of the metal production at the Aurubis sites in Beerse and Olen, both located and close by in Belgium. The new facility will be able to deal with around 80,000 tons of input materials, that means bleed electrolyte being processed in this facility. With an investment of EUR 70 million in this site, we expect to generate an additional contribution of about EUR 50 million by full production in the fiscal year '25-'26. The corresponding financing of the investment will come from the operating cash flow of the company. One other element of our recycling strategy, an important one, is the start of the under commissioning of the new pilot plant at the Hamburg site, after we have successfully concluded extensive lab scale tests on the hydrometallurgy process, to treat black mass from used batteries. Our main expertise is in extracting all metals from black mass on a large industrial scale at optimized costs. We benefit here greatly from our integrated smelter network, as single individual process steps are carried out at the ideal location. As you can see on the picture, the pilot plant has a modular structure and will extract in various steps, all valuable metals such as lithium, nickel, cobalt, manganese and graphite from the black mass with very high yields. This is an important step and we will report about the results in probably in our next quarterly call in August. Thanks. Next slide talking about U.S., I would like to close today's Q2 earnings call, with an update on our new smelting site enrichment in Georgia, United States. Our project continues to progress both in budget and in time and over the course of the last quarter, additional contracts for the construction of the plant were signed. Pending regulatory approvals have been or some of the approvals have already been obtained. And we have started with the recruitment of our staff for the plant in Georgia. Groundbreaking will take place on June 17, and we can confirm our plan to start production in the beginning of the calendar year '24. With this I would like to close my statements and hand over for Q&A and management of those to Elke.

Thank you, Roland. And yes, we will start now with the Q&A and I will ask the operator to take over and follow-up with the questions.

[Operator Instructions] The first questioner is Mr. Ioannis Masvoulas of Morgan Stanley.

Few questions from my side the first, is around the Custom Smelting & Products division, you managed to achieve a pretty big uplift in EBT in fiscal Q2 versus fiscal Q1 Could you perhaps provide a rough bridge around the key moving parts, especially acid price, metal price gains and products? Just to get a better sense on the run rate for the second half?

Yes, Ioannis, Roland speaking here. As you know, we are not disclosing this level of detail. We are giving reference point. And clearly, sulfuric acid has been a major contributor giving very strong supply. You've seen our production was at record levels and the markets are also, I'd say allowed a very good pricing of this product. I would like to refer you to our split of Custom Smelting and the breakdown of the income components and you see that the total income that we show here, the gross margin increased compared to last year same period from EUR 647 million to EUR 769 million, and metal gains were more or less the same and the improvement came from premium end products. Here, it's important to underline this is also the capital premium, where significant contribution is included here, strong product sales and also the sale of our core products. We provide not more detail than this at this point. And -- but I think the main drivers are quite obvious if you also look at this Slide #10 on the left side and you look at the volume level. I think you can also derive some of these numbers from there.

And maybe just a follow-up. Looking at the revised EBT range for the year, the low-end suggests a very significant decline in earnings in the second half of the fiscal year. Is this a realistic scenario or shall we be aiming for the higher end of the range, especially given your track record of guiding relatively conservatively?

No. Thanks for the last comment, Ioannis on this conservative guidance. Yes, that's our policy. You have to take into account that we have a major standstill in Hamburg, as we speak. So, that means, we stated that this has a EUR 20 million EBT effect -- EUR 28 million which is happening as we speak. So, this will be accounted in the current quarter. We are here conservative and again I want to underline the uncertainty in these markets, although now by supply chains disruption we all see what's happening in China regarding transport. So yes, we are cautious here. However, there is the risk that our customers, our -- the producers who use our copper products that they will be faced by disruption of their supply chain. So therefore, we are, let's say optimistic about Aurubis but we are bit let's say cautious of what's happening in the market demand from our customers going forward.

And last question from me on the power decarbonization strategy. I believe you mentioned around a 50% reduction per annum in the coming years on your mix. Can you provide a bit more clarity on the moving parts there and potentially also a comment around your long-term electricity contract in Germany? Have you been able to renegotiate any of the terms? So, shall we assume that this remains as is for now at least?

