Aurubis AG
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Good afternoon, ladies and gentlemen. My name is Angela Seidler. I would like to welcome you to the call for the interim report first months 2017-18 for Aurubis AG. I'm sitting here together in Hamburg with Jürgen Schachler, the CEO of Aurubis; Rainer Verhoeven, the CFO; and my colleagues from Accounting and Investor Relations.Yes. We do the presentation first and the presentation will be followed by a Q&A. I would like to hand over to Jürgen Schachler for the presentation. Mr. Schachler?
Yes, thank you very much, Mrs. Seidler, and a happy welcome to everybody on the phone there. So today, I have the good benefit that I'm sharing the presentation together with my colleague, Rainer Verhoeven, so we are switching to the presentation. I will take the first part. And everything that's around finance, and he will explain to you in a very detailed way.So we'll start with Page #2. And on this I think we can give you a very brief overview on what the first half of a very good year 17-18 has brought to us. We see on this page that we did, after the 6 months, have an increase of the operating EBT by 58% to EUR 186 million after the EUR 118 million that we achieved in the first 6 months over last year.The net cash flow is at minus EUR 232 million, partly due to the revenue growth that we have had and the increase of receivables that we're seeing with this and as well on the buildup on inventory levels, especially some precious metals and some finished copper products.Nevertheless, I want to mention just here on the first page that we expect by the end of the business year, that we still will receive approximately EUR 320 million positive cash flow for the full business year, mainly through the reduction of inventories that we have built up for some actions that we are taking. On the same token, with the result, we also see a significant increased operating ROCE to roughly 15%. And with this, we will have fully achieved our internal goal for the first half year of '17-'18.I don't have to mention the pages, right. So we go to Page 3. Do the last time. On page -- on this page, we'll see the most important earning drivers for this year. Certainly the most, foremost is the TC/RCs, the treatment and refining charges. As you know, last year in late December, the 2018 benchmark was announced after the closing of the first contract of the Chinese copper smelt at Tongling and the mining company Freeport. The contract then did lead to a level of EUR 82.25 per tonne plus this April 22 EUR 0.05 per pound copper. This is roughly a decrease of round about EUR 10 per tonne, round about.The transaction that we've seen later on in the year had some downward turns. Today, we see, nevertheless the current spot conditions back at around 80 and 8, so very close to where there benchmark is. The argument at that time for the decrease of the benchmark was possible strike situations, because there were a lot of labor negotiations ongoing and planned for, for the beginning of the year. So far, we haven't seen any of the impacts coming from that side. On the other hand, we saw some anticipation of increased smelting capacities in China, which we partially see, but not in the amount as expected in the beginning.What we see, nevertheless, in this phase is these draft RCs, especially of the copper products developed extremely positively. This effect was coming from several parts, mainly from the increase of the copper prices and general metal prices that did increase the prices and the generation of this credit. In the beginning of the year, nevertheless, we saw some slight tightening of the market. This we see very often. It's related very often to the weather, around the wintertime when it's cold, so the generation is lower. What we see as an exceptional case this time is the change of copper scrap purchasing rules and regulation from China. They did change or they are about to change their regulations in order to avoid imports of copper scrap with impurities of higher than 1% in the copper scrap, and so that's mainly plastic and other contents or inorganic stuff that's in there. This is very likely leading to some changes in the flow of scraps worldwide. So far, we see only a little from this, we have to admit, #2. #1 is a bit tighter, but we're selling on the other side as well, more capital into China, so the demand for this material, for purer material is high at the moment. Currently, the prices for the RCs are still rather high. So we don't gives exactly all price, but CRU announced roughly EUR 400 per tonne for RCs for March. So we have slight deviations because we use different things. That's the price of scrap #2. This is, I think, the number and the reference we're using very often to show you the trend, where the trend is growing. So this is still on a very high level. It's still very good.Another driver for our result is sulfuric acid, very strong at the moment. Most global producers are sold out for the full year, the demand is very high. Some smelter shutdowns, mainly India, the [ tu du golvine ] in India and [ passan ] in India have some