Welcome to the conference call of K+S regarding the publication of the annual report 2019, hosted by CEO Dr. Burkhard Lohr, Thorsten Boeckers, CFO, and Dirk Neumann, head of investor relations. During this call, you will be on listen-only. You have the opportunity to submit questions on the webcast system at any time. They will be answered at the end of the presentation. If at any time you need assistance, please press star zero on your telephone keypad and you will be connected to an operator. Please note on page 24 of the presentation, you will find the disclaimer. I'm now handing over to Burkhard to begin.
Ladies and gentlemen, welcome to analyst conference here in Frankfurt and on back in 2000 same place during the financial crisis, have survived this period, and I'm sure of course, it keeps us busy and we see that. Together with my colleague, Thorsten Boeckers, I'm pleased to in the key development share our view on the market and of. Let's begin on slide number two. Beginning of December, decided on our package of measures to reduce debt. Under the prevailing market conditions, it became increasingly clear not be able to reduce as significantly. However, solid financial basis company. Waiting and hoping for better conditions, have an option for us. Package of measures includes both operating units and of course. Further increases in productivity are just as much the focus as the implementation of future-oriented solutions environmental area. Package, we begin examining the measures, options available to us.
As you can see from yesterday's ad hoc announcement, we aim to completely sell our Operating Unit. They will be accompanied by a comprehensive major restructuring as well as a new dimensioning functions with the aim of a strong reduction of costs. To further advance our efforts to increase efficiency and productivity in our plants to reduce costs even further. We are working intensively on intelligent, future-oriented solutions to fulfill our environmental obligations with lower costs. In this way, we will ensure that all sites achieve a sustainable positive free cash flow. How will the new K+S look like? A lean and performance-oriented supplier of fertilizer and high-earning specialties with a solid financial base. Let's turn to slide three and take a look at our Operating Unit Americas.
Strong cash flows characterize this unit, sites close to our customers in North America, and low-cost production in South America. They are strong brands with high emotional consumer loyalty. The umbrella girl of Morton Salt in particular has been a trademark in millions of American households for more than a century. The brand Windsor in Canada, as well as Sal Lobos and Biosal in South America also possess a strong brand value in the corresponding regions. Ladies and gentlemen, this health platform is unique worldwide. All operations have been assessed, and the full divestment of the Operating Unit Americas has been identified as the most value-generating option in all. We have already started the sale process and have mandated investment banks to assist. The range of interested parties is already extensive.
Following initial discussions with potential buyers, we are confident that we will be able to reach the signing before the end of this calendar year. We come to our Operating Unit Europe+. Ladies and gentlemen, our new Bethune plant in Canada is one of the most modern potash production facilities in the world. It's a very valuable asset and an integral part of the future of K+S. According to our review, the sale of shares not planned. To focus even more strongly on our core business, the Operating Unit Europe+ reduce the complexity of our group and sell non-core activities. As announced, we have implemented the first measures directly. Two examples of this are the sale of Baltic Train in the logistics sector and the waste management subsidiary in Switzerland at the end of 2019. The aim is to generate sustained positive free cash flows at all times.
For the Werra sites, we will realize the environmental goals agreed with the FGG Weser more cost efficiently by means of more intelligent solutions. For example, we want to achieve an optimized product mix to improve the way we operate, resulting in less liquid residues. Another example, we are working together with external partners on various concepts for covering our tailings part. The aim is to achieve a faster reduction in wastewater for the tailings files at significantly lower costs. Over the last eight years, we have had to shoulder a total amount around EUR 1 billion in investments, environmental measures at our German sites. Significant reductions. Now, please turn to slide five. Based on the numerous measures just described, we intend to reduce our debt by well over EUR 2 billion by the end of 2021.
In terms of ranking, we want to use this step to create the conditions for achieving a stable crossover rating. Crossover refers to the area marginally below investment grade, a solid financial position. With this new lean and performance-oriented company, we will become a premium provider in the fertilizer business. We'll mainly also focus on the range of high-earning specialties and will continue to grow in this area. As a result of the reorganization orientation, we have a solid financial base and will become less dependent on de-icing, and in future, with increasing shares of specialties also on the MOP business. The recent past confirms that this is the right path to take. I will now hand over to my colleague on the board of executive directors, Thorsten Boeckers , who will present further details on the financials of 2019.
