Good afternoon, ladies and gentlemen, and welcome to the Aurubis AG conference call on the occasion of the publication of the third quarter results 2022. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Elke Brinkmann.
Hello. I would also like to welcome you to our nine month analyst call. Our CEO, Roland Harings, and Rainer Verhoeven, our CFO, will present the financial results in a minute, but also give you insights into current topics such as energy. Let me give you a hint about the Q&A session that will follow. If you would like to ask a question, please select nine star. With that, I hand over to Roland Harings.
Okay, thanks, Elke. Also from my side, warm welcome. Good afternoon to everybody, and thanks for joining our call today, talking and presenting the nine months result of our fiscal year 2021/2022, which is, I would say, since many quarters now, again, a very specific situation we are in as geopolitics and energy, and I'm sure we will have a very lively Q&A discussion afterwards. Let me start with the first slide and also with some highlights of the first nine months. The first nine months result is EUR 448 million operating EBT, which is an increase of 67% compared to the previous year.
We achieved an ROCE of 18.6%, which I think underlines and shows well how we have managed even in difficult times, how well we have managed our company and markets in a very challenging situation. The improved metal gain and also a very strong high demand for copper products and for sulfuric acid more than compensated for the significantly higher energy cost, as well as the impact of the maintenance shutdown in Hamburg, which we did in the last quarter in Q3. The maintenance shutdown at the Hamburg site, continued high product demand expected and ensuring the security of supply led to a temporary increase of working capital at the end of Q3, and thus, and I will refer more to this later, to a low net cash flow.
Clearly, this is going to change during the running quarter, and you will see different numbers at the end of our fiscal year. The net cash flow, and I'm repeating here the subject, is always fluctuating in the course of fiscal year, and it will balance out. At the end of this fiscal year, we expect a net cash flow in the amount of EUR 300 million-EUR 400 million. Based on our very good results, we confirm our forecast corridor for the fiscal year 2021/2022 of EUR 500 million-EUR 600 million operating EBT. This is the best result that Aurubis has seen in history. Clearly, this is all, and you hear this from all companies needing energy. This is with the disclaimer that we will have energy and specifically natural gas supplies to the plant.
We come to energy supply in more detail later. As of today, we are fully stocking all our plants with energy and for the current quarter, we do not see any change for that. On the next slide, you see a bit more details. These are the year-to-date operating figures. Revenue increased significantly by 17% to EUR 14.277 billion, mainly driven by high copper prices. Strong demand for copper products had probably also a positive impact. The gross profit after nine months increased by 20% due to strong market conditions and a good performance of our operation. We'll come to the details of our earnings in a minute. The consolidated net income, in line with the increased operating EBT, raised up to EUR 347 million.
Let's look at some of the market conditions. Despite the latest downward development in metal prices in Q3 of this fiscal year, copper prices as well as industrial and precious metal prices still averaged on good levels for Aurubis. Copper averaged around $9,500 during Q3. Looking now at some concentrate highlight of the concentrate markets, our both sites, primary sites in Hamburg and Pirdop, were fully supplied during the quarter with concentrates in the right qualities and quantities, and we see continued positive momentum of supply from the mining site. The positive trends from the past quarter on the treatment and refining charges for concentrate continued over this quarter. Spot rates, TC/RCs, continued to range well above the annual benchmark terms. This trend is also confirmed by the set buying floor by the CSPT, the China Smelter Purchasing Team.
They have set the floor for Q3 of the calendar year to $80.08 for the TC/RC. Significantly above this year's official benchmark, which is $69-
$65.
$65. Sorry, $65. I was wishful thinking. $65 and $6.5. Also for the other sites, Aurubis was well supplied, and we see no change, even an improvement going forward for the supply in the coming months and the rest of this fiscal year and the quarter thereafter. Looking now at the recycling markets. During the first nine months of our fiscal year, we saw a stable availability of copper scrap, blister copper, and other complex recycling materials on a global sourcing base. Refining charges for other complex recycling materials developed stable given the ongoing solid availability of these materials. Refining charges for scrap No.2 , which was mentioned in Q3 of our fiscal year, came in at EUR 325 per ton, according to CRU. This compares to an exceptionally high figure last year of EUR 655 per ton.
We've seen now quarter-over-quarter a slight improvement and, the number of EUR 325 is a healthy number. It has been extremely high for a very specific reason in the quarter a year ago. Where the European markets did benefit from some shutdowns and some logistic challenges where scrap RCs became that high as we participated. Looking forward on the supply side for recycling materials, we are well supplied with material and satisfying RCs into the running quarter and over the year. Talking now about the sulfuric acid. The market remained very strong, faced by a restricted availability of sulfuric acid, also certainly driven by our shutdown in Hamburg. The strong market performance leads to an ongoing high price and demand situation for us.
During this quarter, the last quarter, we could sell volumes at very good spot rates into the market in Pirdop and also in Hamburg. For new contracts, ICIS reported CFR numbers of EUR 160 to up to EUR 250 per ton. We see, and we discussed this in our last call, we see some structural change, and we see continued positive momentum for the sulfuric acid market going forward and no fundamental change in the demand and market situation. Talking now ACP. Physically, there was a strong ongoing demand for copper cathodes. Both European and Asian premiums developed positively during the last quarter. European spot rates ranged between.
