Aurubis AG (NDA) Earnings Call Transcript

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. [Operator Instructions] Let me now turn the floor over to your host, Elke Brinkmann.

Hello. I would also like to welcome you to our 9 months analyst call. Our CEO, Roland Harings; and Rainer Verhoeven, our CFO, will present the financial results in a minute but also gives you insights into [ current ] topics such as energy. Let me give you a hint about the Q&A sessions that will follow. [Operator Instructions] And with that, I hand over to Roland Harings.

Okay, thanks, Elke. Also from my side, a warm welcome. Good afternoon to everybody. And thanks for joining our call today talking and presenting the 9 months result of our fiscal year '21, '22, 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, but let me start with the first slide and also with some highlights of the first 9 months. The first 9 months result is EUR 448 million operating EBT, which is an increase of 67% compared to the previous year. And 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 costs as well as the impact of the maintenance shutdown in Hamburg which we did in the last quarter in Q3. We -- 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, but 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 to EUR 400 million. Based on our very good results, we confirm our forecast corridor for [ this fiscal year '21, '22 ] of EUR 500 million to EUR 600 million [ operating EBT ]. This is the best result that Aurubis has seen in history. And clearly this is all -- and you hear this from all companies needing energy, [indiscernible] the disclaimer that we will have [indiscernible] energy and specifically natural gas supplies [ to the plant, but we will come ] to energy supply in the -- in more detail later [indiscernible] 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 [ key 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 9 months [ increased ] by 20% due to strong market conditions and a good performance of our operation. We will 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 downwards 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 USD 9,500 during Q3. Looking now at some concentrate -- highlight of the concentrate market. [ 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 trend from the past quarter on the treatment and refining charges for concentrate continued also 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 Chinese smelter purchase team. They have set the floor for Q3 of the calendar year to USD 80 and USD 0.08 for the TC/RC. So significant above this year's official benchmark, which is 69...

$65.

$65, sorry, $65. I was wishful thinking. $65 and $0.065. 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 market. During the first 9 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 [indiscernible] in Q3 of our fiscal year, came in at EUR 325 per tonne, according to CRU. This compares to an exceptionally high figure last year of [ EUR 655 ] per tonne, so we see now quarter-over-quarter a slight improvement. And the number of EUR 325 is a healthy number. It has been extremely high for very specific reason in the quarter a year ago. We have the European markets this benefit from some shutdowns and some logistic challenges where scrap RCs became that high as we [indiscernible]. Looking forward on the supply side for recycling materials, we are well supplied with material and satisfying RCs into the running quarter and [indiscernible]. 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. And 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 [indiscernible] CFR numbers of [indiscernible] up to EUR 250 per tonne. We see -- and we discussed this on our last call: We see some structural change. And we see continued positive momentum for the sulfuric acid market going forward; and no change, 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 -- I'm sorry. This is -- European spot range -- sorry. I was just missing here -- ranged between USD 90 and USD 125 per tonne during Q3. And Asian spot rates [ rated ] slightly lower between USD 65 and USD 100 per tonne in the quarter. We consistently kept our ACP, our Aurubis copper premium, for the calendar year at USD 125 per tonne and are able to completely implement this into the market. Regarding U.S. dollar, as you know, we have a long position of around EUR 500 million in our fiscal -- sorry, USD 500 million in our fiscal year. And within the scope of our hedging strategy, we have hedged for this fiscal year 70% at a rate of 1.147 and at a rate of 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 margin. And you see now the numbers for the first 9 months. And the 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 [indiscernible] and earnings arising from smelting concentrates. As a reminder: The gross margin represents Aurubis' income component and does not [indiscernible]. The figure is composed of metal gains, income from treatment and refining charges [indiscernible] products, including sulfuric acids. Going to the next slide, where we give some transparency on the costs. You see the general cost inflation for all [indiscernible] [ energy ] cost remains the biggest contributor [ in the ] group-wide cost increase. However, as we pointed also 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, amongst other reasons, for additional sale of copper products. Despite the cost inflation, yet again, Aurubis managed to achieve a very good 9 months result given the ongoing strong development on the earnings driver market. And we could compensate for the energy cost and also for the overall inflation during the first 9 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 9 months of fiscal year '21, '22, we have seen significant energy price increases. The restricted natural gas deliveries and 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 '21, '22, we continued to show the compensated energy cost to the capital market. Displaced 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 of our production even further. Yet again, as mentioned above, [indiscernible] of all energy sources, so natural gas, oil and electricity remain very relevant topics for Aurubis. And with this, I would like to hand over to Rainer Verhoeven.