Let's continue on slide six. We did our homework on important items that kept us busy in 2019. At our Bethune plant, we made significant progress by implementing cooling, screening, and grinding equipment. Product quality has now reached the high level expected by our customers and ourselves. Burkhard and I were able to see the progress we made there with our own eyes a few weeks ago. We have also managed to get the wastewater-related issues in Germany under control. Despite another dry summer, we were able to avoid weather-related production downtimes. For the first time, we have set up an underground storage facility for saline wastewater at our Wintershall site. In addition to our ability to transport brine to offsite locations, this has increased our storage capacity to a total of 1 million cubic meters.
It enables us to successfully bridge dry phases and gives us stability in production. Against this background, we do not expect wastewater-related downtimes at our Werra plants going forward. In my opinion, the biggest success of 2019 was our cash generation. For the first time since 2013, we generated a positive free cash flow. At EUR 140 million, the value was clearly above expectations. With this, we have fulfilled our commitment. We also made good progress in lifting synergies. We have already realized more than EUR 100 million in administration, procurement, logistics, production, sales, and marketing. We are therefore well on track to exceed our synergy goal of more than 150 million run rate by the end of 2020. This will also help the new K+S. Looking back at market developments in 2019, starting on slide seven. We were happy with the H1 of the year.
In the course of the second half , the general conditions for large parts of our business turned south. Look here, slide. In H1, some events caused minor disruptions on the potash market, for example, flooding in the United States. These events would not have led to a severe instability. The main reason for market weakness from the H2 of the year onwards was the import ban on MOP imposed by China. This resulted in falling prices and lower demand in other important overseas markets, too. All producers worldwide have responded to this by cutting back production. The potash industry as a whole, production was reduced by about 4 million tons. We also contributed with production cuts in Canada and Germany of about 600,000 tons. Slide nine, please.
At 12.7 million tons, sales of de-icing salt for the year as a whole were in the range of the so-called normal winter. While demand was above average in the first quarter 2019, we lacked a good winter in Europe in the fourth quarter. This is the reason why we fell EUR 10 billion short of our guidance of around EUR 650 million announced. Q4 results are mainly driven by the reduced potash production and the lower salt volumes in de-icing compared to Q4 2018. We also suffered from lower prices for MOP.
On a full year basis, we achieved slight growth in revenues and earnings. At EUR 640 million, our EBITDA was 6% higher than in the previous year and therefore improved for the third year in a row. We will propose a dividend of EUR 0.15 per share to the AGM. This compares with EUR 0.25 a year ago.
The payout ratio of 37% will be slightly below our target corridor of 40%-50%. This reflects our cautious outlook for 2020 and will also contribute to our package of measures. We come back to the cash flow again on slide 12. We are proud of our Bethune plant. Investments there, together with the high environmental CapEx in Germany, led to negative free cash flows for K+S in the years 2014-2018. In 2019, this number improved by almost EUR 350 million compared to 2018. The main reasons for this very good development are our strong focus on cash across the group and an optimized working capital management. A good cash flow development also had a slightly positive effect on the leverage. We finished the year at 4.9x net debt to EBITDA, compared to 5.3x year-over-year.
Progress was even stronger during the year, however, also stalled by the development on the potash market. That concludes my look at the financial development. Back to you, Burkhard.
Ladies and gentlemen, we now come to our current market assessment and outlook. Turn to slide. Some industry observers have assumed that there could be a significant increase in potash capacity over the coming years, creating an excess supply in the market. A closer look at the facts makes it clear that there is a large gap between plan and reality. Over the past 15 years, some 160 potash projects have been announced worldwide. Currently, we see a high probability of just six of these projects being implemented by 2025. Two projects are currently being ramped up. One of them is our Bethune plant in Canada. On the demand side, this is confirmed by all market observers, long-term trends remain intact and assume annual increase in global potash demand.
Drivers for this continue to be global population growth and the need for an optimal supply of nutrients to soils in order to increase agricultural yields. Amount of arable land is declining in time. See a rather balanced relationship between supply and demand going forward and do not expect an oversupply. Rather, we assume global capacity will level off at the long-term average over the next few years, especially as capacity is releasing the market due to premature plant closures and uncontrollable water inflows. Now please turn the page. The general conditions for the current year 2020 underline a long-term assessment of demand. In the case of cereals, for example, demand is increasing, and prices remain at an attractive level. This is likely to lead to an increase in acreage under cultivation in North America and Brazil.