reductions of production and the [ grey six ] smelter in Indonesia. So all of this high demand and lower supply is leading to some higher prices and that's what we're seeing at the moment.No change in the Aurubis copper premium, which was announced for EUR 86 per tonne for this year and that's what we still see. Of course, and all you are aware, that we've seen some weakening of U.S. dollar versus the euro, over the year. Nevertheless, in the last weeks of some strengthening again. Today, roughly slightly below EUR 1.19 from the EUR 1.20-some that we have had before. As you know, we have a long position of copper -- of U.S. dollar of roughly $600 million a year, which we normally secure to roughly 2/3 with the hedging strategy that we have had. For the current fiscal year, we have secured 67% of the $600 million at EUR 1.14. And for the next fiscal year, we are, today, around 50% at an exchange rate of EUR 1.22.For those who are not following Aurubis so closely, some words on our segment FRP and the impact on the balance sheet that will occur later during this year or actually during the first half or now. As a reminder, we did find an agreement with the Wieland-Werke on the purchase of the segment from us. This is now subject to the approval of the Federal Antitrust Authorities. Short some numbers of the part FRP, the segment is producing roughly 230,000 tonnes of copper and copper alloy products, is employing roughly 1,700 people. If we add our 50% that we own in Schwermetall Halbzeugwerk also to the segment, then we have to add another roughly, in total, 300 employees at this plant. And the total turnaround is roughly EUR 1.5 billion annually, including the Schwermetall part of this. Why are we signing this term sheet and -- for the intended sale? The segment FRP is, from now on, classified as discontinued operations pursuant to IFRS 5. And on this specific impact, Mr. Verhoeven will give you some further information. Rainer, please?
Yes. Thank you very much, Jürgen. Good afternoon also from my side. This is Rainer Verhoeven speaking. I'd like to give you a little bit an overview on what's happening with regard to IFRS 5. You all have received our quarterly report and probably that left you a bit puzzled because we are distinguishing between an IFRS result and our operating results that is familiar to all of you. And now, on top of that, we are having the discontinued operation due to the fact that we have signed the term sheet in February. We have to report our segment FRP under IFRS as discontinued operation, which means at that point in time, we'll compare the book value with an impairment test that we are doing with a discounted cash flow and compare both. At the same time, we'll stop the depreciation and we will also stop accounting for the equity valuation for Schwermetall.On the operating result, however, we will continue to report the segment FRP as you have been used to it because we and the board are steering this segment still under the operating results. So therefore, from an operating perspective, nothing has changed.If we now turn to Page #5, we'll see both results. So on one side, you see the operating EBT of EUR 186 million. Most of the factors that are explained on the right side have already been explained by Jürgen Schachler to you. On the left-hand side, you see the EBT under IFRS, which is EUR 233 million, including now the portion of FRP which is separately shown with EUR 26 million.So in total, I think about all the markets, drivers, everything has already been said. Of course, I would like to shortly mention that most of the adjustments that you see here, the EUR 47 million, that come from the adjustment from the average of our -- averaging of our inventory under IFRS versus the LIFO method under IFRS operating.Going now to Page #6. We'd like to guide you through the main drivers of our business. And here, what we see is that our revenues have gone to roughly EUR 5.8 billion. So good increase of about EUR 340 million compared to the 6 months of the last year.Well, mainly driven, of course, by the copper price, but also due to the increased volumes that we have been selling in the first 6 months. If we then have a short look at the costs that we are showing here also as a delta between the gross profit and the EBITDA, we can say that compared to the last fiscal year, we managed that the costs stay at the completely same level. Regarding the capital expenditures, we are a bit short. We had, in the last year, a big investment with regards to our long-term electricity supply contract that was EUR 47 million. That is of course, nonrecurring. So this year, we don't have that. So therefore, we're a bit behind with regards to investment, but the main investment that we are currently seeing here is the district [ teating ] for our [ havern ] city in Hamburg and some infrastructure investments in the Port of Burgas in Bulgaria.If we look to the interest result, there we see a good development reduction in our interest expenses. That is mainly due to the fact that we have repaid promissory notes in the amount of EUR 130 million last year due to the liquidity situation