Thanks, Roland. Good afternoon, ladies and gentlemen. So 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 [ path ]. 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 4 quarters. And 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 '21, '22 and thus to a lower net cash flow, which will balance out towards the end of the fiscal year. At the end of '21, '22, we expect a net cash flow in the amount of EUR 300 million to 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 times 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 scarp [indiscernible] more than 30% down in this year. And 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 planned shutdown in Lünen in Q1 '21, '22. 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 doubled 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 necessarily -- or 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, rod 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 part through the product surcharges. The return on capital employed, ROCE, reached 14.7% compared to 10.1% after 9 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 [ projections ], both CRU and Wood Mac 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 '22, new project [indiscernible], which was commissioned in July, [indiscernible] additional capacity to the global concentrate market. Based on our [ expected levels ], Aurubis is already supplied beyond the end of the fiscal year '21, '22 and into next quarter or the first quarter of [indiscernible] 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 and principal annual contracts. Our production plants are well supplied with recycling materials at good refining charges into Q4 '21, '22. Coming to the sulfuric acids. ICIS and CRUs -- and CRU both expect an ongoing restricted supply of sulfuric acid for the remainder of the -- of our fiscal year '21, '22 for Northwest Europe. Given the current and latest high prices, we foresee a very positive earnings contribution for sulfuric acid in '21, '22. As mentioned already, on the copper premium, the ACP for calendar year '22 has been set at USD 123, reflected -- reflecting the ongoing strong demand for refined copper. Coming to our copper products, rods, 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 '21, '22 at the minimum. Product demand for rod, shapes and FRP products remained elevated versus previous year. And in this market environment, we managed to pass on the increased costs 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 17% to 21%. We will -- 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 and EUR 260 million. And for CSP, we expect an EBT between EUR 350 million and EUR 410 million. With that, I would like to hand back to Roland.