European spot rates ranged between $90 and $125 per ton during Q3, and Asian spot rates ranged slightly lower, between $65 and $100 per ton in the quarter. We consistently kept our ACP, our Aurubis Copper P remium for the calendar year at $125 per ton and are able to completely implement this into the market. Regarding U.S. dollar, as you know, we have a long position of around $500 million in our fiscal year.
Within the scope of our hedging strategy, we have hedged for this fiscal year 70% at a rate of 1.147, and 73% for the coming fiscal year at a rate of 1.134. Going to the next slide, the slide we introduced in our last quarterly call, the split of the gross margins. You see now the numbers for the first nine months. Here, Aurubis earnings were positively influenced by higher metal gains, predominantly by increased year-over-year for industrial metals like copper, tin, and nickel, by higher sulfuric acid revenues due to higher prices, and a very strong copper product demand. Year-over-year, we have seen a decrease both in metal earnings and earnings arising from smelting concentrates.
As a reminder, the gross margin represents Aurubis income component and does not. The figure is composed of metal gains, income from treatment and refining charges, and products including sulfuric acid. Going to the next slide, where we give some transparency on the cost. You see the general cost inflation for all. Energy cost remains the biggest contributor to group-wide cost increase. However, as we pointed those out last time, energy is a very important component in our cost equation. However, it represents only 17%, even after the increases that we have seen in the market. The overall picture of the cost split remains stable for the group versus the previous quarter and for the year. Consumables like production and packaging materials have also shown an increase, arising among other reasons for additional sale of copper products.
Despite the cost inflation, yet again, Aurubis managed to achieve a very good nine month result given the ongoing strong development on the earnings driver markets, and we could compensate for the energy cost and also for the overall inflation during the first nine months of the fiscal year. Having a bit more of a deep dive on the next slide into the energy prices. The energy price developments have been broadly discussed in our latest capital market conferences and meetings with investors. In the first nine months of fiscal year 2021/2022, we have seen significant energy price increases. The restricted natural gas deliveries and the Ukraine war underpinned the market developments even further.
Especially natural gas prices increased significantly year-over-year, but given the usage of natural gas for electricity production, the electricity market also developed very bullish. Just a reminder, as of Q2 of this fiscal year 2021/2022, we continue to show the compensated energy cost to the capital market. Disclosed figures arise from the deductions from indirect CO2 electricity compensation, as well as state refunds provided to our sites. Looking forward, we will continue to work on the electrification of production processes and invest and accelerate investments in decarbonization our production even further. Yet again, as mentioned above, securing all energy sources, so natural gas, oil, and electricity remain very relevant topics for Aurubis. With this, I would like to hand over to Rainer Verhoeven.
Thanks, Roland. Good afternoon, ladies and gentlemen. Having a look at the financials, the financial KPIs of Aurubis remain very strong, which provides sufficient funds for the further implementation of our strategic growth and the growth part. I would like to draw your attention particularly to the strong equity ratio, which went again above 50%, and the very good debt coverage ratio, which is still negative, which means we are net cash in a net cash positive position. The ROCE improved to 18.6% as a result of the very good earnings situation over the last running four quarters. With EUR 5 million, the net cash flow was significantly lower than the previous year.
As mentioned, the extended maintenance shutdown at the Hamburg site, but also the continued high product demand that is expected during the summer months and ensuring the security to supply led to a temporary increase in the net working capital at the end of Q3 2021/2022, and thus to a lower net cash flow, which will balance out towards the end of the fiscal year. At the end of 2021/2022, we expect the net cash flow in the amount of EUR 300 million-EUR 400 million. Let's move on to our segments. As Roland has already mentioned, most of the earnings drivers and the market developments, let me highlight some financials and production figures from the MMR segment. Operating EBT was at EUR 174 million, slightly below the previous year, which was extremely good at the time due to the high, extremely high scrap RCs.
MMR benefited from high metal gains based on increased metal prices, especially for industrial metals like copper, tin and nickel, and for sure, the higher refining charges for other recycling materials. On the other hand, lower RCs for scrap No.2 , as already mentioned, had a negative impact on the results. RCs for scrap normalized year-on-year at a lower but still good level. Year-on-year, RCs for scrap more than 30% down in this year. Of course, significantly higher energy costs weighed on the result of the segment. The consumption of other recycling materials and cathode production increased due to the good performance of the plants. The input of copper scrap and blister copper, however, was reduced also due to the plant shutdown in Lünen in Q1 2021/ 2022.
As a result of the good earnings performance, the ROCE improved to 36.6% compared to 30.8% in the previous year. The gross margin split on the right-hand side for the MMR segment illustrates the development of the main income components. Coming to CSP. In the CSP segment, the operating EBT more than doubles to EUR 323 million compared to the prior year. Significantly higher metal gains, combined with increased metal prices for industrial metals, higher sulfuric acid revenues, and a continued strong demand for copper products, had a very positive impact on the result of CSP. This was counteracted by the slightly lower concentrate throughput compared with the previous year due to the maintenance shutdown in Hamburg.
