Aurubis AG
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Good afternoon, ladies and gentlemen, and welcome to the Aurubis AG Conference Call on the occasion of the publication of the interim report for the first 3 months 2020/'21. [Operator Instructions] Let me now turn the floor over to your host, Angela Seidler.
Hello, and good afternoon from Hamburg. My name is Angela Seidler, and I would like to welcome you on today's conference call and webcast. On January 21, we already announced in ad hoc that we are raising our guidance for the fiscal year 2020/'21. The final figures for the past quarter have been online since 7 a.m. this morning. We are sitting here today under corona-appropriate conditions together with our CEO, Roland Harings, and our CFO, Rainer Verhoeven. We look forward to your answering -- to answering your questions at the end of the call. And now I would like to hand over to Roland Harings.
Okay. Thanks, Angela. And from my side also, a warm welcome to our conference call regarding our first quarter. Let me start with a brief overview of the quarter. Production plants showed a good operating performance in Q1, which also supported by good market conditions, led to a very satisfactory result of the quarter, specifically comparing this to last year. Just to remind, last year's quarter was impacted by a scheduled shutdown of the Hamburg plant in October, November, which had an impact alone of around EUR 34 million on the operating EBT. Having said this, we have met market expectations for Q1 with an operating EBT of EUR 82 million. The consensus for the quarter is at EUR 80 million. Our ROCE for the quarter ended at 9.6% based on the EBIT of the last 4 quarters, which is a good increase compared to previous year Q1, which stood at 7.6%. And this, despite the buildup of stock levels, which we are going to address in the later -- in the course of this call. Commodity markets showed very positive developments throughout Q1 with increased RCs for copper scrap and recycling materials, increased metal prices and a strong demand for all Aurubis products. The integration of Beerse and Berango, the 2 new production sites in our smelter network, is well underway. We will achieve our targets of generating synergies of EUR 50 million EBITDA from this integration already this fiscal year. Originally, to remind you, we have set ourselves a time line of achieving these synergies by '22, '23. Due to the positive development of market conditions and the operating performance, we increased our forecast for this fiscal year, as Angela already mentioned, on January 21, via ad hoc announcement. We now expect an operating EBT between EUR 270 million and EUR 330 million and an ROCE of 9% to 12% -- between 9% and 12%. Quickly, I want to touch regarding corona, the pandemic. Currently, we don't see any impact on our results. We have made our way through the crisis very well so far. We have not experienced any significant production restrictions. Thanks to a very early, very comprehensive hygienic and distance concept and thanks to the discipline of our employees, infection numbers in the company have been always low and are also today declining and stable at all our manufacturing sites. If I look now to the next slide. Revenues increased by 28%, mainly due to the higher copper and precious metal prices. Increased sales of precious metal prices also had a positive effect. Additionally, Beerse and Berango started to contribute positive effects comparing year-over-year numbers. Gross profit increased by 27%. Again, positive conditions, as stated before, on the scrap market for recycling as well as high precious metal prices improved the gross profit. Beerse and Berango, again, the 2 sites, made a positive contribution here. And we will talk in the section of MRP more about the details of the synergies. The concentrate throughput was significantly above previous years. Operating performance was impacted by the scheduled shutdown in Hamburg in the quarter -- similar quarter of last year, which is EBT effect of EUR 34 million. However, the higher concentrate throughput was partly offset by lower TC/RCs compared to Q1 of the last fiscal quarter. Regarding costs, costs of Q1 were well in line with our planning and included also positive effects already of the PIP program that we launched, as you know, last fiscal year. Looking at the market conditions in Q1, you see the curves. Market conditions were promising. And if I go specifically TC/RCs, sufficient supply situation in Q1 from the mine site. The CRU states that copper concentrate production was slightly below the quarter before. However, as we stated in our last calls, we were always sufficiently in quantity and quality supplied. In mid-December, after our fiscal year '19/'20 report, the China smelter purchase team negotiated the benchmark for this calendar year 2021. And contracted TC/RC level of USD 59.5 per ton and $0.595 per pound, which is well above current spot levels, however, 4% below last year's -- last calendar year's number. This is in contrast to the concentrate supply. And as I stated before, we were well supplied throughout all the quarters. And mine supply is expected to increase by 5.4%, according to Wood Mackenzie. And Wood Mackenzie, in the same report, expects only a very small deficit for concentrates in this calendar year. As a consequence, we see that spot terms for concentrates remain stable at a low level. Honestly, low level, we believe, a too low level at USD 50 per ton. However, Aurubis is well supplied, and we are not active on the spot market as our concentrate supply is at least secured and contracted until June 2021. Talking about scrap RCs. CRU estimates an average RC in Q4 2020 for copper scrap #2 without logistics at EUR 473 per ton. These estimates are roughly 24% higher compared to the same quarter last year. And again, I would like to remind you that this is not the scrap RC level that Aurubis obtains on average for scrap #2, but it gives you an idea where the market is heading to. Similar to concentrates, we are already well supplied with material at very good refining terms until the first quarter of this fiscal year. The