Okay, thanks, Rainer. And 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 will have an impact of EUR 28 million. In today's market condition; and also, let's say, sulfuric acid prices, TC/RCs and also metal prices, we would see this range more in the EUR 40 million to EUR 50 million for the anticipated time that we have in the standstill. And 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. So if you take this all together in today's market conditions, the standstill of Hamburg had an impact of around EUR 50 million on our Q3 results. And with this, I will then move to the gas market and the German situation here. And as you all are very involved in this, the energy security is probably discussed in the news and also with the politicians. And as an energy-intensive company, we are very much involved in these discussions in all levels in Germany and the other countries. [indiscernible] a secure and steady supply of natural gas as fuel or reduction agent remains absolutely key for Aurubis, for our production processes, and 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; and we are very actively looking at how to ensure the supply to the German site. And 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 [ complete ], then we should see, if things turned to be a bit more normal to around [indiscernible] to 50% of [indiscernible], which would mean also with [indiscernible] 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. But again it's still a very fragile and volatile situation, what is happening with the supply through Nord Stream 1. We are preparing with significant investments in order to reduce further our dependency from natural gas. And 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, so 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. So we -- at our primary site -- if I go 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 [ coal gas ], so the natural gas that we use [ for 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. So many measures, many things have been implemented, are in implementation. And we are doing also changes to our operations in Lünen, for example. And in total, we anticipate, as Aurubis, a digit -- small-digit number, million, of investments for the necessary equipment to move from natural gas to other fossil energies at our sites, 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 with 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. And what we also see in all the political discussion, Aurubis, with the metals we produce for the decarbonization, for 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 also decisions which will ensure that we keep our production running also if times will get even more complicated. So therefore, summarizing [indiscernible] and have early started to do the necessary measures. We have the technology. We have taken the decisions. And we as Aurubis will get through also this crisis probably even stronger than we entered it. I'm sure we will have some Q&A, some questions later to 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 multistage process up to [ kettle ] production on a voluntary basis. In a latter step, processes along the entire value chain will follow. The 32 [ sustainability ] 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 standards ] of the London Metal Exchange, LME, [ one of the world's ] most important metal exchange, so we are very pleased and proud that we have achieved this [indiscernible]. And important [ both next site ] has already committed to [ go through the ] certification and will do this in the next year. Power and energy, another -- again a point here, again a positive one here. We have, as you know, defined a very clear road map 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. And I'm pleased to announce that Aurubis Olen signed a green electricity supply contract for 12 megawatts with Eneco that represents another major stop (sic) [ step ] 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 of January '23, from renewable energy sources. This step further reduces the carbon dioxide emissions of the site in Olen and plays into the reduction targets of the Aurubis Group. Also, 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. And you might have seen the press release already last Friday. On July 29, we have closed this transaction. And we have sold the 4 sites, the production plant in Zutphen in Netherlands; and 3 service center, 1 U.K., 1 Slovakia and Italy, to the KME group at a purchase price of EUR 12 million, plus then the net working capital which we have managed to be at the agreed level of EUR 63 million. The site in Zutphen and the slitting centers are -- have a total of 360 employees and, with this closing, have been transferred now to KME. Besides, Stolberg, Pori and Buffalo, the 3 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. So we are very pleased with the development and also with the closing of these partial sales of FRP. And now the big highlight of the last quarter, the picture. I would like to close this session today with a very, very positive event with our groundbreaking ceremony that we had in Richmond, our new site in the U.S., in June. On June 17, 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, very encouraging speech about the need of [indiscernible] 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, so we were quite overwhelmed by the support and the presence of these people in Richmond at our ceremony. The project is on track. So groundbreaking has started and the work is being conducted. Contracts have been closed, so we are very confident that we will meet the announced time line to start production in the site beginning of calendar year '24. So 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. And with this, I would like to hand over back to Elke, who will manage then the Q&A.

Yes. Thank you, Roland. And now I ask the operator to open the line for the first question...

[Operator Instructions] And the first question comes from Rochus Brauneiser from Kepler Cheuvreux.

Can we talk a bit more on the energy side? Could you give us a rough idea how much the energy consumption per tonne of copper cathode differs between the primary smelter route and the recycling routes? My first question.

Yes. 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, so it would be a misleading number if we would say here recycling is this or this is that, because it very much depends. So 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. Then on the cost increase we have been observing now since, let's say, early 2021. Is -- I think it's correct to assume that you consume about 2 terawatt hours for electricity and a similar amount for gas. That's correct, yes?

Magnitude is right, 1.8, 1.6, but as an assumption, that's fine.

All right, so if we would consider this moving from the spot in early 2021 to current prices, so -- 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 energy surcharge or a similar mechanism.

Yes. No, that's a very, very well-pointed question. So if I start from the second part, regarding product. The majority of natural gas -- I would see a -- separate. The majority of the natural gas is used for our product production. And 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 shape products and other products where energy costs are of significant relevance to the total pricing of the product. So 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, but 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. So therefore, it fits well together so that we can mitigate and can manage the increase of costs going forward.

Yes. And 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.

But 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. [ Over time ], this will be passed on to our customer base, but again there is a time lag in how we can do this.

All right. And then maybe on your statements you just made that you'll keep pushing for the decarbonization. In the end, what it means is 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 political support do you get or backing you get? Because over time there is maybe a discussion about the competitiveness of energy-intense businesses in Germany. So what is happening on this side?

First, I would raise the point of eligibility so that we receive the compensation for CO2 costs -- or embedded CO2 costs in the energy -- electricity price and that other countries like Bulgaria have kept the electricity price for the industry. So 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 you -- we talked about the 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 [indiscernible] these days. And the other discussion that is very intensive now because there is a -- the challenge is not just for Aurubis. The challenge is for the whole energy-intensive industry in Europe. And there is a mechanism in place in France where there is an industrial price for the energy-intensive industry, which by the way is set at EUR 42 per megawatt hour. So extremely competitive these days. And we are in intensive discussion with the politicians, with the regulators that Germany -- and Chancellor Scholz has announced this in the -- 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 the 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 problem to remain competitive. Just also to repeat today, and I showed the slide: Energy cost, everything included, represents 17% of our total cost. And you know, other industries, this number is significant higher. They are very much exposed and might not have the same kind of security measures or hedging mechanism in place that we have. So 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. And 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, do 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?