Unfavorable weather conditions, which delayed certain crane operations due to the high winds that we had, so we couldn't move certain parts, and necessary additional work that could only be detected after operations were shut down, led to a longer standstill here in Hamburg. Our Bulgarian site continued to perform very well operationally with increased concentrate throughputs. On the product side, raw demand was stable at a high level, and shapes production even rose by 20% compared to the previous year. Increased energy costs were also a burden, but could be passed on to the customers in parts through the product surcharges. The return on capital employed, ROCE, reached 14.7% compared to 10.1% after nine months of the previous year. Let's move on to the outlook for our earnings drivers, starting with the concentrate market.
The concentrate market remains on a growth track, both from the supply and demand side. From the latest predictions, both CRU and WoodMac continue to anticipate global mine production volumes to outpace anticipated growth in demand in calendar year 2022, and especially also in 2023. For the second half of calendar year 2022, new project Quellaveco, which was commissioned in July, additional capacity to the global concentrate market. Based on our expected levels, Aurubis is already supplied beyond the end of the fiscal year 2021/2022 and into next quarter or the first quarter of 2023 with concentrates with very good TC/RCs. Moving on to the scrap RCs. Our core markets, Europe and the U.S., have seen a stable level during the past quarter. We expect an ongoing stable supply with RCs on the good levels that we have seen.
The availability of complex recycling materials like shredder materials, PCBs, residues, slags and ashes, was also on a stable level, with more beneficial RCs year-over-year. We foresee a stable market with good RCs at those markets, as those markets are less volatile and are based on longer-term contracts, in principle, annual contracts. Our production plants are well supplied with recycling materials at good refining charges into Q4 2021/ 2022. Coming to the sulfuric acid, ICIS and CRU both expect an ongoing restricted supply of sulfuric acid for the remainder of our fiscal year 2021/ 2022 for Northwest Europe. Given the current and the latest high prices, we foresee a very positive earnings contribution for sulfuric acid in 2021/ 2022.
As mentioned already on the copper premium, the ACP for calendar year 2022 has been set at $123, reflecting the ongoing strong demand for refined copper. Coming to our copper products, rod, shapes, and FRP, we see the strong market demand trend from previous quarters and expect this to continue until the end of the fiscal year 2021/ 2022 at the minimum. Product demand for rod, shapes, and FRP products remain elevated versus previous year, and in this market environment, we managed to pass on the increased cost in energy and consumables to a reasonable extent to our customers. Coming now to the guidance. Aurubis confirms the forecast for the group result and continues to expect an operating EBT between EUR 500 million and EUR 600 million and an operating ROCE of 17%-21%.
We feel comfortable with a middle value in that range. Just as a reminder, for the Multimetal Recycling segment, we expect an operating EBT between EUR 200 million-EUR 260 million, and for CSP, we expect an EBT between EUR 350 million-EUR 410 million. With that, I would like to hand back to Roland.
Okay, thanks, Rainer. Perhaps just before we close the financial session, to give you some more, or anticipating questions which will come, regarding the shutdown in Hamburg. When we announced the shutdown, we stated under these market conditions at the time, that it would have an impact of EUR 28 million. In today's market condition, and, although, let's say, sulfuric acid prices, TC/RCs, and also metal prices, we would see this range more in the EUR 40 million-EUR 50 million for the anticipated time that we have in the standstill. As you heard, we took the conscious decision to extend our standstill due to weather conditions, safety first, and also to some additional work that we had to perform by 11 days.
If you take this all together in today's market condition, the standstill of Hamburg had an impact of around EUR 50 million on our Q3 results. With this, I would then move to the gas markets and German situation here. As you all are very involved in this, the energy security is broadly discussed in the news and also with the politicians. As an energy-intensive company, we are very much involved in these discussions in all levels in Germany and the other countries. Clearly, a secure and steady supply of natural gas as fuel or reduction agent remains absolutely key for Aurubis for our production processes, which is acknowledged by politicians and the regulators.
Due to the geographical location and the European supply network, the German sites are more exposed than the other sites. We are very actively looking at how to ensure the supply to the German sites. I can state here we have a very different situation in the other countries. Belgium, Spain, Bulgaria, Finland, and also the U.S., where we have other operating sites needing natural gas. We don't see any risk of supply reduction or any shortage or any even stop of gas supply, either because we are not dependent on any Russian gas supply at all, or we are not even using natural gas because we have other fuels in use. The situation is very volatile. We are all depending and watching this daily, what's happening with Russia, with the Nord Stream 1.
Today, it's running only, supplying only at a level of 20%, and nobody knows what's going to happen there going forward. If this delivery level will remain and the maintenance have been completed, then we should see if things turn to be a bit more normal to around 40%-50% of capacity, which would mean also with the other of additional supply from Norway, from Netherlands, from LNG terminals in Belgium and other countries, that we will do as Germany and Europe through the winter without any limitation or any shortage of supply. Again, it's still a very fragile and volatile situation what is happening with the supply through the North Sea, Nord Stream 1. We are preparing with significant investments in order to reduce further our dependency from natural gas.
Again, as a reminder, Aurubis has started the decarbonization many, many years ago, and today, 80% of our energy supply is already electricity, only 20% is fossil based. We have done already a significant step in the right direction, and we are implementing measures to further and accelerate, further the reduction of use of natural gas. At our primary site, if I get more specific, at our primary smelter site in Hamburg, with technical adoption measures, with the usage of more oxygen, for example, can reduce the natural gas in the smelter itself, which we have already implemented.