next product I want to touch is sulfuric acid. The markets have shown, and you see this not yet at the curve, but we see a clear recovery of price levels in the sulfuric market. Demand steadily increases, and we see a continued pickup also in the current quarter. Pricing-wise, U.S. level are now -- European spot prices, sorry, European spot prices are ranging now between USD 30 to USD 40 tons FOB. So better numbers than we have seen in the period of the worst state of the pandemic. ACP, our copper premium, as you know, similar rollover from 2020 to 2021 at a level of USD 96 per ton and well accepted by the market. U.S. dollar, Aurubis has a long position of approximately USD 500 million per fiscal year. And within our hedging strategy, we have secured 83% of our -- of the dollar exchange at a rate of 1.128 for this current fiscal year, and we have secured 48% of our position at 1.13 for fiscal year '21/'22. Due to this positive U.S. dollar hedge, we expect a positive effect on our results compared to last year. Looking at metal pricing. We all are familiar with the strong development of these metal prices. And the copper price itself ranges from a level of USD 6,700 as we saw in the period to USD 7,800 end of December. Current copper price is at USD 7,850 per ton. Also, the other metals, the other markets have shown some strong demand and good pricing in the Q1 and is continuing in this current period. Looking now at the important earning drivers of clean concentrate. There are 2 graphs on this page. And looking at the right graph, you see the cash cost curve of the majority of the smelting industry as estimated by Wood Mackenzie. The current level of benchmark TCs for clean concentrate lies well below the 68% of the smelter's net cash cost. Aurubis' ability to process more complex materials gives us here a clear competitive advantage versus the smelting industry in a general term. Due to increase of concentrate capabilities and the smelter pipeline drying out, CRU and Wood Mackenzie expect a steady increase of TC benchmark levels moving forward until 2024. This is what you see on the left curve. Important, if you spot this, this curve was generated before the benchmark for this calendar year was negotiated. However, the general trend and the general direction remains intact and holds true. With this, I would like to hand over to Rainer Verhoeven.
Thanks, Roland, and good afternoon, ladies and gentlemen, also from my side. Coming to the key performance indicators of the Aurubis Group for the first quarter. Aurubis is looking still at a very solid -- rock-solid balance sheet here for the first quarter, reflecting the good financial position with an equity ratio of around 50% and a debt coverage ratio of shortly below 1, currently a bit elevated due to the higher inventory levels, as already discussed. And we will come to that at a later stage at the end of Q1. On a net basis, Aurubis continues to be almost debt-free, which provides the financial basis for our strategic future growth. All in all, the key figures show -- remain very robust here. We have our ROCE increased slightly based on an improved EBIT. However, the capital employed with EUR 3.12 billion is elevated here, as already explained, due to higher inventories and also due to the first time integration of the Metallo Group. But we also took advantage of certain market opportunities in our input materials. And for sure, another effect is the high metal prices, which also weighs a bit on our inventories and, thus, the net working capital. While MRP is close to the target with the ROCE, FRP with a different business model remains behind the target. On the net cash flow, we have achieved minus EUR 273 million for the first quarter. That is well below the prior year. And the reason was solely the higher net working capital here due to increased inventory, while we had a gross cash flow with EUR 260 million in Q1, which is double the gross cash flow from the first quarter of the last year. Again, high buildups in inventory, scrap and blister, but also in the finished products, just to ensure the delivery performance of our plants throughout the crisis. We would generally state that this is a normal seasonal pattern for the Aurubis Group. For the first quarter, the net cash flow was at minus EUR 273 million. For the full year, our guidance for the net cash flow will be between EUR 350 million and EUR 400 million positive.Coming to the segments, looking at segment MRP. MRP includes all the smelter sites, Hamburg, Pirdop, Olen and, of course, the smelters from the former Metallo Group in Beerse and Berango. Furthermore, also the group-wide rod and shapes sites. Main market drivers were already touched on, so we can be brief here. Operational performance was key in the first quarter of this year. MRP was very stable and very good performing. Operating EBT at EUR 97 million and thus, 80% above previous year, which was influenced by the standstill, for sure. And we had well higher refining charges for the copper scrap and very good metal gains with higher metal prices. In throughput, of course, also compared to last year, we were above 25% year-on-year. And also, on the TC/RCs, we had a bit of dip here in Q1, but not yet a big negative effect as we still have a carryover from last year. Throughput of the secondary site was also very favorable to us, including the recycling feedstock here of Beerse and Berango now for the first time. Also there, more than 100% year-on-year increase. Cathode production increased significantly also compared to the previous year. Please keep in mind that we had our damage in the Olen tankhouse and thus, had a negative impact on cathode output in the last fiscal year. Sulfuric acid production increased in line with the concentrates. Prices remained a bit subdued still in the first quarter, however, prices are now picking up, as Roland already mentioned. Thus, also looking forward, we are getting positive earnings contributions from sulfuric acids. Likewise, in the copper products, good recovery there, in some cases, even above the pre-corona levels. Rod production and demand almost in line with pre-corona levels. Good and increasing