of Aurubis.Going to Page #7. This summarizes the main KPIs of our group. The ROCE, as already mentioned by Jurgen Schachler, is close to the target of 15%. The equity ratio is very stable above 50% and our liquidity ratio at 126%. So all of our KPIs are very stable.Then on the Page #8, let us just go through the different segments and have a look at MRP first. So on the whole, as already mentioned by Jürgen, the market was very much in favor of us. Besides the U.S. dollar effect, we had really tailwinds from the market, so the revenue went to EUR 5.15 billion here in our MFP segment and the EBT went to EUR 202 million.We have already explained the market drivers. We had very good concentrates throughput. So quite an increase compared to the last year, which is of course, also to the fact that Fit For Future, our project in Pirdop kicked in for the first time, let's say full throttle. And we mustn't forget that in the last year, we had a shutdown in the first quarter in Hamburg, which had a negative impact of roughly EUR 15 million, which we don't have this year, obviously.So we have talked about the TC/RCs. We have talked about the sulfuric acid revenues, which are quite stable. So all market drivers are in favor of us. Currently, the spot premium that we see is around EUR 43 to EUR 50 in Western Europe and if we go to the Shanghai notation, then it's USD 78 per tonne. And of course, the dollar had a negative impact compared to the last year, in total, that amounts to roughly EUR 14 million if you compare 6 months this year against 6 months last year.The investments have already been mentioned. So then I would like to go to the FRP segment. And that is a very positive result that we see here, a real turnaround compared to the last year or the 6 months of the last year. Positive EBT of EUR 4 million with a lot of efforts, especially our program, our Emerald program here, our continuous improvement program that kicked in quite good. And on the other side, of course, we also had some tailwinds from the market. So the market is still booming. It's very positive. We had good volumes with good prices, and we also had good prices for the pre-materials that we acquired. Also on the specialty wire we have positive development. The ROCE with 3.7%, of course, not yet in the level where we would say it is sufficient for our group. But we see a very positive trend here in FRP, and we hope that this will continue for the months to come.On the investment side, we had an investment of roughly EUR 11 million in our segment FRP that is mainly reinvestments that needs to be taken into consideration.Going to Page #10. We'd like to give you an outlook roughly on '17-'18 and maybe that also helps to drive a bit our share price up because we're not really satisfied with what we see. The quarterly and the half year result is very positive and the share price is going down. So of course, the CFO can't be happy too much.In total, and we see a copper price at roughly USD 7,000 per tonne from Reuters poll. We have, in total, continuing attractive environment or so -- which means the price is high enough to have a good concentrate production in the mines. We see that the benchmark conditions for TC/RCs have gone down compared to last year. Nonetheless, with the ability of Aurubis to also treat the more complex input materials, we were able to achieve higher TC/RCs, considerably higher TC/RCs than the benchmark. So that gives us a positive view also on the rest of the year and the capacity utilization in Hamburg and in Pirdop in the main smelters continue to be very positive. On the sulfuric acid markets, in principle, the market is completely booked out until the end of this year, at least until the end of this fiscal year. We see very positive developments here. And also on the scrap market, even though, and Jurgen Schachler explained it already, even though the market is tightening a bit, we also see positive signals there so that we can contribute to benefit from high scrap RCs for the rest of the months for this fiscal year.Capital output will definitely be higher than in the previous year. So that is very positive with our Aurubis copper premium of EUR 86 per tonne. We will keep that at the same level. And of course, we will keep pushing on our improvement programs. There is lots of ideas, lots of small, tiny issues which we are working on. And we see the result, the first result in FRP already and for your we also see that in MRP here, we are tracking it on a regular basis. So the only negative issue that I have to, of course, mention as well is the U.S. dollar, but that is known to all of us and most of the impact has already been done away by the hedging that we have been placed.So all-in-all, we have already adjusted our EBT announcement to moderately higher than the next year, which means between 5% and 15% above the EBT of last year, which was EUR 298 and the ROCE will be at last year's level.So all in all, Jürgen and me, we are very optimistic that we will get the positive half year, and we will have good results. With that said, I would like to hand over for the strategy to Jürgen Schachler.