Additionally, we can replace natural gas consumption by replacing the pool gas, so the natural gas that we use for the reduction in the anode furnace, with fuel oils, or we can generate steam, which we need for our production, with fuel oil, electricity instead of natural gas. Many measures have been implemented, are in implementation, and we are also doing changes to our operations in Lünen, for example. In total, we anticipate, as Aurubis, a small single-digit number million of investments for the necessary equipment to move from natural gas to other fossil energies at our site, mainly in Germany, again, as we don't see the risk to the same extent in our other sites in Europe. As the lead time for certain equipment, which we ordered already several weeks ago, is around 30 weeks.
We see the first real effects of change and availability of new equipment to be operational by the end of this calendar year, in December. Some will move into the first quarter of next calendar year. Clearly, moving forward, Aurubis aims to keep all the production at all smelter sites, despite any shortfall scenario up and running. What we also see in all the political discussion, Aurubis, with the metals we produce for the decarbonization, for the renewable energy, for the e-mobility, everything which is absolutely pivotal to reduce our dependency on fossil energy, we are seen as system relevant, and we see a lot of support and and also decisions which will ensure that we keep our production running, also if times will get even more complicated. Summarizing and have already started to do the necessary measures.
We have the technology, we have taken the decisions, and we, as Aurubis, will get through all this crisis, probably even stronger than we entered it. I'm sure we will have some Q&A, some questions later on the topic of energy. Moving now to a bit of a, let's say, positive, very positive subject, in our context of sustainability. As you know, the Copper Mark is a quality seal for the copper sector. Responsible copper production is an important part of our sustainability strategy. Our plants in Bulgaria, Hamburg and Lünen now have successfully passed the external audit, and they have been awarded with the Copper Mark. This seal indicates that copper has been produced responsibly along the entire value chain. Mines and smelters can be evaluated in a multi-stage process up to cathode production on a voluntary basis.
In a later step, processors along the entire value chain will follow. The 32 sustainabililty criteria of the readiness assessment of the Responsible Minerals Initiative apply, which cover topics such as compliance, child labor, environmental protection, and occupational safety. The Copper Mark itself, and you have heard this before when we announced the certification of Pirdop, the Copper Mark is oriented to the United Nations framework of sustainable development goals. For the criterion of responsible copper, lead, nickel and zinc sourcing, the Copper Mark has furthermore developed a due diligence standard that also serves to fulfill the responsible metal sourcing standard of the London Metal Exchange, LME, one of the world's most important metal exchange. We are very pleased and proud that we have achieved this certification for these three sites.
Important, all the next sites have already committed to go through the certification and will do this in the next year. Power and energy, another point there, again, a positive one here. We have, as you know, defined a very clear roadmap to continuously and responsibly transforming raw materials into metals for an innovative and sustainable world. This is based also on decarbonizing our energy supply and also the production or the sourcing of our electricity. I'm pleased to announce that Aurubis Olen signed a green electricity supply contract for 12 MW with Eneco that represents another major stop in achieving our long-term sustainability goals. The green supply contract is a prime example of how we are strengthening our position as the most sustainable and efficient smelter network worldwide, and how we are further diversifying our energy supply within the group.
With this power purchase agreement, more than 90% of the externally generated power for our site in Olen will come from 1st January 2023 from renewable energy sources. This step further reduces the carbon dioxide emissions of the site in Olen, and pays into the reduction targets of the Aurubis Group. On the next slide, it's a final slide on the sales process, which we have discussed for several quarters of certain assets of our FRP business. You might have seen the press release already.
Last Friday, on July 29th, we have closed this transaction, and we have sold the four sites, the production plant in Zutphen, in Netherlands, and three service centers, one U.K., one Slovakia and Italy, to the KME Group at a purchase price of EUR +12 million, then the net working capital, which we have managed to be at the agreed level of EUR 63 million. The sites in Zutphen and the slitting centers have a total of 360 employees, and with this closing, have been transferred now to KME. The sites Stolberg, Pori and Buffalo, the three remaining sites, will stay in Aurubis and have done since we also started a very intensive turnaround program, have shown very, very good improvements and results. We are very pleased with the development and also with the closing of this partial sales of FRP.
Now the big highlight of the last quarter, the picture. I would like to close this session today with a very positive event, with our groundbreaking ceremony that we had in Richmond, our new site in the US, in June. On June seventeenth, we had with a lot of presence, and you see in the middle of the picture, the Governor Brian Kemp, who gave us the honor to join there and say some very encouraging speech about the need of this recycling industry, the need of these metals, and also the intention of Georgia as a state to build up a cluster of e-mobility, of materials for renewable energy and many other persons from the political side, from the local side, governors, commissioners, senators.
We were quite overwhelmed by the support and the presence of these people in Richmond at our ceremony. The project is on track, groundbreaking has started and the work is being conducted, contracts have been closed. We are very confident that we will meet the announced timeline to start production in the site, beginning of calendar year 2024. It was a very nice event in Richmond, and we are on track to deliver on the strategy in expanding our recycling business also outside of Europe. With this, I would like to hand over back to Elke, who will manage then the Q&A.