Yes, Ioannis, I would refer to Slide #7 where we show also CO2 emissions. So, if you look at Scope 1 and 2, we have about 1.6 million in the last calendar year. So that's '21, still preliminary numbers, but not yet audited, but this is very, very close to reality, certainly. So, if you look at our statement with the Science Based Target initiative, we committed to reduction of 50% by the year 2030. We have already done significant reduction in CO2 emissions. And we announced last year -- no, end of this year -- last calendar year, we announced the successful trials of using hydrogen in metal production. This is just one example of how we are progressing and decarbonizing our production, and you also saw that we announced the procurement of blue ammonia as another source of CO2 free or nearly free energy to our smelter network. So, we are moving on many different aspects to decarbonize our Scope 1 emissions, which are already just 500,000 and 600,000 compared to the 1.6 million, and we are continuing to discuss with the electricity providers, based on the frame contract that we have with Vattenfall, which is there to last. But we have opened this contract now, so that we can source from renewable energies, so that we can have clear supply from renewable energy fields offshore, onshore and also PV plants into our demand. So, we can switch more and more. In Germany, we did already 30% for the current calendar year and the years to come. And we continue if there are attractive projects where we see a solid and I'd say also cost-effective supply of renewable energy, we are going to transfer these contracts forward. So here, we are certainly able to move to clean energy over time. And what I mentioned also today in the call is the energy production, own electricity production in Bulgaria where we have just started last year our first PV plant and we are working on next project to increase our in-house production of electricity. So, I can confirm that we are on track, I would say even accelerated on track to achieve our 50% reduction target, which we stated by the Science Based initiative.

Next we have Mr. Bastian Synagowitz of Deutsche Bank.

I have another question on the outlook statement as well. If we read your outlook statement, it says that you hedged large parts of your metal gains, which means that you should have pretty good visibility on that part of your P&L in the second half. Could you please give us some sense on how the numbers here look like? What you're looking for in the second half versus the first half? And I guess the principles of volumes behind the number maybe a little bit lower given the standstill. But maybe you've built a bit of inventory which you could realize in the second half. So, just curious whether you could open that up a little bit? That is my first question.

Yes, hello Bastian. Good question. Yes, we have hedged certain amounts of different metals also depending on liquidity on the market, also for the second half of our fiscal year and also beyond the end of this current fiscal year. We are not providing here the details but you rightly pointed that we are, let's say for some metals very positive market conditions, which we are going to benefit. So, our exposure to low metal prices specifically in the second half of this fiscal year is limited. So, we will have from the metal gain side, which you also saw in our new slide, we will have a continued strong contribution also in the second half.

So basically, here the message is, it's going to be more continuation rather than deceleration in terms of profit contribution despite this smelter maintenance which you're facing?

You're correct.

Yes, absolutely. Maybe let me add here. Please bear in mind that we have piled up huge amounts of anodes now for the standstill. So, we will continue to consume those anodes during this standstill to reduce the net working capital and with that of course, we would bring out the metal towards the end in a continuous way, so there is no disruption on that stream.

Then my second question is on energy costs, which obviously highlighting here as a risk, but I think so far you've been managing the situation quite well with both pricing and hedging. Is there a time when you will run into a larger hedge rollover, which could cause a bit of a step change in energy costs? And if so, would this be more fiscal year-end, would it be more calendar year-end or maybe not at all? Is this more like a floating process or is that maybe like a step change date, is my question?

No, it's more floating process but clearly there is no step, there is no cliff where we are going to fall off. However, there are derivatives longer term but also short-term, although different in the different countries, although what is available on the market there. So, there will be, let's say, a credible move to a different price levels by country but step by step, not in one step. One point is also again important to stress, we are eligible for CO2 cost compensation. So again, if you look at energy and electricity prices, this will be always paid with a 2 years delay. So, that means high CO2 prices of this calendar year are not yet visible in our P&L, compensation will only come 2 years later. So, there is a bit of a rollover effect, which also will compensate the electricity costs, which are also very high due to high CO2 prices. This will be seen later.