Yes. Thank you very much. As Mr. Verhoeven just said, we're very optimistic, optimistic as well as we will continue with the implementation of our strategy towards our vision. So just a brief reminder. The 3 buzzwords that we have in there is growth, efficiency and responsibility. And I've explained this before, I just repeat it and go through. Internal growth, what we are focusing on one very big -- and actually it's the biggest project that Aurubis so far has done, is the future complex metallurgy. The project is good on the line at the moment. It's on track. That's an investment of EUR 320 million. We are in the basic engineering phase at the moment, so I think we will go on the right track.This is not only increasingly expanding our possibilities for processing raw materials, it's at the same time, as well shortening the throughput times for precious metals and in this respect, reducing our smaller -- our bottlenecks that we have in order to produce much more. Once we get started up, as we said, in the beginning of fiscal year '22, we expect that this FCM will develop, create additional EBITDA of roughly EUR 80 million plus.We have another internal growth ideas on which we will report probably the next time. Once we have our Investor Day, of which Mrs. Seidler will talk later on, and create some appetite for this.External growth is also something that we're working on at the moment. We are -- have in the hopper some very good ideas we're working on. We did execute actually on the first one, which you already know, the Codelco Kupferhandel again, on which we buy from Codelco the remaining 40% that we have. This is still subject to approval of the Federal Antitrust Authorities. We expect some feedback, hopefully, within the next 4 to 6 weeks to come, that's at least our expectation for the moment.The sale of the segment FRP is something that we actually consider as well as the preparation for our further growth ideas that we have. It will focus the management attention on what will be our core business of the future to really develop our growth strategy in order to increase the likelihood and the success rate of the post-merger integrations of the things that are going to come in our multi-metal strategy. So it's, for us, considered as a preparation for the growth strategy despite the fact that we are reducing our footprint in terms of employees and turnover, but I think it's a preparation for further growth in our resolve base.The second pillar that I want to talk among the 3 is the part of efficiency, which you will see on Page 12, which you know. We are still aiming for the moment, EUR 200 million participation of the different projects that we have. We're still having close to 600 different measures or groups of measures that we're working with that we are treating and tracking one by one. And every day, so far, the target for last year was achieved. For this year, we are very well on track, and so that we are thinking that we will not only achieve -- that we will achieve or even over achieve what we are having in the hopper for the moment.The total, as I said, more than EUR 200 million by 2019/ '20. This -- all business units, not only in operation what all these business units, including FRP, but also transversal activities are taking part in the participation of this. As you see, the base of this, because when we started in 2016 and we had the data of the full business here of 2014-'15, 2014-'15 is the base for all this improvement. So far we see some positive and negative developments from this 2014-'15. Some of the conditions are improving and some are inferior at the moment. So we have some inflation on the one side, but we see some higher metal prices on the other side. So it's plus and minuses in the whole part that we have year. A few examples for some actions that we have. So one very important part is the increase of the concentrate throughput at the Pirdop site in Bulgaria, which we already see and which we are about to stabilize at the moment. This goes in a good direction [indiscernible] also the smaller sides of FRP are participating in this -- is increasing the yield on the brass production at the moment. Concentrate throughput is, for us, always one of the main drivers. So that's a big example for the Hamburg side as well, but we're working on shredder input, for example, on our Lünen side and plenty. So I could give you a list of more or less 600 that are more or less meaningful for the total participation. Repeat, EUR 200 million in total for part of FRP. We're assuming that it will be roughly EUR 50 million in the whole hopper, that's the plan for the moment.Improvement. It's also something that we do on a very regular basis. On Page 13, you see one that will at least occurring every third year for us, it's a mandatory overhaul and maintenance shutdown of some of our facilities. So in this case, we are planning for May-June next year in Pirdop. So 12 months from now a shutdown in the Pirdop side where we are doing some repairs. The boiler is mainly the maintenance side that is mandatory every third year. We are replacing, at the same time, some mass for sulfuric acid plant. So we bring the whole plant during the shutdown that is planned for 18 days, back again on track to reduce any likelihood of any unplanned shutdowns through the remaining part of the 3 years. So the total investment for this is -- will be EUR 19 million. We will, during the shutdown, lose roughly 76,000 tonnes of concentrate, and we will see an EBT effect out of the 70,000 -- 76,000 tonnes of concentrate of roughly EUR 11 million to EUR 12 million for the next business year actually. So May-June, the shutdown will take place. May-June 2019.Having said this, I'd like to hand over to Mrs. Seidler to come back what I just mentioned before, and we're hopeful to see all of you again in person.