Yes. Thank you, Roland. Now I ask the operator to open the line for the first questioner.
Yes. Once again, ladies and gentlemen, if you would like to ask a question in the audio conference, please press nine and star, followed by the star key on your telephone keypad. The first question comes from Rochus Brauneiser from Kepler Cheuvreux. Please go ahead with your question.
Yeah. Yes, thanks for taking my questions. Can we talk a bit more on the energy side? Could you give us a rough idea how much the energy consumption per ton of copper cathode differs between the, you know, the primary smelter route and the recycling routes? The first question.
Yes. Hello, Mr. Brauneiser. Roland Harings speaking. Now, Mr. Brauneiser, this is very difficult because we are running an integrated smelter network and there are a lot of intermediates, a lot of products which are optimized in the flow sheet between the different sites. It would be a misleading number if we would say here, recycling is this or this is that, because it very much depends. I think we always talk about our total numbers as a company. Again, the smelter network is what makes here really the effect and the strength of Aurubis, and we wouldn't take this into different factors.
All right. On the cost increase we have been observing now since, let's say, early 2021, I think it's correct to assume that you consume about 2 TWh for electricity and a similar amount for gas. That's correct, yes?
Magnitude is right. 1.8 TWh, 1.6 TWh. As an assumption, that's fine.
All right. If you would consider this moving from, you know, the spot in early 2021 to current prices, there will be a steep increase in costs, what are the kind of toolbox in terms of mitigation strategies you can apply? And as part of that, I would be interested to understand how much of your product portfolio you're selling is currently attached with, you know, energy surcharge or a similar mechanism.
Yeah, no, that's a very well-pointed question. If I start from the second part, regarding product, the majority of natural gas, I would here separate. The majority of the natural gas is used for our product production. Here we have started to pass on the energy price or energy cost increases to our customer base. It's an ongoing process. We have quite successfully done the first steps, and all new contracts will have these energy adjustment clause and will have then, let's say, an energy pass-through mechanism, for rod and shapes products and other products where energy costs are of significant relevance to the total pricing of the product. It has started, and it will be the standard going forward, for products.
Regarding the overall energy management or cost management, here hedging, and we stated this in the last time, for this fiscal year, about 2/3 of our energy prices have been hedged at the, let's call it, historical price levels. This number is going to reduce over time, which is the nature of hedges, that you don't have them forever. As I said before, that's why I took the second part first, but we are now able to pass on the energy increases to our customer base going forward. Therefore, it fits well together so that we can mitigate and can manage the increase of costs going forward.
Yeah. If you allow to add it goes without saying that at this current price levels that we see for gas and electricity, it makes no sense whatsoever to enter into new hedging transactions, which means that we are gradually running out of those hedges, and reducing over the next, let's say, months or years.
Also that's one other additional comment to this. It's also clear that we honor contracts, and we are long-term suppliers and partners of our customers as we are of our suppliers, and we had to absorb certain energy cost increases ourselves, but in time, this will be passed on to our customers. Again, there is this time lag in how we can do this.
All right. Then maybe on your statement you just made that you keep pushing for the decarbonization. You know, in the end, what it means, you're doing everything right and this is why you get this kind of cost hit at the moment because you're increasing your exposure to energy to electricity, where the cost increase is probably in a similar magnitude as we are seeing in the gas market. What kind of, you know, political support do you get or backing you get? Because over time there is maybe a discussion about the competitiveness of energy-intensive businesses in Germany. What is happening on this side?
First, I would raise the point of eligibility so that we receive the compensation for CO2 cost or embedded CO2 costs in the energy electricity price, and that other countries like Bulgaria have kept the electricity price for the industry. We are not paying the European price level that you see on the spot market in our plants at all. First point. Second point is we have long-term supply agreements, and we talked about this supply agreement that is in place with Vattenfall. This is a separate pricing mechanism, so we are also not paying here the price level that you see on the spot or on the market these days. The other discussion that is very intensive now because there is a challenge. The challenge is not just for Aurubis.
The challenge is for the whole energy-intensive industry in Europe. You know, there is a mechanism in place in France where there's an industrial price for the energy-intensive industry, which by the way, is set at EUR 42 per megawatt hour. Extremely competitive these days. We are in intensive discussion with the politicians, with the regulators in Germany, and Chancellor Scholz has announced this in his campaign, that the government will come up with an industrial electricity price, which ensures the competitiveness of the energy-intensive industry.
There is no solution yet announced, but I can assure you, we are very much involved as the associations and other players that we need this solution midterm, rather short term than midterm, because otherwise, certain industry, not Aurubis as the first, but other industries which are even more exposed to electricity costs than we are, will have a problem to remain competitive. Just also to repeat today, I showed the slide, energy costs, everything included, represents 17% of our total cost. You know, other industries, this number is significantly higher. They're very much exposed and might not have the same kind of security measures or hedging mechanism in place that we have.
There is an urgent need, not just for Aurubis, but for the industry as a whole to come up with a competitive energy and specifically electricity price going forward.
Okay. That's quite helpful. Maybe a very final question now. You talked about your confidence in the supply. Just in theory, if there would be a shortfall in gas in Germany, what is your impression about the validity of this prioritization list, if, let's say, the gas pressure would fall under a certain threshold in the network? You still think this is the design of the network and where you are sitting would ensure that you get the gas from a technical standpoint?