Yes, and also maybe I can add here. In the other income, you have seen quite an increase there and one component was for instance in energy price compensation in Bulgaria, which we received in the current fiscal year and continued to receive there on a, let's say regular basis.

Next we have Jatinder Goel of BNP Exane.

Question on your indication towards conservative guidance and also looking at the market moves over the last couple of weeks. You said you locked in good part of your metal gains for this year, but just trying to look beyond current fiscal year. I know you will provide formal guidance in December. Consensus is sitting just shy of EUR 400 million EBT for next fiscal year, which is about a third lower than the top end of your current year's guidance range. Where would you think if you were to do entire mark-to-market of today's pricing and terms that your annualized EBT run rate would look like or would you think consensus being overly conservative for next year versus the earnings power you've got for this fiscal year?

Yes, thanks, Jatinder for your question. As we discussed now since COVID started, we are in the kind of very uncertain days and a lot of volatility in the markets. I think some fundamentals will remain. The decarbonization, electrification and the demand for the metals that we produce will be strong. Although, the demand to -- for circular economy for recycling will be strong and will increase. So, here I'm absolutely confident that our business model will even be more, more powerful, more convincing in the years to come. However, there are some major earnings drivers as we disclosed here, which are very difficult to predict and therefore, at this point in time, we are not going to comment on the outlook. Please be patient when we reached at the point in time in December, then we will provide the outlook which is then -- with much more substance than what we could do today.

And just on these earnings composition. Thank you very much for providing this additional disclosure. And we see 2 periods, 1, just compared to last year's composition. In the recycling side, there is only, there is only 8 percentage points gap year-on-year in -- the maximum gap in allocation and on the smelting side, it's only 4 percentage points, I think the maximum you see on premium products. So, the question is how volatile are these compositions over time? Because we only see 2 periods, but you have got a longer history built into your own model. So, just trying to understand how volatile these earnings compositions can be over time, maybe just on annual basis if interim is too volatile?

I think, yes, a good point. I think the overall split and you see also with the year that we are comparing last 6 months of the previous year and now 6 months of the current year, you see that the moves are relatively limited between the percentage. So, I think our business model has these strong earnings pillars, which are all contributing and you see -- it's good to see it's nearly 1/3, every year of these components is contributing by around 1/3 plus or minus. And if we look at the historical data, this is confirmed, and we also believe that going forward this is kind of the business model of Aurubis. But if you look at the absolute numbers, we are talking here for 6 months about EUR 1.1 billion, 1% or 2% or 3%. This is already making a difference. So therefore, but 1/3, 1/3, 1/3 is a good assumption for the history and for the future.

Maybe one last question on acid. How far out do your contracts go into the future? And is there any inclination to change some contract structure to get stronger participation in spot market if you believe in stronger for longer acid prices?

Yes. No, our policy regarding selling of acid, sulfuric acid has not changed. Where we could lock in longer-term contracts, which is mainly for the Hamburg side, we did in the past and we do today at better terms. And in Pirdop, we have a higher share of spot yields given the markets we are serving. But the overall ratio of long-term to spot has not changed, which I think we stated around 80% long-term, 20% spot. That's the number that we have not fundamentally changed.

And then maybe to add on the long-term side, of course there is price escalation clauses in and so forth. So, this is sometimes multi-year contracts, which have an indicator and it's after price indicator.

And we have one more questioner. It's Mr. Christian Obst of Baader Bank.

I have just one question concerning personnel cost, that's approximately was more than 1/3 of total costs. And the 6-month's number in personnel costs is below the previous year. So this is, has to do something with, as it held-for-sale, I would suppose. So, what is the underlying increase in personnel costs there? What do you plan for an increase? So more people, maybe the wage increase? And do you have any kind of or experienced any kind of -- to get experienced and qualified personnel and do you have any kind of problems there?