In addition, the agriculture sector is currently in good financial shape. These are positive factors that should also favor demand for fertilizers. Please, 17. The market weakness for potassium chloride that has been observed since the H2 of 2019 is currently being felt primarily on overseas markets. Less so on our home European market. Here, the price level is proving to be significantly more. The same applies to fertilizer specialties such as potassium sulfate, which is quite expensive. There we see a significantly more stable price trend compared with MOP overseas. Both our broad regional base and our strong market position in the case of fertilizer specialties are our plus points in the current market situation, which help us to manage this difficult phase. This brings us to our forecast for 2020 on slide 18.
The forecast is complicated because of numerous still a lack of orientation on overseas potash markets, especially because the important contract in China is ending. In addition, the effect on the coronavirus cannot be predicted. However, from today's perspective, we assume that MOP prices will bottom out with the start of the fertilizer season in the Northern Hemisphere in spring. This would translate into an average price slightly below the Q4 2019 level, reflected in the midpoint. Second half of 2020, we expect prices to stabilize at a significantly higher level. Upper case, we expect average prices for the customer segment agriculture level of Q4 2019. Due to the green winter, we expected a low average de-icing salt business in the first quarter of the year, both here in Europe and in North America.
This will also be reflected in the low average early fills business in the second and third quarter. Against this backdrop, we expect our operating earnings, EBITDA, for 2020 to be in the range of EUR 500 million-EUR 620 million. Ladies and gentlemen, let me finish and summarize the most important points on slide 19. A package of measures will reduce our debt by well over EUR 2 billion by the end of 2021. This will create a solid financial basis that will secure the future viability of our company. The new K+S stands for lean, performance-oriented supplier of fertilizer and high-earning specialties. This realignment will create the basis for global growth, for example, in Africa and China, and for the further expansion of our high-earning specialties business. I'm thinking here of the topic of fertigation, pharma products, and industrial applications. The final slide shows the DAX 50 ESG index.
We are a proud member of this. That shows and underpins our sustainability with all our ambitious sustainability targets are paying off. Thank you very much for your attention, especially because it was a bit more extensive today than usually. I'm now looking forward to the questions.
Christian Faitz, Kepler Cheuvreux.
All right. Thank you. Two questions as a start, please.
One by one, please.
Okay. Thank you very much. Okay. Can you bring home to us what led you to the decision not to partially sell or IPO the Americas unit, rather now doing a full sale and keep Bethune on a 100% role? What has led to that change in thinking? Thank you.
That's a very good one. We, first of all, have a history of huge investments that the OU Americas more or less result of the acquisitions in 2006 and 2009, have heavily invested in Bethune . We also were the environment that we have seen in the last couple of years. Coming back to a solid financial basis. We have created first ideas late last year. We have further worked on that and, of course, as markets, such an asset, and we realized that clear cut would, following of the positives, first of all, the highest proceeds. Secondly, it increases ability of such a transaction. Thirdly, it would give us the opportunity to start from scratch and design the company that I've just described. Less assets, but back into the free cash flow positive. It gives us the opportunity to stick to assets. Making the decision.
Follow-up, you talked about cash flow. Can you talk about the cash flow situation for Americas? How can we think about cash flow?
Annual CapEx there of about EUR 100 million-
Oliver Schwarz, Warburg Research.
Thank you for taking my questions. Going one at a time. Can you fill me in about the reduction in long-term mining provisions of about 10% in 2019 versus 2018, please?
What I've indicated in my speech, that we have taken a lot of ideas to fulfill our obligations. What the reason for this already, because we have a concept. Authorities and big lever because we are talking about the huge coverage measure and net working model many years. This technical concept behind how to cover our heat. There is more potential to come.
Secondly, can you fill me in about your thinking about to reach more than EUR 2 billion reduction in debt, the current market situation and your closest peers, Compass now trading well below 10x EBITDA. Next to that, how you come up with the crossover rating as a consequence of this math behind that would be helpful. Thanks.