Ooh. That's a very technical question, and I honestly. There will be, as the buffers.
Are very important and will ensure the supply into the network for a certain time. We do not expect there will be a sudden reduction of pressure in the network. I think the regulators or the people running the network will act ahead of time and will take on certain loads off the net before pressure starts to drop. I don't think this scenario is a realistic one. It all depends and the storage systems are being filled, and you see the levels are rising. We see good progress on LNG terminals, which will be available beginning of next calendar year. I think they are pushing very hard, and they will achieve this, given how flexible now the regulators are in allowing the works, necessary works there.
There is Antwerp with a large LNG capacity, which is supplying already a lot to Germany. I personally am optimistic here. It will be difficult, but we will get through this going forward. If in case there needs to be a certain stoppage, it will be a very controlled and planned stoppage. What we know from the discussion, we have also some things which we cannot disclose here at this point in time, but I'm very confident that Aurubis will not be of the first companies to be shut down. There are others will be more exposed than we are.
Okay. That's very clear. Thank you very much.
The next question comes from Mr. Jatinder from BNP Paribas. Please go ahead with your question.
Thank you. Good afternoon. First question, just zooming out a little bit, and looking at your cash flow guidance. It's gone down again to EUR 300 million-EUR 400 million. Recently started with EUR 500 million, and you're taking it down to EUR 400 million-EUR 500 million previously. At the same time, your EBT guidance has gone up twice, but cash flow guidance has gone down twice. That's an environment of weak euro. How do you reconcile this cash conversion deteriorating while EBT goes up in strong market environment?
Thanks for the question, Jatinder. Rainer Verhoeven here. First of all, on the cash side, we have to take into consideration the very good cash position that we had at the end of the last year, which led to the fact that there was let's call it spillover into this financial year. That led us to reduce the guidance in the first place on the net cash flow. On the other side, we are in pretty volatile market environment, as we all have already experienced, which also means that we are putting let's call it some safety cushions here and there. This.
Besides the fact that we had the standstill and for sure the extended standstill here in Hamburg weighs pretty heavy on the net working capital and thus on the cash flow generation. We also, and that is holding true also for the end of the fiscal year, will make sure that we, on the one side, will be able to deliver product to our customers at all times, which means we put a kind of a safety cushion, if you wanna say so. And on the other side, also, the supply to our Pirdop plant via Burgas, via the Black Sea, also there we need to have some safety cushions. That's the simple reason. It's all, if you wanna say so, tied up in net working capital here.
Okay. Thanks, Rainer. Just another one. On the company's mentioned in the past that it can fund its CapEx program through cash generation. If you look at EUR 300 million-EUR 400 million cash generation in such a strong year, and you look at EUR 400+ million of annual CapEx budget, does that mean you'll keep adding debt to keep that CapEx program undisturbed? Or would you be willing to take that CapEx program slightly lower to align with your cash generation?
We are having a CapEx, let's take out the extra effects here, of EUR 370 million in this year. You see our figures rising here already. Next year, we talk a different ballgame altogether. Still, we are pretty confident that we will manage to fund this from our operational funds for sure, especially if we are accelerating our let's say implementation of our strategy now in the next coming years, and we see the necessity therefore. We will have a certain level, a higher level of indebtedness, for the coming years. That's clear.
Just to get a sense of earnings trajectory, if you use spot for everything, TC/RCs, currency, energy prices, then asset prices, including all the structural shifts that you're seeing, where do you think the annualized run-rate for EBT would be just using spot measures, excluding any hedges?
For future figures, please allow us to first talk to our supervisory board about budget and midterm plans, and then we will disclose it to the capital markets.
Okay. Just final one. You said it didn't make sense to add gas hedging, which is completely understandable. Why keep adding into euro hedges when you report in euros and you earn in dollars, especially when it's at 30?
It's not euro hedges, so it's the U.S. dollar hedges. For sure, we did not and could not foresee the, let's say, the strengthening of the U.S. dollar position at the point when we have entered into those hedges. These are old hedging positions, and we are recently not entering into additional hedges at levels of 1.02 or something. We benefit very much from the strong U.S. dollar here on that end. For the non-physical-
Sure. You'll remain unhedged if the currency stays at current levels?
No, we are.
You won't enter any more hedges.
Yeah. We are hedged for 70%, next year. We are hedged for roughly 70% also, for the year thereafter. That is a hedge rate which we entered when we were considering what would be our planned U.S. dollar, but that was all before the war in Ukraine, and the recession fears and the strengthening of the U.S. dollar. Therefore, at the moment, we are not entering into new hedges.
It's also our policy. We have a certain hedging policy for our currency. As I stated, we have about a $500 million long position, given our business model. Our guidance is that we hedge between 70% and 80% of the respective period and leave a certain amount exposed.
Okay. Thank you very much. It's very clear. All the best.
The next question comes from Bastian Synagowitz from Deutsche Bank. Please go ahead with your question.