demand across all the sectors. Shapes production increased 15% year-on-year. So also there, demand positively driven particularly from our segment in FRP. In addition, positive contributions from our performance improvement program. I will come to that in a minute. So all in all, Aurubis has -- had a very strong first quarter. CapEx was EUR 35 million, a bit lower than last fiscal year, but we are continuing with all our investment programs that we had foreseen for this fiscal year. So there is no influence whatsoever from the corona crisis. Coming to the segment FRP. Operating EBT here with EUR 1 million minus, a bit slightly better than the previous year's quarter. Improvement in earnings, mainly coming from a good recovery in the product demand. We will see more in the months to come, for sure. And here, demand, particularly an increase in the automotive sector, which was also the one that dipped down drastically during the corona crisis. At the same time, costs were kept at the prior year level, so all in all, we see an ROCE of 2.9%, significantly above the prior year. But please bear in mind, in the prior year, we had the impairments of roughly EUR 50 million, but more than EUR 50 million from Q4 '18/'19 still. CapEx of EUR 3 million in FRP is at prior year level, only replacement investments, no big investments to be done there. Despite the good recovery in FRP, we are still intending to sell FRP. There has been an intention already since fiscal '17/'18. Although this is still intended, we don't report FRP, the segment FRP, anymore under IFRS 5 since Q4 of the last fiscal year. Coming to our performance improvement program. We are really very impressed about the very good progress that we see in the program. All the measures that are being implemented constantly are well on track. We are working in all administrative departments throughout the group in the nonmetal procurement, also group-wide and in the operations here in Hamburg. Just to remind you, the target is EUR 100 million of cost reduction in '22/'23, and this is split up in the following way: We expect roughly 50% coming from the nonmetal procurement, group-wide; 25% coming from throughput optimization and optimized maintenance procedures here in Hamburg; and another 25% cost reduction will be contributed by the reduction of personnel in our administrative functions. We're not talking about production, we are talking about administrative functions here. In total, a personnel reduction of 300 FTE until '22/'23 was targeted. The current status achievement is, so far, we are at 67% fulfillment of that. That means either we have implemented or we have contracted already the necessary contracts for that. Achievements, especially on the administration by different measures, we had newly vacant positions not filled anymore. For sure, using the normal employee turnover, optimization restructuring here, we had early retirement schemes in place that were widely used. And last, not least, we have a social plan in place together with our works council for the voluntary leavers. So mostly socially acceptable, where possible, of course, with the avoidance of enforced redundancy termination. We already created provisions for the required restructuring cost in the last fiscal year in Q4 of the last fiscal year. Our implementation phase already shows very positive contributions of the program towards this year's results. So we are well ahead of plan even. And we expect a cumulative earnings contribution of about EUR 70 million through cost reduction and throughput increase, as already explained, by the end of this fiscal year. With that said, I hand back to Roland.
Okay. Thanks, Rainer. So market outlook. Starting with the copper price, you'll see the numbers of the January Reuters poll. So copper is forecasted for this calendar year, also for the next calendar year, to stay at a high level. And also, the forecast for the other metals is very promising. On top of this, the CRU statement is an increase of demand for global refined copper in the range of 4% to 5%, to be precise, 4.6%. So we're looking forward to a strong demand in the years to come. Touching on the concentrate market again. We experience and see a good supply of concentrate and also estimation is, by Wood Mackenzie, an increase of the mine production of the availability of concentrate by around 4% this year. We have been able to procure our concentrate at levels -- at pricing levels in Q1, well above the official benchmark, and we are already well supplied and fully supplied until at least end of June 2021. Copper scrap, there is a good supply, and we have already secured significant volumes until the -- or including the third quarter of our fiscal year, and we have done this at very good and strong terms. Rainer also touched on sulfuric acids. Global markets are expected to stabilize further. Current market demand is good. We are seeing this supported by -- or the pricing supported by a tight supply. So spot markets are good. But as we stated also in our last calls, we have also a significant part, contracted long term with our industrial partners, mainly here in Germany. Aurubis copper premium, USD 96, and good supporting demand by our European customers. Touching a bit on copper products, Rainer mentioned the FRP segment. We see strong demand, increasing demand, good order levels, good order intake for all our products, for rods, for shapes or shapes and FRP combined. And the demand is on a high level in Europe and also in North America. And specifically in North America, we saw that the dynamics or the restart of the market, the recovery of the market was earlier than we saw in Europe. And hence, our FRP demand is a bit ahead of what we see as a recovery for shapes in Europe. Forecast for this fiscal year, having said all the market conditions and the good operational performance, we announced on January 21 with an ad hoc statement that we see now a better interval forecast for this fiscal year. And for the Aurubis Group, we expect now an EBT -- operating EBT between EUR 270 million and EUR 330 million and an operating ROCE between 9% and 12% for this fiscal year. Looking at the