First of all, we're talking about the package of measures. This package will potential next year. The current situation will not hinder us in doing because we are talking to investors who they are, even in the current situation, find the financing that does vary. It's not only OU Americas, it's in total. If you take our net financial debt and deduct this end up in that.
I deduct, let's say, these EUR 3.1 billion by the, let's say, EUR 2 billion+ I end up with in the range of give or take EUR 1 billion. If I take a crossover rating net debt to EBITDA of perhaps 3.5x, I'll end up with prospective EBITDA of in the ballpark of EUR 300 million. It's lower than I would have expected for 2021. Can you confirm that is your thinking or am I missing something here?
We didn't say that we would end up at the lowest range of the EUR 300 million is for sure too low.
Yeah, taking investment grade rating 3x , I would end up at around about EUR 340, which is not that far off from EUR 300.
We are now mixing net financial debt and net debt.
Okay.
We're looking at two. We have a difference between the two numbers of roughly EUR 900 million, our long-term provisions and financial debt.
Just to clarify, the basis of your calculation is net financial debt+ pension provisions+ the long-term provisions for the mining obligation. Is that correct?
That is the definition of net debt. Correct.
Okay. Just one or two . Yeah. Thank you very much for the clarity.
You're welcome.
Next question comes from Michael Schäfer, Commerzbank.
Thanks for taking my questions. First one would be on the cost-cutting side you elaborated on. Maybe give us an idea on, let's say, the order of magnitude you are targeting, timing, associated costs, and what makes you confident to, according to my calculation, to bridge to EUR 100 million- free cash flow, which you would end up with pay OU Europe/ Bethune? How can you bridge this gap over the time in order to make it free cash flow?
First of all, we save a significant amount on interest payments leverage. Secondly, not in the position now to give you a precise number about our reorganization, which will more or less take place in the SG&A area. Give you a flavor. K+S without OU Americas, here we are talking about SG&A costs of roughly EUR 180 million. We are talking about a significant change. There is potential.
Posted something like EUR 500 million last year CapEx, and since we are ahead of the splitting, we take CapEx of the OU Europe, which was something that last year. Maybe can you paint a picture on how should we think about CapEx evolution on back of all the environmental measures you still have next two or three years? What kind of CapEx base we should expect?
Let me start with this year. We expect for this year a significant increase in the CapEx year-over-year. It has to do with accumulation of the tailing sites expansion. Cut out for the next year is about EUR 100 million of CapEx, more or less for the OU. Burkhard described that we are also working on bringing down CapEx for environmental investments significantly. We will see a significant drop from these levels in CapEx. We always said in the past that we need sustainable CapEx of about EUR 400 million- EUR 450 million. This included the OU Americas. Gives you ballpark a feeling of where the CapEx could go.
My third and last one would be on the guidance you assume basically that the ASP is recovering second half on makes you confidence in back of Chinese contracts, which you have faced.
It's not only us first of all, who's expecting that. That's a common understanding in the market. That was the case back in 2016 as well. In a way, we have faced a very similar situation. We all know that we then went into a rally for 18 months, which bring us to EUR 350 in Brazil. We have not assumed such a scenario in our models, in our forecast. It's very, very probable that once we have the new contract, we will see a turnaround situation. One thing makes us confident that the parties at least talk. We heard about discussions between the Canadians and the Chinese. Before that, there were obviously some video conferences, Belarus and the Canadians. At least there's some movement. Does not mean that there will be in a couple of days a new contract. The process is starting.
We shouldn't forget India. India is in a much more solid situation, and they have a need to sign soon.
Next question comes from Thomas Swoboda, Société Générale.
Thank you, sir. One question on the remining sourcing. What has led you to keep the European salt within the group ?
Salt business is a local business, and the European entities almost have no direct business to Americas and vice versa. That would have been a second transaction. First reason. Second reason, we are making money there. Yes, we are looking into the de-icing salt in Europe. For sure, we have to look into it critically because that is not the first warm winter here in Europe, and we could assume that this is more or less the new normal and might take actions on that. We have a whole range of products high earnings, high- return products into the chemical industry, into the pharmaceutical industry. We are about to establish a nice brand, SALDORO.
I hope you all have some of that product at home, with very promising successes in terms of being a strong competitor to. As this would not have been part of the Americas transaction anyway, the look into the European salt business is part of the rest of the measures, and here the focus is de-icing.