Thanks very much, Mr. Schachler. Yes, last but not least, I would like to draw your attention to our next Capital Market Day, which will take place on September 4 and 5 in Pirdop in Bulgaria. You already got, most hopefully, the save the date. We will start this program in Sofia at the first day in the late afternoon because of all the travel schedules. We checked it already, so it is for you to come into Sofia in the late afternoon, so we will then have a dinner with some -- with a presentation of our plant manager. And you will have the opportunity to meet, of course, Mr. Schachler and Mr. Verhoeven, but also several area key managers as well as.The second day event foresees a site visit in Pirdop. Pirdop is roughly a 1.5 hours drive away from Sofia. So we will make sure that you get safe from Sofia to Pirdop. And the plant there will be followed by various presentations and that, of course, with a focus on our margin metals strategy and our several current projects.We do very much looking forward to welcome you all in Bulgaria, and you will get the invitation with the possibility to register yourself in due course. Yes, that's it for the Capital Market Day.I would now like to start the Q&A, and for first of all, hand over to the operator.
[Operator Instructions] The first question is from Menno Sanderse, Morgan Stanley.
Three very brief ones, please. First on the scrap margins, as the company highlights, it's been very good in Q1, but the trend has been down quite sharply starting from January to now. I'd like to hear your views on the drivers behind that downward trend and in particular, if you see those drivers accelerating, for instance I don't think China, Chinese buying is going to go away anytime soon.Second question is around working capital. You mentioned working capital build up temporary, that's fully understood, and you said it was built up for certain actions taken, especially BGMs. Can you slightly on what those actions were specifically and why capital in BGMs is built up? And finally on sulfuric acid, clearly, we're at a cyclical high there. Can you remind us again how much Aurubis sells there on long-term contract prices? And how much it is exposed to the spot market in sulfuric acid?
Thank you for your questions, Menno. So I'll share the answering a bit with my colleague here. So some words on scrap margins. Yes, you're right. The margins are slightly going down at the moment. Again, the visibility of scrap and scrap margin is very difficult to forecast. We are pretty much booked for -- with the actual prices that we have had for the next, let's say 6 weeks or so. So into the next, we might be finishing this quarter. It is certainly the decision of China has a big role that is difficult to foresee for us because on the one side, very pure materials, scrap, number one. Number two is getting more [ scars ] and having stronger be exported to China. On the other side, we see much more availability at the moment on the material that we are usually not using that much. Where the margins are getting higher, we are about to switch a bit, and we have tried to create more flexibility for us. So how stable this will be, it's very difficult to foresee at the moment. Overall, for the full business year, it will remain a very good year on the scrap side for us.Coming to, okay, on the sulfuric acid, we are -- certainly we have subcontracts, mainly in the proximity when we talk about Europe. We talk about the metal industry and the chemical industry where we deliver on the regular base, but everything that goes oversea is more or less on the shorter-term contract. So this part is roughly around 90% on the spot base, so we are participating directly from the increased prices that we see in the market.
Okay. And just a quick follow-up. How much would you argue is proximity and how much is overseas, that split? So I understand 90% of overseas is spot, but how much is overseas versus proximity?
Yes. The -- I think for Bulgaria, it's 2/3 that would be going overseas, I would say. For Germany, for Hamburg, I think it's pretty much the same, roughly the same.
So let me answer a little bit the question on the net working capital. So the net working capital, first of all, we see an increase in our receivables, of course. That is due to the fact that at the end of the years, of course, we also have factoring programs, which we have to run out once a year fully, which we normally do, of course, at the end of the year. Furthermore, we have, of course, a sharp increase in turnover, which also increases the receivable. So we see increasing metal prices. We see an increase in turnover in the volumes. So that also has an impact on our net working capital. Looking at the spots, we have 2 effects. We have the one effect that we have stockpiled a couple of anodes here and there because we had some smaller maintenance issues, not really mentionable, but for sure, that always had an impact on net working capital on stocks, which over the year, will be, let's say, regulated and will go down again. On the other side, we have for -- especially for the precious metals, we have a batch processing. And the batch processing means that you have to stockpile to a certain extent an amount of precious metals in, let's say, lead alloys, which will then be batch processed. And that is what we're going to do over the next couple of weeks or months, let's say, so that we're pretty confident that we bring down the net working capital or the stock level to the level that we had in the last year.