segments. MRP operating EBT between EUR 300 million and EUR 380 million and an ROCE between 11% and 17% for this fiscal year. And FRP, a positive PBT between EUR 14 million to EUR 22 million and an operating ROCE between 5% and 9%. Talking about our strategy. Our strategy is based on 3 pillars: growth, efficiency and responsibility. Clearly, our growth focus is on the processing of recycling materials and multimetal, efficiency in all areas with high metal recovery, further standardization through PIP and digitalization. Responsibility, Aurubis has the clear objective to be the most sustainable and effective integrated smelter network worldwide. Having said all these 3 pillars, we are now working intensively on an update of our strategy and also the detailed road map going forward. We will share an update with the capital markets during our Q2, Q3. And clearly, sustainability and decarbonization will play a pivotal role in our update in our future strategy. With this, looking at sustainability on the ratings, you can see most recent ratings on the slide. And you will find very detailed information in our nonfinancial report, which is part of our annual report just recently published. EcoVadis, on this slide, you see in the left corner, upper corner, is an important rating as we have linked our Schuldschein loan this summer to the rating of EcoVadis. We are already at the Gold standard -- Gold Status, which is part of the -- so we are part of the 98 percentile and only 2% of the companies evaluated by EcoVadis have a higher score compared to Aurubis. CDP recently upgraded us from B to A-, which is also, especially for our industry, a very important achievement, and we are proud of this recognition. Our mission to become the most efficient and most sustainable smelter network worldwide means we are permanently improving and investing in our assets. We are working to reduce our environmental footprint. And on the picture, you can see our RDE project, which means reduction of diffuse emission in Hamburg. With this investment, we will reduce our diffuse emissions from the production process by more than 70% and already coming from a very low, very, very, in the world standard, good level. In Q1, we have already invested roughly EUR 6 million, CapEx was EUR 6 million. The overall CapEx is estimated at EUR 100 million. On the picture, you can see that we are progressing well with the investment, and we will finish the first phase by the end of this fiscal year and take this installation into production. Energy plays a significant role at Aurubis on the cost side. On the slide, you can find a breakdown of the various types of energy required for the production process, with electricity accounting for the majority of the cost. This clearly underlines and shows how we have already electrified our processes compared to other players in the industry. CO2 emissions and further decarbonization are significant factors for Aurubis. The direct CO2 emissions, which are called Scope 1, are fully covered by CO2 certificates. Through indirect CO2 emissions, cost increases for CO2 certificates lead to higher energy cost -- electricity costs to name it. We, as a company and copper as a sector, is eligible for carbon leakage support or protection, and we received partial compensation for the CO2 certificate costs, which are included in the electricity prices. This CO2 compensation will be in place until 2030. As you can see again on the slide, the majority of Aurubis' CO2 emissions, they come from electricity consumption. And this accounts to around 66% of our overall CO2 footprint. By using green electricity, we are particularly positive about achieving our mission of becoming greener, decarbonized, and we are convinced this will allow us to be well before 2050, climate-neutral. With this, I would like to pick on one specific example of moving to greener -- doing our business in a greener way. And despite already low CO2 footprint compared to the rest of the copper world, we are not standing still. We are aiming to further reduce our CO2 footprint also within Scope 1 emissions. Today, you see we are emitting around 50% of the global average, only 50% of the global average in our production of copper. I talked already about the RDE project, and now I want to introduce the pilot project for Aurubis, whose objective it is to reduce further Scope 1 emissions by substituting natural gas with hydrogen in the reduction process in the anode furnace. I have to be a bit technical here to give you the concept behind. In copper production process, there is a reduction step, which takes place in the anode furnace. Here, natural gas is used to draw out oxygen bound in the copper. With this, carbon dioxide, CO2 is emitted, and it increases our CO2 footprint. Aurubis is currently investigating the possibility of replacing this natural gas with hydrogen, and we will conduct an industrial scale trial in the first half of this calendar year. If this proves also in the industrial scale successful, we can replace the emissions of CO2 by emissions of steam, which means no emissions of CO2 anymore. To give you an idea, if this is successful and can also be -- makes economic sense, which means green hydrogen at competitive costs, we can reduce CO2 just in Hamburg on the anode furnace by around 6,000 tons per year while using around 3,000 tons of hydrogen. Last but not least, we also welcome you to take part in our first Virtual Annual General Meeting taking place next week on Friday -- on February 11.
Thursday.
Thursday. Okay. Thursday. Thursday, Friday, February 11, and the link is here on the slide. The graph on the left side shows our recommended dividend of EUR 1.30 per share. The dividend yield is slightly lower than the previous year, with a closing price of EUR 58.14 on September 30, 2020, the dividend yield is now at 2.2%. Last year, 3.1%. It corresponds to a payout ratio of 35% of the operating consolidated net income with -- and again, in comparison, last year, it was 41%. With this, I would like to close our presentation. Thanks for your attention so far, and happy to answer your question.
Yes. Thank you, Roland. [Operator Instructions] Thank you.