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, I -- 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 certain loads off the net before pressure starts to drop. So 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. And 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, so I -- personally I'm optimistic here. It will be difficult, but we will get through this going forward. And it will -- if in case there needs to be a certain stoppage, it will be a very controlled and planned stoppage. And 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 we -- more exposed than we are.

The next question comes from Mr. Japinder (sic) [ Mr. Jatinder ] from BNP Paribas.

First question, just zooming out a little bit and looking at your cash flow guidance. It's gone down again to EUR 300 million to EUR 400 million, originally started with EUR 500 million. And you were taking it down to EUR 400 million to EUR 500 million previously. At the same time, your EBT guidance has gone up twice, but cash flow guidance has gone down twice. And that's in an environment of weakening euro, so how do you reconcile this cash conversion deteriorating while EBT goes up in strong market environment?

Thanks for the question, Jatinder. Rainer Verhoeven here. So 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 a, let's call it, spillover into this financial year. So 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. So -- or besides the fact that we had the standstill -- and for sure, the extended standstill here in Hamburg has a -- 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 want to 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. So it's all, if you want to say so, tied up in net working capital here.

Just another one. On -- the company has mentioned in the past that it can fund its CapEx program through cash generation. If you look at EUR 300 million to EUR 400 million cash generation in such a strong year and you look at EUR 400 million-plus of annual CapEx budget, does that mean you'll keep adding back to keep that CapEx program undisturbed? Or would you be willing to take that CapEx program slightly lower to align with your cash generation?

So we are having CapEx, let's take out the extra effects here, of 370 million in this year. So 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 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.

Okay. And just to get a sense of earnings trajectory. If you use spot for everything, TC/RCs, currency, energy prices, then -- and acid 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?

So going -- let's say, for future figures, please allow us to first talk to our Supervisory Board budget and mid-term plans, and then we will disclose it to the capital markets.

Okay. And just a final one. You said it didn't make sense to add gas hedging, which is completely understandable. Then why keep adding into euro hedges, when you report in euros and you earn in dollars, especially [ when you separate ]?

So it's not euro hedges. So it's the U.S. dollar hedges. And 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. So 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 [indiscernible].

Okay. So you'll remain -- sure. And so you'll remain unhedged if the currency stays at current levels [indiscernible] any more hedges.

Well, we -- yes. We are hedged for 70% next year. We are hedged for roughly 70% also for the year thereafter. That is hedged rates 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 -- and, let's say, the recession fears; and the strengthening of the U.S. dollar. So therefore, at the moment, we are not entering into new hedges.

It's also our policy -- I'm sorry. I have to -- we have a certain hedging policy for our currency. And as I stated, we have about USD 500 million long position given our business model. And our guidance is that we hedge between 70% and 80% of the respective period and leave a certain amount exposed.

The next question comes from Bastian Synagowitz from Deutsche Bank.

My first question is just on your guidance and, I guess, the spectrum of your guidance. It's wide -- or it's very wide. [ So usually what you'll -- guide for ] the full year. You [ mainly ] have 1 quarter ahead. You say you're largely covered with raw materials already, so can you maybe please help us to step through the key trends 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 is the number you've been [ talking ] 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. Can you maybe help us to understand whether we should still expect the run rate to improve from here? So any directional steer would be great. That is my first question.

Okay. So as mentioned earlier -- so we feel quite comfortable with the mid-level of that range. So we are talking EUR 500 million to 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.

Yes. [ That actually is -- Rainer, that's not a CEO ] speech. We tend to be quite conservative and -- but the range of EUR 500 million to EUR 600 million is what we well confirmed. So therefore, 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. And 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 hence the midpoint, as Rainer said, of our range is a fair assumption.