I can follow up question, and I think probably for the CFO.
Question is, are there any one-off sinks in there?
I would like to stress not only the receivables line, but the entire cash focus of which is right. Think about timing of cash outflows when it comes to tax payments. What we have achieved over the last two years in the group is people think of cash flow, whatever they do, versus just of revenues and earnings. This is one effect, for example. There are no one-offs to answer this. We had a strong focus also, again, in the fourth quarter, to get the money in from the customers. Our people, our controllers, our salespeople work together in really reminding people, we want to pay you now. We think there is more potential. We haven't touched the potential fully.
From that point of view, I wouldn't say that this will revert in 2020. We see further potential in order to optimize the working capital. Not only receivables, that's just one thing. We could also process-wise become better there, but we are also now looking at better inventory management and also from the DPO side. Our procurement is very much focused on the right balance between getting discounts, scondo, and the right payment term. I think we are not yet at the end.
The next question comes from Oliver Schwarz, Warburg Research.
Sorry, I have so many questions, so I try for another round. Mr. Boeckers, can you please elaborate about the impact of the temporary production shutdown at your potash facilities on the working capital progression? How much that was affected by the temporary shutdown ? That would be my first one.
Can I answer this?
Yeah, sure. Go ahead.
With a look into the balance sheet, I think I can answer this, because when you see we made progress on the receivables side. Where we saw an increase in time was in the inventories, and this was because produce we couldn't sell, and so inventories increased from EUR 700.
Thank you. I'm sorry for that, but I'm still trying to wrap my head around your guidance in regards of achieving a stable crossover rating. Losing pension provisions around about EUR 200 million, mining provisions for around about EUR 900 million, and prospective net debt of around about EUR 1 billion, I come up with a number of give or take EUR 2.1 billion. Let's say a triple B rating would require you to achieve EUR 700 million in EBITDA based on that numbers, a bit less for crossover rating. That's still substantially more than is to be expected from the operations come this year, as you are guiding below last year's level. That would imply a steep increase in earnings of the European operations come 2021.
Especially as cash flow might be burdened by cash costs for the upcoming restructuring measures, which might or might not burden already 2020 or 2021 cash flow. Could you falsify my thinking or whether that is correct? Thank you.
Try to verify.
Even better.
Choose for question. Let me start with what we said. You're so focused on the EUR 2 billion. That's significantly more. The entire package of measures covers more than 30 single initiatives where we expect to generate cash from. Some of them are also focused, like Burkhard said, especially with the coverage of the tail pipes are focused on paying the obligations. You should keep this into consideration. We have an addressable spend in administrative costs alone of EUR 180 million, just to give you a flavor of what is addressable. When we talk about a solid crossover rating, it depends on the definition, right? When we look at just the net financial debt number, putting aside all provisioning, we achieve a number of about 3x in order to. When you take the S&P definition, this starts already with 4.5x .
With the measures, we're pretty sure that we achieve that.
Thank you.
Not going into too much detail there.
Good expecting that. Thank you.
You're welcome.
Christian Faitz, it's your turn again.
Just one question, please, on Bethune. You said the quality is up to speed now. My view is always the proof is in the pudding in the summer, in the hot and humid summer in Saskatchewan . Would you believe that during the summer period, you will also not have caking issues?
Yes. We saw the product in Brazil, where we have Salinal , and not only when it came into Brazil, but when it was sitting for six weeks in the warehouses, and it was still perfect. I saw the face of our customers, they are now happy.
That is granular. The standard product is more or less the main product, which is supported by our PQ&T initiatives for cooling and screening. This is finished and it's ramped up, and it's on a very good path. There's a good reason to believe that this is history. It's not only wishful thinking. It's proven, our customers have given us respective feedback, and this will not change over summer in Bethune.
Okay. There is one question from Michael Schäfer, Commerzbank.
Okay. Thanks for taking my two follow-ups, basically. Coming back to the salt business. You've indicated rather weak, EUR 8 million-EUR 9 million on the back of the warm and/or green. Last season, on the back of strong demand, you saw it in some regions, high single digits, low price increases. Going through the season, and now looking into the next season on the that was probably sitting around there. Is there a major risk, basically, from your perspective, that we see a reversion of those prices back to the year, last year or even beforehand? How does this basically, the point of view impact this process? First question.