The first question comes from Ioannis Masvoulas from Morgan Stanley.
Yes. I have 3 questions, and I'll take them one at a time, if that's okay. First question on European scrap supply. Can you give us a bit of an indication if we are now in line, above or below relative to pre-COVID levels? And do you expect to see any shift in China's import levels in the coming months? Or is this more likely to occur in the second half of calendar 2021?
Okay. Thanks for the question. We see even a stronger, a better availability of scrap in Europe actually, certainly supported by very good metal prices and industrial activity, which has well recovered in many areas of, say, the metal industry or the metal-using industry. So availability, pricing of scrap in all segments is good and, from our perspective, above pre-COVID levels. Regarding your question, China, we do not see an impact today. Availability of scrap is good. Regulation in China has been adopted. However, if you look at the net imports into China, there had been a shift from different metal content in the scrap stream. The overall import of metal, especially copper into China has not changed that much over time. Straight answer, we see -- we watch this carefully today and also for the coming quarters. We don't see really impact of the change of the regulation in the availability for us.
Understood, understood. Second question on inventories. If I look at your balance sheet, we're looking at sort of a EUR 900 million year-over-year increase. I just wanted to figure out how much of that is driven by price and how much is driven by high volumes to account both opportunistic buying of scrap to benefit from higher refining charges and, I guess, safety buffers for copper and concentrates. If you could give us a rough split, that would be very useful.
Yes. Thanks for the question, Ioannis. Rainer Verhoeven here. So looking to the inventories, the increase is, as I said earlier, pretty much a standard business in Aurubis. So typically, at the -- towards the end of the year, we reduced our inventories to lower levels. And then in Q1, we pick up again. Why is that so? There is -- on the one side, of course, all Christmas time and preparation for that. On the other side, we do have the precious metal concentrates, which kick in typically in the first quarter. And we also -- rightfully said, we also used opportunistically the good scrap RCs in this fiscal year, in the first quarter and built up especially on scrap and blisters. Again, I would say this is normal course of business. And as already explained earlier, towards the end of the year, we do see, let's say, a normalization back to the levels that you have seen in the last fiscal year. Again, I would say that it's -- to that question.
Okay. That's clear. And the third question for me, I was intrigued with Slide 6, that shows that more than half of the global smelting industry is loss-making, effectively since the beginning of 2020 on benchmark terms. But we've seen Chinese smelter production rising last year, and we've seen -- we haven't really seen any large shutdowns. Do you have an explanation of that? And do you see that trend changing over the near term?
I'd like to start. It's not, too, what you're saying. We saw, for sure, during the last fiscal year, very drastic impact in the smelter industry in China. We have seen smelters in prolonged standstills. We have seen smelters, Dongying Fangyuan in lower production still. Until today, we don't know whether they are in full operation. So it's not true what you're saying. We do really have an impact here, also in the Chinese smelter industry. For sure, there is new capacities coming online, but also older capacity is going offline and influenced heavily by this cost curve.
If I may add here to Rainer's comments, as we all know, the large players are state-owned companies, and there is the bigger agenda in producing and increasing the metal industry. So I think there is a complete different, let's say, set of KPIs than what you would see in the western world.
The next question comes from Bastian Synagowitz from Deutsche Bank.
I've got 2 quick questions. Just firstly, on Metallo and the Metallo integration, where you seem to have made very good progress. And I think you always indicated that you were striving for more in terms of the synergies. And now you've basically -- have been achieving them 2 years ahead of schedule. Is there an updated target number which you've got in mind for the actual synergies which you are aiming to achieve? That is my first question. And maybe I'll stop there before taking my second.
Yes, thank you, Bastian Synagowitz, for your question. Perhaps, first, about the good progress with the integration of Metallo. We have -- our target was to reroute a lot of intermediates and input materials within our smelter network. And we have been very successful in optimizing this much quicker than we anticipated. Just to give you magnitude, we kind of rerouted around 100,000 tons of flows within our system. And also, with the additional metal we could generate and optimizing specifically intermediates, we achieved the synergies ahead of schedule. So well on track. Second point regarding what's the new range. We see now the synergy potential in a range between EUR 20 million to EUR 25 million, still working on it as we are -- we have opened the books on June 2020, so we are still in early days in working together. And we are going to see this target achieved in fiscal year '23/'24. That's what we are looking at. And we will update accordingly as soon as numbers are very solid of the new target.
Perfect. Maybe just one quick follow-up on that point. I remember, I think you basically also onboarded the new, I think, plasma smelter. And I thought that would allow you to potentially capitalize some of the -- I think slack actually, which I think you still had on stock there. Has there been any major contribution from that site as well? Or maybe you could just update on what the situation is?
And regarding this, this plasma, this fuming technology, it's, let's say, after being close with our colleagues in Beerse, it's a fascinating technology. It delivers the results, so we see a very good output of zinc from the process. And also the quality of the [ coronel ], which is the iron silicon product out of this process is really good and still good progress on using this in any kind of substitution natural materials in the construction area. But as we all know, the process of qualifying or becoming certified is a long one. But it's working well, and we hope we can report in the near future some breakthroughs in the use of these coronel materials.