Next question is from Daniel Lurch, BNP Paribas.
Just 2 quick ones for me. First one is on the CapEx budget. Could you give us a bit more detail on the outlook here? It seems like your current run rate fixed asset investment is around a bit over EUR 130 million for the year, which I believe is considerably below the guidance that you had previously mentioned, which I think was somewhere between EUR 240 million to EUR 280 million for the year. I assume that the future contract metallurgy project is somewhere in there. If it is, can you let us know when the spending will start here? My second question, quickly on the capital allocation. You already mentioned that some [indiscernible] product will free up cash that you most likely can deploy in other areas of your business. Can you give us a bit of a view on how you see valuations in the base metals sector the moment? And do you think the situation is attractive in Europe or is it more attractive in other regions of the world? Has anything changed in your view on [indiscernible]?
So let me try to separate and thanks for the question. Let me try to answer your question on the CapEx. And yes, you're right. We are behind with our run rate with regards to CapEx and probably this year, we will not fully achieve our CapEx. We will be really a bit behind, and that's mainly due to the fact that in SCM, we are still negotiating the parts of the EPC contract with our contractors. That will take some time, and we want to do that diligently and that had some delay. But once it comes, it will immediately lead to down payments and these down payments will then, let's say, also have an impact immediately on our CapEx. So up to now, as said already, we have some investments for our district [ teating ] here in [ Halvern ] City and some smaller invests in our Port in Burgas. So that were the main investment, the SCM for sure is going to come pretty soon. That's the situation on the CapEx.
On the valuation, perhaps I'll give some word. So we are analyzing a handful of companies, but not so much on the valuation, but on the synergies that we can find by integrating these kinds of companies. Certainly, there are different prices linked to this and we see that in Asia, the valuation is different from what we see in Europe or in North America. But for us, the main target is really the synergies that we can generate by integrating new companies into Aurubis.
Can I quickly ask a follow-up on the CapEx. So you mentioned that you're still negotiating with partners for SCM. That said, what does it mean for the profile for that project? Do you expect that there will be significant down payment towards the end of the financial year or more into next year? And does it in any way delay the project?
So there is no delay in the project, in total. We are still in the negotiations of the [ BTPC ] contracts, and we will be slightly below the CapEx spend for this fiscal year. But as already mentioned earlier, I think the run rate for the next fiscal years will be -- we will be spending definitely more than the depreciation.
Next question is from Marc Gabriel, Bankhaus Lampe.
First of all, coming back to the FRP sale. That would cash in a huge amount of money. If I calculated it correctly, you could expect some EUR 470 million if the copper price remains where it is. And yes, the question is regarding the firepower. What would you, in total, spend for M&A target like Mr. Schachler just mentioned? And are the synergies are just in the process to be found? Or is it -- are there any other synergies from other metals or what do you have in mind here? These are my first question.
Thanks for the question. Of course, we will not yet report on any sales prices there, as we said before. So I don't want to do this here in this moment as well, but at one point, once the sale is finished, I think you will see the final price anyway, I think, in our papers. It is true that it's creating more cash in our company, and I think that's the cash that at the end, we will be using as well for further growth activities, internally and externally. As I said before, it will be in our multi-metal range. The main target is to create additional value. So for us to find in our flow sheet extensions that will create more value for the combined activity versus the individual. This sounds a little bit cryptic, but as I cannot give you the final names, so if you go and -- but the general focus, we said before, remember, probably this triangle that we are working in, we're getting closer to finding solutions and finding intelligent solutions, actually, for mines and as well into the urban mining sites. So that's the part that we are looking very closely in order to extract much more and to grow in this area, extract more metals in this area and grow in these areas as well.
Okay. And maybe one additional question regarding the output of cathodes at Pirdop. Or is that just be seen always in connection with Olen or will -- is Olen also be sourced by Hamburg with cathodes?
Of course, we try to optimize the capacity utilization of all our tank houses in the combined way. So that's a bit linked to this. Certainly you can see some combination, as Pirdop has a bigger output than capacity at the tank house. Part of this is actually used in -- from the anode, so part of this is actually used then later on in Olen. But we have a combination where we use all the 4 tank houses that we have in our facility in order to optimize the portfolio that we have.