Of course, after such a season, we have by far more pressures in the bids that will lead to lower prices. We have already incorporated parts of that or incorporated that in our guidance. We expect lower pre-bid for early fill activities. That's the business we have been running through for years. Will it be double digits? I don't know. We know that some areas are more stable. Canada was, again, not as weak as other areas. Remains to be seen.
My second question is on the historical purchase price of the assets you are about to sell. If I remember it correctly, the Latin and American business, total purchase price has been around. Maybe you can remind us what kind of book value.
The EUR 1.6 only covers one part. That is Morton and Windsor. There was another EUR 385 million or something deal that time. Today, K+S Chile is Chile. I think as this can be seen in our accounts, we are talking about EUR 23.5 per share book value for the Americas. Is that correct?
Yes.
That is only the book value. You will understand that we are not giving any indication what we expect as a purchase price. By the way, that's an important hint. When we talk about significantly more than EUR 2 billion proceeds, that is already net after tax.
There's one more question from Oliver Schwarz.
Unfortunately, more than one.
Will the Americas business, will that be recognized as discontinued business following your statement of the planned sale of the business? Will we see a restatement of the just published annual report in the not too distant future?
Our head of treasury trying to give me signals here. If you want to answer the question, I will.
Okay.
Probably not short.
Yes, I got it. Yeah. Secondly, could you confirm that the restructuring measures won't start in full force until the divestment has been completed? You're likely to need the administrative staff that currently covers the needs of the Americas business.
Another good question. We will start with the design immediately. What do I mean with the design? The approach will be the following. We look into our remaining sites. We take a cautious assumption about the market environment, for example, potash price. We define how high could SG&A be and what is the load that they can cover and carry. That will be the budget for the new SG&A dimensioning. It will be very lean, and with execution, first of all, we have to talk about with our social partners, et cetera. That will be in parallel in a way with the execution of sale of OU Americas.
Thank you very much. Completely unrelated to this topic, can you quickly elaborate on profitability or let's say price movement in your, what was last year, the European salt business or esco? With the very warm winter we just had, I could assume that prices, especially for de-icing salt, might be under severe pressure and inventory levels at customers, especially municipalities in Europe, might be more or less at a record level. Thank you.
Like in our potash business, the prices for de-icing in Europe are significantly more stable than in the Americas. After good winters, we are not gaining double-digit amounts, and we are not losing double- digits in bad winters. Obviously, the municipalities are giving that product a value, and that is not so dependent whether the volumes are big or low or the inventories are high or low. We have a quite stable situation here. The factor who drives our earnings is more or less the volume.
Thank you very much.
Okay. There are questions now from the webcast system. Note that we will not read out similar questions again. One question is from Markus Schmitt, ODDO BHF. "In terms of your planned sale of the salt activities, could you please comment on the feasibility to complete the sale by year-end 2020 in light of the difficult markets and potentially constrained funding access for an acquirer of the salt activities? If belongs to it, how many potential acquirers are on your shortlist, and does the list include strategic and financial investors?
I hope for your understanding that I cannot be too precise here. It's a running transaction, and it would be to our disadvantage if I would become too precise here. I can say so much that after the press release in December, we have seen significant interest in a number of interested parties, and some are very impressive. We have not even started with marketing. If we look into the list, there's no question that they are able to finance such a transaction. That makes us so confident that even in times like that, we will be able to sign before the end of this year.
Has S&P indicated to K+S that without the sale of the salt activities, you would be downgraded to B+ amid the assumed decline of EBITDA in 2020? Is this eventually the reason for the change of your divestment plan, which foresaw a sale of a minority share so far?
Physically, no. We are, of course, in continuous change with S&P. Appreciate that we are doing, because hence our commitment to averaging, this was not trigger for our decision, no.
In terms of valuation, I look at Compass Minerals, which trades currently at a forward EV/EBITDA multiple of 7.5. The company has a materially higher profitability than the Americas unit. When a 7.5x multiple would be applied to your salt activities, I derive at a cash in of about EUR 1.7 billion. Where do you take the comfort from to collect?
I'm not commenting on price discussion of the asset for the reasons I just gave you.
This question comes from Ralf Kugelstadt from RK Research & Consulting. "Could K+S be considered a takeover target given its distribution strengths and market share in Europe on the one hand, and the medium-term option to replace German production with Canadian, Russian or Belarusian?