Yes, Christian, thanks. We had -- last year, we paid a corona bonus, which was an additional spend, which is not being paid this year. This has an influence. And secondly, we see also this - especially this fiscal year, the effect of our PIP, our reduction program, which we announced in more details. I don't want to go into this again, and we see this clearly in the numbers here. Regarding wage increase, your second part of your question, we are now in an inflationary environment and in some countries like in Belgium or Bulgaria, there are even some automatic adjustment conditions, so where wages are being increased. Fortunately, in Germany, the union, GBCA has been very, I would say, cautious given that's companies are under significant pressure by rising costs on energy and other inflationary elements and it has been only concluded a one-time payment to the employees, but not the structural, I would say permanent increase of the salary level. So, this is something which is good. It give some relief for the time being. And on your last question regarding talent and find the right people for our company, we are pretty successful in attracting talent although given our attractive business model and the big topic of purpose people see that we are a very important element and the sustainability in the ESG topic. And we have to be quite active and you see this on our websites and on the conference, but the good news is with the up -- with our strategy, we decided to increase and build up a central engineering office and we are on-track to achieve the recruiting with very good people and experienced people, the young people as we do in the other areas of the company. So today, I think we are in a good position to get the right people on board in our company.

We have received a couple of more questions. The next in the line is Mr. Rochus Brauneiser of Kepler Cheuvreux.

I have a follow-up to a previous question on the gross profit bridge versus Q1. Maybe we can discuss that a bit more on a high level for the whole group. So, when I look at things, the impressive improvement of your gross profit is maybe partially explained by an unchanged high sulfuric acid price, lower RCs for scrap and then you have probably some better spot TC/RCs. But it looks very impressive how you improve. So eventually, you can provide a little bit of more color. And in this context, is it possible to get your new breakdown with the metal gains on Q1 versus Q2 basis?

Sorry, we were still on mute. Now, regarding your question -- Roland speaking here. I think what you have also to take into account is the metal premium, our ACP, which is here for the second quarter and also metal gains volume a strong production in our smelter network, these also let's say more metal output and hence metal throughput and hence metal gains. And you have seen also the treatment charges. We are still, let's say, in comparison to the year before TC/RCs, the benchmark went down compared to the same period. Now, we are in the period where the higher benchmark, which is now at 65 -- 6.5 is going to fully kick in the current quarter. So, I think this change will also be a different one or this number will be a different one going forward. But products, strong demand for products, ACP, sulfuric acid, these are -- plus metal gains, these are the main drivers plus very strong operational performance, which increase overall the total number of our gross margin.

Maybe on sulfuric acid, can you give us a sense how the freight costs have developed for that business in Europe and overseas? I think overseas is of course higher. So, what kind cost assumption shall we take to deduct from the market price for sulfuric acid?

So, that's again a very specific question here. I'm just looking here to find, if I can give you some real numbers in our documents. The freight rate from Europe to Brazil was at USD 38 to USD 43 per tonne and Europe to the US Gulf region at USD 33 to USD 40 per tonne. That's the number which I could find here on the, let's say on the spot. But Rochus, this is a very specific question, perhaps you can talk to Elke or to Ferdinand for more details. I don't have the number here at my fingertips.

Okay. No worries. I will follow up later. Maybe on your battery process, I think you already mentioned a few points here. Can you give us a rough sense how much time you think is needed to get this process ready for the commercial ramp up? And what would you see based on your long years and long time experience in metallurgy, what are you seeing as the specific obstacles of this compared to what you do already today?