Yes, because I was wondering the throughput was much higher, increased by 9% and the output of cathodes was lower in Pirdop, with minus 2%.
True. That's what I said. I think we have, in total, a very good capacity in Aurubis in the 4 different sites. But in Pirdop specifically, we are running the tank house always full and excess anodes we are using into mainly into [ holding ].
[Operator Instructions] We received further questions. First one from Rochus Brauneiser, Kepler Cheuvreux.
Can you -- I missed the first part of the presentation, so I'm not sure whether you already commented on that. When it comes to your TC/RC performance, can you give us a sense how much of the impact of the lower TC/RC benchmarks has already been visible in the second quarter? I guess, you mentioned at previous occasions that there's a certain backdrop effect which comes into play. So maybe a bit more detail on that would be helpful. The second part on that is related to the use of more complex material. I guess you still have headroom here and what I would be interested in to understand, how much improvement or small complex material can be expected this year? Is it on a relative basis, a similar increase in the complex material mix compared to last year? Or would it be less or more than that? And I think probably Pirdop is one of the driver in this game. The second question is related to the accounting you showed on your FRP division. Apparently, there is no impairment book, so obviously, there is no issue in terms of a lower sales price here. There was also apparently not a write-up in the asset price. So is this also signaling there is no upside in the price? Or is there no repricing assessment on impairment -- a repeat process done on this asset here at that point in time? And the third question is in your cathode output. You were saying in your outlook that you expect upside this year. Can you give us a sense at which plants in your portfolio you expect a higher cathodes output?
Yes. Thank you for the question, Mr. Brauneiser. So I will address the first 2 because they're somewhat linked. Of course, TC/RCs, as we said before, this year, going down by roughly EUR 10 per tonne. We will have normally kind of an effect of 6, 7 weeks, I would say, of the old TC/RCs that are going in. So it's half in the first quarter that is affected with the new TC/RCs and half with the older ones. Nevertheless, this is overplayed partially as well by our activities going into more complex materials. That means we are negotiating on a regular basis our suppliers and new suppliers what kind of complexity we can take in. We are calculating this the whole time. Depending on what material we can fill. So there are different bottlenecks, and we have a system that I think you have been informed about this, that is actually running quite satisfying at the moment called Scope. This is kind of an artificial intelligence program, more or less where we have thousands of different impact data that we are putting in there. And in this way, we are improving our way of optimizing the existing assets, before we get into new investments and enhancing the bottlenecks at existing compared to the needs of the markets. With this, I think some words on -- or perhaps, I say some just on the cathodes. On this question, I think, there is certainly we are increasing on a regular base the capacity of the existing tank houses that we have with our improvement program, so that's an important part of this. As I said just before the discussion, the tank houses is something that we try to have full all the time. There are always some deviations when it comes to whatever, electricity usage and some modifications. But at the end, we are on a constant way of improving the throughput there, but that it is not a jump fix, so we are going on good growth path.
So then let me answer a bit on the FRP. Mr. [indiscernible] has also done his math already on that part and came to EUR 470 million. Of course, if you deduct the assets -- or the liabilities from the assets, you come to the EUR 460 million -- EUR 470 million, sorry, for the 31st of March. And as I said earlier, there is no impairment on the equity book value for the time being. The disclaimer that is necessary at this point in time is that we are having, in March right now, we have applied for the approval of the cartel authorities. That might take a couple of months and that might also then in this couple of months, we might see the change in metal prices and the copper price, which would then have an influence on, of course, the net working capital of the FRP group, which then would also make the value that just has been calculated by Mr. [ Garnier ] fluctuates up or down.
Okay. On back to the TC/RC question, I just wanted to get a sense whether the improvement or the increase in the complex mix, shall we expect this to be greater or smaller in this -- in the current year compared to last year?
We aim to have it greater than the last year for improvement as we are optimizing, as I said, with our program the way we are building in. But this is also a question of market availability because with the higher copper prices, we see some changes in the market as well for premiums for not so clean concentrate depending on what impurities we are dealing. So we are trying the whole time to optimize our portfolio there. So the final result, at the end, we can only say once the year is over. So because it's not predictable.