You can never rule out a takeover situation, especially not in times like that, and especially not with a share price like that. It still gives me the opportunity to comment on not every takeover situation. It's a takeover situation where the board would say no. Back in 2015, it was a clear breakup situation. There's no dancing around it anymore, the former PCS guys. Here we had to say no, there could be some situation where it is logic. One part of that question I have to refer on, there's no possibility to compensate our German production with Canadian production, because the Canadian production is purely MOP. The Belarus production is purely MOP. They have started now with very small amounts to enter into the specialty business, that is no compensation.
You would take hundreds of thousands of specialty products out of the market, and if this clever, I don't know.
Michael Schäfer, do you have another question?
Yeah, maybe a follow-up, and you can make a comment on this as well. Yeah, on the disposal process, there were some quotes today on the Wires, on Bloomberg, Reuters from a balance sheet press conference this morning, where you elaborate there also many industrialized salt companies potentially among the interested parties. I wonder whether you can shed some light on how you would see the cartel authorities view things, whether industrial players I understood the North American market basically is at price.
Only thing we said this morning is the same that we said earlier here. We are seeing group of strategic investors and others. All I can say.
There's another question from Oliver Schwarz.
Sorry for that. It's just so interesting. The fate of Chinese salt operations and the planned project for Australia, can you quickly fill us in on that? To my understanding, China is part of the Americas, that should leave, if I'm not mistaken. What about the planned project in Australia? Thank you.
Members of our OU Americas team have driven that project so far, but it was still open when it becomes in operations, who would lead this project. Not part of the transaction. We continue to develop that project, and we still have the capacities to do so. We are on a very good path.
One can elaborate on the tax rate for the Americas business?
I look at our head of accounting again. Here 21, 22%.
Basically, the tax rate for the remaining group, once the Americas are deconsolidated or let's say shown as a continued by the segment of here, so up beyond the 30% that you guidance for the group A. That's the fair assessment.
Sounds logic, yes.
Thank you.
We have a question from Joel Jackson, BMO. You assume 700,000 tons of potash MOP demand growth for K+S in a year, in which demand is expected to grow 2 million-2.5 million tons. Yet, EuroChem has more volume, URALKALI built 1 million tons of inventory, and your global peers also had lower volume in 2019 they want to regain. Why should K+S receive 30% of incremental 2020 demand?
Yeah. We compare two years, where one year is really extraordinary. We, for the first time, have taken a share in a capacity reduction, which was taking our size into account, quite high one. We believe that the market conditions now in this year, unfortunately, do not deliver a good price, but it will deliver a higher demand. We have a clear idea where to place the volumes. That's why we are not seeing any reasons to reduce that target.
Again, from Joel Jackson, BMO. When will you start to sell products from Bethune into the U.S., and how will the product be distributed? Folks, how does selling the Americas Unit impact your ease to sell potash in North America?
I start with the second part of the question. This transaction has no impact at all on how to distribute volumes into the Americas. As we are fine with our product quality in Bethune, shipping to Americas might not be so distant, and how to do that remains to be seen.
Joel Jackson, what are the EBITDA dissynergies from selling the OU Americas unit? Higher cost base for the remaining assets.
In terms of administration, Americas unit is relatively lean.
Guys over there. I would say there are no synergies we should expect from this, and if they are negligible.
Again, Joel Jackson, what would agriculture segment costs look like versus 2019 if you hit your midpoint more than 7 million tons volume guidance in the agriculture segment, and if your volumes were flat with 2019? Two scenarios, one at more than 7 million tons cost per ton, and one at the same level in 2019.
Yeah. 2019 costs per ton were, of course, affected by the production cuts slightly. We adjust for this, the level was at about EUR 200. We are ramping up production. We are ramping our synergy program, so bringing costs down. On the other hand, we face general cost inflation. With the investments in tailings site extensions, we have associated costs with the CapEx. I would say at this point in time, we should see a cost per ton, so revenues minus EBITDA over volumes at the same level of the adjusted 2019, about EUR 210.
Next question comes from Stephanie Vincent from JPMorgan. Can you please review your covenant headroom under your 800 million EUR facility? Does the debt to EBITDA covenant step down at any point? Does the covenant apply if there are no drawings under the facility? Are there any drawings under the syndicated credit line at year-end?