Yes. Good afternoon, all, and thanks for taking my question as well here. My first question is just on your guidance, and I guess the spectrum of your guidance is wide or very wide. If you usually what you guide for the full year, now you basically have one quarter ahead, you say you are largely covered with raw materials already. Can you maybe please help us to step through the key trends in this, in the fourth quarter? I guess clearly there will be a catch-up effect, and it will be meaningful from the maintenance effect, which you mentioned, I think EUR 50 million, the number you've been throwing in here. Sulfuric acid markets obviously still being very solid. On the other side, you obviously have energy cost headwinds, which are, if anything, rising.
Could you maybe help us understand whether we should still expect the run rate to improve from here? Any directional steer would be great. That is my first question.
Okay. As mentioned earlier, we feel quite comfortable with the mid level of that range. We are talking EUR 500 million-EUR 600 million, which means the middle of that is something where we feel comfortable with, which also means that the quarterly run rate will be going up a bit.
Okay. Thank you.
Back to you, to Rainer, that's not a CEO speech. We tend to be quite conservative, but the range of EUR 500 million- EUR 600 million is what we will confirm. If you look at the consensus and what we just stated as the mid-range, that's, I think, a solid assumption to see what is happening in this quarter. As we already have July behind us, and demand is strong, supply is good, operations are running, I think we can assume a solid quarter and the midpoint, as Rainer said, of our range is a fair assumption.
Okay. Understood. That's very helpful. Thank you. Maybe just drilling a little bit deeper into the secondary business. It seems like you've been running down a little bit on your inventory here. I guess usually for the last couple of quarters, you always seemed very well-supplied probably across a couple of quarters now, from what's basically suggesting that maybe the scrap conditions have not been quite attractive enough maybe to really fully load up on inventory. Can you maybe just provide a little bit color here? I appreciate the I think the complex material market probably still looks much, much different, but it seems like you've been trending a little bit down in your supply here. Just wanted to get that basically put into context.
Yeah, no. Well spotted. Roland speaking here. What we see or the advantage of our system's metal network is that we are able to run very different recycling materials in our system. What we have seen is a shortage of some very attractive complex recycling material, specifically the shredder materials, which comes from used car recycling, from end-of-life recycling of certain components. Here with the whole, let's say, lack of supply of new cars, we see that also the end-of-life cars volumes have been reduced. Not just in Europe, we see the same also in North America. Therefore, a very attractive portion of our fleet, the shredder material has been limited in its supply.
We have compensated this with other recycling materials, so we have only partially reduced the volumes in our recycling system, but we had to go to the less attractive portion of the portfolio. If you look at the numbers of the last quarter, there are some catch-up or some effects that were specific in the quarter, and we will see some catch-up in the running quarter. Some inventory effects, without elaborating in detail about this. What you see for MMR segment result for Q3 is not representative. I would really ask you to look at the results of the first three quarter and then even more to look at results of the total fiscal year, which we will announce then later, because there was some one-offs in the Q3.
Okay, gotcha. Thanks. The next question is just following up on the FRP sale, and well done on executing on the sale. I guess that's not been an easy process. Can you please help us understand what the book value is for the residual operations, and did the working capital compensation, which you are receiving equal the entire working capital which corresponds to the operations which is sort of in other words, is there anything which has been retaining on the working capital side, either active or passive?
Yeah, no. Thanks, Bastian. Roland speaking again. As you can imagine, we talked about this many quarters, and I'm more than pleased that we successfully concluded this transaction in difficult days. We got also the unconditional approval of the merger control. We did all fine, all well. As we announced jointly with KME, we received EUR 15 million for the business value and EUR 63 million for the net working. Correct or-
EUR 12 million.
EUR 12 million. Sorry, EUR 12 million. EUR 75 million in total. Sorry. Justin is correcting me. EUR 12 million for the business value and EUR 63 million for the net working capital. Important is here we have agreed with the buyer on a certain cap, a maximum net working capital. We jointly, and also in accordance with the buyer, we reduced the net working capital significantly ahead of the closing date. There was also some significant cash generated before the closing date, which also entered into our results. We will disclose this in more detail with the Q4 results. As closing happened on Friday, not everything is completely finalized. Now, there are still some inventory, some back and forth, some hedging and so on. There are still some mechanics taking place as we speak, so there is no final number.
To give you the magnitude, we sold above book value. I think that's important. We generated a profit of about EUR 10 million-EUR 15 million, again, subject to final confirmation. An operating EBT profit, to be precise. Operating EBT profit in the range between EUR 10 million-EUR 15 million with the sale of these assets.
That's very interesting color actually. Really well done on that. Just again, can you guide us a little bit towards how much of the flat roll business these assets account for? I think the overall book value was around EUR 400 million, if I reconcile that correctly.
That would be, let's say, the total value. That's correct. We are not talking on the, let's say, run rate, EBTs or EBITDAs of single entities here. We are always talking about the segment. We'll go not further down here. Please understand that.
You have also, Bastian, what you need to take into account, when this original sales of the total FRP business was announced, this was different days with different metal prices and so on. This kind of book value is today not the right reference point. As Rainer said, I just can confirm we are not disclosing, but I think that we achieve an operating EBT of EUR 10 million-EUR 15 million with the sales, gives you a good indication where the book value of the business was at the point of closure.
Okay, great. Well, I'll wait for the full year results then. My very last question is, if that's okay. I was just wondering what is the fixed tailwind which you had to your third quarter numbers, please, on EBT level? You got that to hand?