And is that included in the EUR 20 million to EUR 25 million number?
No. Still some upside -- EUR 20 million to EUR 25 million, if you look at the range, if this all becomes true, what we have here in our planning and our ideas, we certainly will be more to the higher end of the range. So it's partly in the range, but there are some upsides, some downsides. So we are working on this, and coronel will be a contributing factor to the overall synergies.
Okay. Perfect. Then my second and last question is just on, again, your CO2 footprint. We obviously saw a significant rise in the CO2 prices or certificate prices. And as you -- as was said already, you're not impacted in a direct way because you're covered by your free allocations. So -- but I think you highlighted earlier, there was a cost headwind, I think, about 1.5 years ago, I think mostly due to the import factors such as electricity. How far is the move in CO2 prices now impacting your business? And maybe could you give us an idea around the sensitivity, I think, from the Scope 2 exposure you showed earlier? I would have thought that a EUR 10 increase in Tier 2 prices may be like a very low 2-digit impact on your numbers, but maybe you could help me to understand whether this is very far off track.
Yes. No, happy to answer. So I think very important in last year was the confirmation of eligibility of the copper sector so that we are compensated for CO2 cost -- indirect CO2 costs in the electricity prices. We have achieved this, and this is valid for this period until 2030. In the Scope 1, in the direct emission, we are fully covered by allocation of certificates. So there, we are not exposed. And in the Scope 2, there is a so-called cap that's limiting our exposure independently, let's say, on how finally the CO2 certificate number will rise to, to a level which is, let's say, a low -- I'd say, medium, low 2-digit million numbers going forward. Very low. To be very precise, it's a very low number there, depending on the super cap. So looking at the total size of Aurubis, the increase of CO2 certificates will not impact really our financial performance.
And the next question comes from Jatinder Goel from Exane.
Two questions. First one, on your guidance uplift of EUR 270 million to EUR 330 million, just trying to understand, through the cycle potential for the business as it stands currently with all the improvement programs that's envisaged. Is EUR 300 million midpoint still a good number to work with on a 10-year basis? Not necessarily year in and year out, but just as taking a simple average on a forward 10-year, would you say EUR 300 million is a good number?
No, it's a too conservative number. Our ambition, and I touched on our strategy, we see significant growth opportunities in the markets we are active. And also based on the technology and now the complementary set of recycling technologies that we have after the integration of Metallo, now we are set up for growth. EUR 300 million is a good guideline for this fiscal year, EUR 270 million to EUR 330 million, but definitely not the right number for the future.
Okay. Would you be able to indicate like if EUR 350 million a good ballpark to work within a 10-year forward basis as an average, not necessarily next year or the year after?
No, I think I have to ask for your patience for the Capital Market Day. Here, we will give clearly an outlook on our project pipeline, on our -- on the implementation of the strategy and also what this financially means for Aurubis. I think it would be not right to work with this number now for the next longer period.
Understood. Second question, are you able to give any rough indication of your gross profit from primary versus secondary MRP segment? Just to understand how much contribution is coming from primary smelting versus secondary business because it's much more sizable now after Metallo integration.
Yes, I -- certainly, we have all the data, but we are reporting here this as 1 segment to the public. And what I just can say, both segments are profitable, and they are also very much connected in the material flows and the flow sheets to each other. So therefore, it would -- it could be a bit misleading if we would extract your numbers for the one or the other. So therefore, we report it as 1 MRP segment.
Lots of interactions, yes.
And there is one follow-up question from Ioannis Masvoulas from Morgan Stanley.
Just a couple of follow-ups, actually. First, on Metallo. If we think about the synergy upside, let's say, the EUR 25 million, is it fair to say that at that level, you'd be reaching your return target of about 15% that you have, broadly speaking for the group? And then the second question, profitability is better than you expected, I guess, a few months ago, given the revised outlook and the strong scrap refining charges in latest commentary about relaunching the next tranche of the buyback.
First, your question regarding return on capital employed. Meeting the target is clear. With this synergy level, we are exceeding our company targets. So this is based on the good performance that Metallo had already at the point of acquisition, adding the synergies and the effects, we are nicely above our target here. Regarding -- sorry, the second question was...
Share buyback.
Relaunching share buyback.
Share buyback. Yes. Share buyback, we are, as an executive board, we are reviewing regularly the overall opportunities, the investment, as we stated. The buyback of shares was also for purpose of new financing opportunities. And here, we are looking into all the options, all the time. No decision taken at this point. As soon as we take a decision, we will announce this to the market.
Okay, okay. Clear. And just a couple of housekeeping items. Any indication just on the severance costs, what sort of timing and amount we should be expecting? And then I think there is the tankhouse refurbishment. And I don't think that's part of your scheduled maintenance guidance. How much would that cost as you're running the tankhouse of the 8%?