The covenants refer, just to make that clear, to some parts of our financial instruments. We are using also the commercial paper markets, which means as long as we can use this as a good financing instrument, we would not touch the credit line. Depends a little bit on the market development also, thereby how much this credit line will be drawn by the end of the year. That's the information I can give you. Everything to fulfill our contractual agreements we have with our banks.
Currently, it's totally undrawn.
Next question comes from Lisa De Neve from Morgan Stanley. Could you please give us an update on what you are seeing in the potash environment, including spring demand in Europe and North America, and what you believe will be the drivers that support a price recovery in the H2 of 2020? How much of the recovery will be pending on the potential signing of the Chinese contracts?
Europe, we have a total normal development, a normal flow, normal volumes, as I stressed earlier, more stable pricing. We are very happy, for example, about the SOP price. The premium is growing and growing because it's very stable. Maybe the current situation even helps here because we know that China has started exporting SOP last year. Remains to be seen in the current situation, how much they will be able to export. Europe is normal. North America, we are still not really active in this area. That's why I'm shy to give here an expert opinion on that.
How much of restructuring costs do you expect for 2020 and 2021 for reorganizing K+S?
It's too early.
Okay. We have another question in the room. Michael Schäfer.
Two questions. One sticking to restructuring. Do you also consider to close mines in Germany? We have seen Sigmundshall closing prematurely, basically. We can think of Neuhof being potentially the next one. Any kind of additional cost savings on top of HQ overhead function type of cost cutting? Thanks.
Thank you for that question because it gives me the opportunity to elaborate a little bit about the situation on our German mines. I think sometimes the view from outside in is a little bit too negative. Yes, we have higher costs than in other areas. We also, and you sitting here, you all know that we have significantly higher earnings as well because a very good portion of our production here is specialty. We have no earnings problems with our mines. We have a problem that we use big parts of our earnings for environmental CapEx. There is a peak in 2020, which numbers will reduce significantly after that because its expansion will be done more or less, and that is a big driver for that. That is more or less focused on the Werra.
The other German mines are already free cash flow positive, even on a stressed potash price. It's important to know.
Second one would be on your intended sales mix. Last year, I think you shipped to China, also. Maybe you can elaborate on what the plannings are for 2020 on the extra volumes now coming from Bethune, at least according to volume uptake projection you present.
Yeah. The mix should look pretty much like last year. Of course, we have to adjust the sales that we had, production cuts that we had, but there's no reason that the mix will look differently. The additional volumes from Bethune go into Brazil, maybe a small portion to Americas, in the U.S., also in India and China and Southeast Asia.
One question from Alexander Jones from Bank of America. What is the higher CapEx you guided for 2024? You spent EUR 50 million less CapEx than you guided for in 2019. Is there a deferral into 2020?
The lower number in 2019 is almost driven by a cost discipline. Only small portions will run into 2020. The driver for the higher number in 2020 is clearly the three heap expansions at the same time in Zielitz, Wintershall and Hattorf.
Okay, the final question is from Oliver Schwarz.
Thank you for that. Maybe just one, I promise. As you stated that you want to go more into specialties and with the expansion of Bethune diluting your mix, as it is only SOP, would you consider or are you actively mulling the introduction of the Mannheim process at Bethune to supply SOP also from the Canadian mine?
Here we are not ruling out anything that is possible, but what are the focus areas? One focus for sure is fertigation. That is an incredibly growing market, especially variations of more seasons with drought, and that gives the farmers multiple opportunities to save water, to save the input for fertilizers. What we need, fully water-soluble products. We have already a product range, but that will be enlarged. Again, there are so many possibilities to add business in Bethune, and one of them could be the example you just raised.
Thank you.
Okay. I will hand over to Burkhard Lohr to have the conclusion of this conference.
Thank you very much for those who are here in the Commerzbank Tower and for those, of course, who are on the line. This is a very special situation for us, but the whole board is convinced, and the supervisory board as well, that this is the right path for the company, and that when we meet next year here again, we can also talk about a transaction which was successfully done. We will keep you informed and wish you all the best. Now, as we have finished, the sun starts shining. Hope this is a good sign. Thank you very much. Goodbye.
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