As you know, we are operating also our plant in Buffalo, and for sure the cost, that is, a translation effect that we are seeing on our balance sheet here. Of course, with the strong dollar, the costs translated into euro are higher. I think we have not disclosed that number now. It's a smaller number.
It's also important, it's a profitable site, so we get also more euros on the profit.
Absolutely.
You see a certain cost increase, but you see even more a stronger contribution on the earnings.
Yeah, on the top.
That's what I would have thought. I would have thought it's a net positive, not a net negative, given that you're mostly operating in the dollar market.
Yes. No, it's definitely a net positive, and it's a good net positive because we have very successfully turned around our Buffalo operation. This is now a site which is delivering strong results, also in a very good market environment in which we're operating. We are pleased with the performance of Buffalo.
Okay, excellent. Thank you.
At the moment, there seem to be no further questions. Ladies and gentlemen, if you'd like to ask a question, please press nine and star. There is one more question from Cameron Needham from Bank of America. Please go ahead with your question.
Hi there. Just two quick questions from me. Just on the Olen PPA, could you talk through a little bit around the sort of cost and financial impact of that agreement? Just second quick question, if there's any update on the Hamburg battery modules project in the quarter at all. Thanks.
Sorry, I didn't get the second question. There was some interruption. Could you please repeat the second part of your question?
Certainly, yeah. It was just around the Hamburg battery metals project.
Okay.
The pilot plant that you've got.
Yeah.
Just if you could give any color and any updates in the quarter. Thanks.
Yeah. No, fine. Regarding the PPA and Olen, we are not disclosing. We have confidentially agreed with the supplier, so we are not disclosing the details of the deal. What I can disclose, as we also said in the press release, it's a 10-year contract which starts on the 1st January 2023. It's at attractive rates for us, which is important, and it has a duration of 10 years. What is very important for Aurubis, but also for our industry, it's a base load contract. It's a supply of a 12 MW band, 24/7, to our plant in Olen. Again, at attractive conditions. Subject to the confidentiality of the contract, I cannot disclose that.
Batteries.
Battery recycling, as we announced in March, we started our pilot production plant for the recycling of black mass. The first step after the shredding and the, let's say, extraction of the electrolytes of the battery materials. We have very successfully concluded the first round of trials, confirming, more than confirming, what was our laboratory result. To give you an idea, the pilot plant we have built in Hamburg has the scale of one to 1,000 compared to laboratory. It's already, let's say, coming to a certain size, which gives you also some industrial indications of the process. We have modified, with the learnings of the first phase, this pilot plant in some areas.
Next week we are going to start now the second campaign of testing all different kind of black mass materials, different battery compositions. In September, probably late September, we will announce then more details of the results and about specifically the extraction rates for the very important components, ingredients of the black mass. As we stated last time, our process was very much centered about the recovery of lithium, which is something differentiating and unique in this industry. I have to ask for your patience with the real numbers. We are going out with confirmed results from our second round of pilot trials. Sum it up, it's ongoing. It's positive results and intensive work going on till end of September this year.
Great. Thanks very much.
There is one more question from Rochus Brauneiser, from Kepler. Please go ahead with your question.
Yes, thanks for taking it forward. Just a quick question on the sulfuric acid market. I think Roland, you sounded again very bullish on the outlook for that particular market also beyond the current fiscal. In your view, is this now kind of a demand or supply-driven rally, and what are the key drivers why you think this is now a structurally different market in going forward?
Yeah. Thanks for the question, Rochus. Yes, we see there is a structural change, and this is confirmed also by some long-term contracts that we were able to lock in with our customer base. I think we always stated in our calls that we are only partially exposed to the spot market, that we much more look for long-term relationships, specifically although from our Hamburg side, but also from Pirdop to some extent, with our customer base. What we hear and what we see now in the negotiations for the next calendar year and also longer term contracts, there is a clear new price level for sulfuric acid, given a different demand and supply situation that we see in the marketplace. That's two aspects here.
Sulfur burners are now faced with significant higher raw material costs. That means sulfuric acid coming from sulfur burning is also being sold at higher levels or even to, in some cases, these assets have been shut down because they were not competitive anymore. First point, there is a reduction of supply. Secondly, we see an increase of demand. Just looking at battery production, producing of lithium ion batteries needs significant amount of sulfuric acids. Electronic, electric production, many processes need sulfuric acid as a chemical input chemical. Also here, a strong demand is being noticed from various areas in Asia, where today the majority of battery production is hosted, but also with increasing battery production that we see in Europe and also in other parts of the world.
Again, different drivers, no increase in supply, but continued and strong increase in demand, so therefore the structure change of this marketplace.
Okay. That's very interesting. Do you have data on what kind of share the battery market has in the global sulfuric acid demand?
I don't have it at my fingertips here.
Can follow up.
Perhaps we can follow up. I'm looking at the team, Elke and Angela. I know we have these data, but I don't have it here at my fingertips.
I know. No, that's not, that's no problem. Thank you very much for clarifying this. Thank you.
There are no further questions.
Okay. Thank you. We can close this call at this time. Thank you for your attention and active participation. The next call will take place on the occasion of the publication of our fiscal year figures on December 7th. Until then, we wish you a pleasant rest of the summer. Thank you and goodbye.
Bye-bye.
Bye.