Yes, regarding the severance, as Rainer already stated, we have made provisions last fiscal year for all the severance cost resulting from the adjustment of our workforce, of our headcount here in -- specifically in Hamburg. So there will be -- and the total number we officially announced and accrued was EUR 35 million. So there is no impact on the current or the future fiscal years by layoff or restructuring of the -- within the company. Regarding the Lünen tankhouse, we are running -- now it's 5 steps in which we modernize the tankhouse in Lünen. These steps and the impact of these steps are fully embedded in our forward planning. And given our smelter network, we have the possibility to compensate these effects within the network. So there will be no negative effect on this regarding the modernization of the plant. And also, to remind you, the investment is not just a refurbishment or modernization. It's also an improvement of productivity and output in the Lünen casthouse. So we will see also over time, an increased capacity and output of the -- of the tank house in Lünen of 10%.
The next question comes from Rochus Brauneiser from Kepler Cheuvreux.
Yes. One on the strategy update in June. If I understand you correctly, I think your growth ideas are, of course, one of the topics. What I'd like to understand is, rather generically, is how we should think about the potential CapEx you might undertake in order to participate in the expected structure growth of the copper markets in Europe and globally? Is this kind of, you're coming up with an idea how much you want to increase the capacity over a longer-term period? Or is this rather a first slice of kind of step-by-step investments in future capacity? That would be the first question.
Yes. Thanks, sure. Our -- we have and we will build up additional capacity in our smelter network. We are running very much at full production levels. There is some improvement potential with continuous improvement still there. But significant steps and increase of capacity come only with investment. As I think you're all familiar with this industry, investments are always significant, and we are quickly in a 3-digit million magnitude. However, it would be premature at this point in time, before we announce at the Capital Market Days, the detail to give you a ballpark number about investments. But clearly, we will do investments step by step. We'll have this in a more modular way of increasing capacities and debottlenecking and adding capacity at the right spots in our smelter network. So we are not going to one huge, big investment, but we're going into step-by-step investments over the next 10 years.
Okay. That makes sense. Then secondly, on the inventory you've been building. Correct me if I'm wrong, I would guess that the inventory reach at the moment into Q3 is a bit longer than probably on your average inventory buffer? To understand that, is that kind of response to the volume growth you're going to see? Or is that more kind of opportunistic to harvest on the recurring pricing new condition, which you think are as good as it can be?
I would say it's not regarding the growth. This is not the point. It's more -- it has 2 aspects. It's -- yes, benefiting from the opportunities, which the market offers. But secondly, also have security stock with all this insecurity about pandemic lockdowns, logistic risks. We took the clear decision to put additional inventory in our system to ensure that our plants, our smelters are well supplied going forward. So 2 aspects, not really the future growth of our smelter network.
Okay. Got it. Then another one on the guidance. I guess your guidance increase last month was pretty impressive compared to the old one. And still, what you are saying in terms of the outlook in terms of the conditions in the copper scrap market and the sulfuric acid market, which is obviously improving, how shall we think about how conservative the new guidance is? And I want to make reference in particular to the delta between the sum of the 2 units, which still leaves a EUR 45 million to EUR 70 million buffer on the other consolidation line. So how shall I think about the guidance here?
No. I wouldn't say this guidance now is conservative. This is a realistic estimation of the market potential, balancing, let's say, risk and opportunities for the -- after a good Q1 for the rest of this fiscal year. So therefore, I think, if you see where we were before, and as we already announced in December, this was very conservative. What we announced in December after Q1 and, hopefully, getting out of this pandemic and seeing strong, continued economy we are working in, we are seeing this as a realistic range for the fiscal year.
Okay. Is there a particular item in your others line which would make that one larger than usual than compared to the last 1 or 3 years?
There is no specific line in others, no. It's coming from the operational business from both segments.
Okay. And maybe one on the performance. It appears to me that on a quarter-to-quarter sequence, the Pirdop smelter is running more stable than the one in Hamburg. Any particular reason why?
No. I think this is -- if I look at the data, I don't draw this conclusion. I see that both smelters are -- I'd say, scheduled maintenance taken into account, obviously. But no, both smelters are state-of-the-art smelters with a very good availability and, hence, a good productivity.
What would -- maybe the problem is that, if I think about nominal capacity, what would you say is the kind of available effective capacity in Hamburg? Is it this kind of 300,000 tons of throughput per quarter?
Yes. I think that's a good reference number, 300,000 tons of concentrate per quarter. So 100,000 per month, let's say, a couple of calendar days, back and forth, but 300,000 per quarter is a good number.
1.2 versus 1.4 in Pirdop.
Yes. And Pirdop is slightly bigger. It's the biggest smelter, one of the very big smelter even worldwide. And this smelter has a capacity -- throughput capacity of around 1.4 million tons per calendar year.
The next question comes from Christian Obst from Baader Bank.