Can you maybe also talk about -- a little bit about the usage of more complex or less pure scrap with a lower purity? I guess the main address would be Lünen, in a way, and only to a certain degree, it would be Hamburg or Pirdop. Can you describe a bit to what extent and under which circumstances you can use it as a cooler detergent at your smelter?
Yes, so the more complex it is, depending where you put this in the process, the more Lünen is, of course, our main focus for this material because we have a very specific material there. For the cooling content, you use normally more cleaner material in order to not disturb the process.
Next question is from Felix Schlueter, Goldman Sachs.
I have 2 questions. The first would be on sulfuric acid. Given the move in the price, I wanted to ask if you could provide a sense of the level of EBIT contribution sulfuric acid was in this quarter and maybe how that compared to last quarter as well? And the question would be on the net cash flow. Obviously, in the first half of this year, net cash flow is significantly negative. For beginning of the call, you alluded to your expectation of a positive -- significant positive net cash flow at the end of the year. I wanted to ask if you could just bridge that for us or at least give us a sense of the main moving parts and how you think you're going to get to your target there.
So I'll start with the sulfuric acid. As I said, very positive development there. So we see that the prices are roughly 70% higher than previous year, which is good. And in total, due to the higher throughput that we're having, we are selling as well roughly 11% more than previous year. In total, the impact, as a result, is roughly EUR 20 million, I would say. But simple to calculate, as we say, per tonne of concentrate, we are producing 1 tonne of sulfuric acid and so we make the calculation more or less from that.
So regarding the cash flow, I think it's very simple. It is inventory, inventory, inventory and then it's a bit of receivables as well. So as outlined earlier, of course, we will run our factoring program towards the end of the year full throttle. We are not using that throughout the year due to the liquidity situation in which we are, which is comfortable. And with regards to the inventories, this is mainly intermediate products. Mainly intermediate products, I'm saying this because, of course, there is still some concentrate input that is coming and a ship can be easily into the 2-digit million -- 1 ship of concentrate can be easily in the 2-digit million euro, which means it depends on when the ships are arriving here in Hamburg or in Bulgaria, how the net working capital will look like. Of course, that we are going to steer that towards the year end.
Okay. Just a quick follow-up. I guess, what you're saying is that the build that you have seen in the working capital year-to-date will fully reverse in the second half? Maybe a misunderstanding from my side, but in general, the smelting business, in an increasing price environment, is it quite common to have a bit higher inventory levels because of that? And if prices remain level or even go up from here in terms of commodity prices, wouldn't that kind of go against a full reversal of the working capital?
So I would say, a swing of up to EUR 500 million in our inventories is quite usual and we have seen that over the past years as well, up to EUR 500 million. So this is our breathing capacity in the treasury also with regards to liquidity. That's quite normal. And if you compare that to an EUR 11 billion turnover that this group had, then this puts the whole thing into a relation which is understandable. Is the CFO happy with that? No, of course, not. I'd rather see the smooth development, nonetheless. There is typical issues of a production -- of an industrial production process. You will have standstills. You will have situations where you will have to pile up certain intermediate products until, let's say, the production flow is optimized and organized again in a way that this material flows out. And for sure, higher -- total higher volumes that we are seeing with higher metal prices, of course, will also put some additional burden onto the net working capital.
As there are no further questions, I hand back to the speakers.
Yes. If there are no further questions, I would like to close this session. Thank you very much for your contribution.
That's one word to our day in Pirdop. When the final answers would be requested for the invitation when it comes out and...
In the next weeks, we will send out the invitations and then in the invitation, you will see when you have to respond, and we are very much looking forward to meet you in Pirdop.
I only can advertise for this meeting. It will be -- you will see one of the most modern plants I think that you can find in Europe and the [ reigning ] program in terms of information will be very well prepared there as well. So I would be very grateful if we would be able to welcome you there in Pirdop. It will be an experience not to be missed.
Thank you very much.
Thank you very much for your attention and...
And have a nice evening, a sunny evening, nice weekend, a long weekend, hopefully, at least here in Germany. Goodbye.
Goodbye.
Okay. Thank you. Bye-bye.