Yes. So, we have started the pilot plant after the intensive lab-scale trials, in March this calendar year, and the first, let's say optimization around in running this pilot plant will take us into end of June-July in order to verify our I'd say the hydro metallurgy that we have developed. Important is our objective is always to handle very complex and also mixing input materials. So therefore, it's not just the one product mass composition that we are testing there and running. But we are going also in a wider range of different qualities. You know that the battery market is still, let's say, there are many different, different variations of batteries which are produced. So, we want to be as broad and as capable to treat any battery material, which comes back at end of life or from the processing plant. So in July, we will have more clarity about the process. In parallel, we are designing the industrial scale asset so the work has started there with the feasibility study and our aim is to install industrial scale unit to treat black mass by -- in 2 to 3 years' time. That's our objective going forward. So, nothing decided, also clear, nothing decided at this point, but the initial information, the results we saw from our pilot plant has confirmed the very good lab results that we have seen. So for this, we are on track, but decision to any major investment have not been taken and will not be taken during this calendar year probably.

Just conceptually, I think you've mentioned it before, I would expect that for every each and every metal, which will be found in the battery need a separate process step to extract those metals. How much of those processes would you already cover in your extensive smelter network? And is it just the question of, you know, the lithium and the cobalt you need to set up a new process step, or is it kind of refreshing a lot more and finding new step up and cost effective extraction technologies?

Yes, it's a valid question. I think it would be a bit too premature to say -- difficult to answer this very specific question that you posed here at this point in time. I would like to ask for your patience that we present our process and the results and what it really mean regarding integration into our smelter network with more documents with more information, because it's a complex process. It's linked to our network and it's largely hydro-metallurgy some very innovative process, which we don't have today in the company, but also some process which we are running, which we are very familiar with. So, it's a combination of the technologies and the innovation that we have in our company. But at this point, I think it would be not enough substance, not enough documents available to share this in more detail with you.

And then finally on BOP, you're flagging that as a new potential to extract metals from your residue streams. How should we think about the residues from other tank houses? I guess, those are not -- those bleed streams or bleed volumes are not recovered at the moment. Would that mean that BOP is growing? Or would you set up some BOP like plants in other parts of your network like in Hamburg or Lunen?

Clearly, that's a misunderstanding, Rochus. We have these bleed treatment capabilities in our large plants in Hamburg, in Lunen, in Pirdop. And Olen is for let's say historical acquisition reason a bit of an exception as we have no in-house bleed treatment. That's what we are building now. And we are enhancing this bleed treatment by specific capacities and capabilities to extract also specifically nickel from the bleed, from the electrolyte stream from the bleed, which then with the additional capacity allows us also to improve our input mix. So, take more nickel units from the recycling side into our network and extract this locally in this case at the Olen site. The other plants are already fully capable. But also there we are expanding certain multimetal which is part of our strategy, multimetal capabilities, one of them is nickel.

And we have one more follow-up question from Mr. Ioannis Masvoulas.

Yes, thanks for taking the follow-ups. Just 2 questions left from my side. The first around the overall growth plans. So, you just mentioned about the recycling plant that we could see some investment there over the next 2 to 3 years. On top of it, there is Richmond plant and some other initiatives. Is there a ceiling on how much you're comfortable spending each year over the next 3 to 5 years?

Yes, Ioannis, good point. I could refer to our presentation in the Capital Market Day, where we have shown what we have planned. But if you look at our balance sheet and our financial strength and how much let's say financial headroom we still have, clearly the financials for investments, organic investments is not a limiting factor in Aurubis. It's really our ability to manage these significant amount of CapEx projects in the various regions. So, financials is not a limiting factor, it's really the number of project we could run simultaneously.

And maybe just on this topic. Regarding the Richmond plant you've done quite a bit of de-risking around the project already. But one question I had was around effects because we have seen the dollar strengthening relative to the euro. Have you also hedged the FX exposure there? Is there anything you can comment?

Yes. Ioannis, Rainer here. Hello. Thanks for the question. We have a natural hedge in place actually, because we have a dollar long position. So, we have this dollars available going forward to finance the CapEx in the U.S. and parts of the CapEx is also paid in euros here as well, but those dollars that we need to finance the project are hedged via a natural hedge.

There are no further questions in the queue.

Yes, thank you. And that brings us to the end of our quarterly call. It remains for me only to refer to our next call for the release of the 9-month figures on August 5, and to thank you for your attention and interest. Have a good day.