Yes. Just 2 smaller questions left. First one is, you talked about new mines and mine expansion in your Q1 report. Are you engaged in this expansion with new contracts? Or has that had any impact on your concentrate mix going forward? So this is the first one. And the next one is, with a -- with FRP and cargo out of the balance sheet, how much will your capital employed be affected to go down? And when we calculate the stable profits, you calculating with rising profits, of course, then you're making a higher ROCE. How much will it -- will this affect your ROCE? And will you increase your ROCE targets? That's the 2 questions.
Perhaps I'll take first the mine. Thanks, Mr. Obst. Yes, some of the mining spend -- part of our business model is to work long term with our mining partners and jointly develop all the new assets, which is typically done by us with longer-term offtake agreements, combined also with financing. We are, let's say, [ U.S. case ], supported by the government. So that's part of our business model, and we are in discussion regarding various projects there. And then Rainer...
Looking to the capital employed, for sure, we have the separate segments. As said, MRP is close to the target of 15% already in Q1. And also going forward for the fiscal year, we expect a positive development here. FRP, as I said, due to the business model, will be tough to achieve the target of 15% or, let's say, close to impossible. With regards to the capital employed, we have, in total, EUR 3.1 billion capital employed here for the full group and about EUR 350 million comes from FRP.
And when Cablo goes out, it's minimal?
Cablo? Yes, yes. Cablo, no. This is neglectable, this is neglectable, yes. That's a very small business, will not have an impact on the total ROCE for the group or on MRP, no. Sorry I didn't understand that.
Of course. But if only by mathematics, of course, if we take FRP, the ROCE will increase because the profitability is lower than the rest of the group.
That's for sure. That's correct. That's for sure.
And there is 1 follow-up question from Jatinder Goel from Exane.
Question on FRP end products. Your commentary is quite positive on the product demand. Is the chip shortage that's leading to some of the automotive production cuts making any impact on your order books? Or have you seen any impact on FRP segment at all?
Well, so I think we see strong demand across the board. As I mentioned, the recovery was earlier in the U.S. market. And we see a solid strong demand also now from the automotive markets. We believe this is also due to the significant increase of production of hybrid and full electric vehicles, which as we said in former calls, have significant more copper on board and need more connectors, need more also FRP products in order to be produced. So good demand across the board, including automotive.
Okay. And no impact seen on your side from the automotive production curtailments that we are seeing currently due to the chip shortage?
No, definitely not.
And another follow-up question from Rochus Brauneiser from Kepler Cheuvreux.
Yes, 2 smaller housekeeping ones. Can you help us and give us a split of the CapEx in connection with this diffuse emission reduction project in Hamburg, how this is splitting between this year and following years? And secondly, when do you expect the personnel reduction, the 300 FTE, to be completely negotiated or implemented versus the 67% end of last year?
Regarding the RDE CapEx, I think we stated we have EUR 6 million CapEx in the first quarter, and we will have the Phase 1 finalized end of this fiscal year. So the operation will start end of -- or in September 2021. Honestly, I don't have here the numbers at my fingertips, but the majority or significant parts, hence, will be already invested in this fiscal year. Just to drop a number, probably something EUR 70 million to EUR 80 million of CapEx will be spent this fiscal year as the major equipment will be installed this fiscal year. So -- and the...
FTE.
And the FTE -- thanks, Rainer. FTE negotiation is ongoing. We have achieved already 67% of, let's say, contracted rate, if we might call it like that. So discussions are well progressing. So we will certainly see significant progress in this. And also the next quarter, there might be some, let's say, final ones already towards the last quarter of this fiscal year, but we assume to be through, negotiated, contracted by the end of this fiscal year completely. Implementation, again, to remind you, final implementation is then end of next fiscal year. That's our target that we have done the full effect in our P&L in the fiscal year '22/'23.
Okay. That's clear. Another -- just for clarification, maybe I misunderstood on this EUR 100 million project RDE. Can you say first -- Phase 1, is the EUR 100 million in the Phase 1? Or is this -- because is this just -- is this in the end becoming a much bigger project than the EUR 100 million?
No, no. To make clear, the total project, as we called it Phase 1, Phase 2, is in total EUR 100 million. Phase 1 will be more or less completed in this fiscal year. So the major spend will also take place, the major CapEx will take place this fiscal year. So without having here the numbers readily available, it will be in the range of EUR 70 million to EUR 80 million. Okay. Rainer has just pointed the numbers.
So the numbers, so there will be -- from the EUR 100 million that we just mentioned, there will be EUR 25 million spent in the next fiscal year '21/'22. The rest is already spent or will be spent in this fiscal year.
So then EUR 75 million, so confirming what we just said. So EUR 70 million to EUR 80 million this fiscal year...
Yes. If there are no further questions, I would love to have a quick view on our financial calendar. As Roland already mentioned, we have our virtual AGM next Thursday. You can find the link on the website or on the presentation. And we are going to publish our half year results on May 10. Yes. That's from our side. Wish you a lovely weekend, all the best, stay healthy.
Yes. Okay. Thanks.
That's it. Thank you for your attention and your questions.
Yes. Bye.
Thanks. Goodbye.