Earnings Call: Q2 2018

Aug 14, 2018

Welcome to the K Plus S Conference Call regarding the publication of the Financial Report H1 2018 Host by Doctor. Birk Hart Law CEO. For the duration of the call, you will be on listen only. However, at the end the call, you will have the opportunity to and you will be connected to an operator. I am now handing the call over to Doctor. Birkart Law to begin. Please go ahead. Thank you very much. Good morning, ladies and gentlemen, and welcome to today's Q2 conference call. During the next hour, we will not proceed as usual after a very short overview of Q2. We will spend some time giving you the background our guided EBITDA range for 2018, which we have already pre released last week. After that, The team and Kassel will be happy to take your questions. Now let's start with the highlights on the second quarter on Slide 3. When we are talking about the second quarter of 2018, the emphasis is that the market conditions remain supportive and that is very important. Let's start with the highlights on the second quarter on slide 3. When we are talking about the second quarter 2018, The emphasis is that the market conditions remain supportive and that is very important. On the back of higher volumes from Bethune, increasing potash prices and solid salt demand, our revenues and EBITDA rose compared to last year. Net profit is down, reflecting the Bethune related depreciation and interest charges which are now running through to be discussed later also had a negative impact on profitability in Q2. However, we were able to increase and our financial leverage was down as a result of our very disciplined cash and cost management. For 2018, we now expect CapEx to be below 1,000,000 and we are making good progress to deliver on our target on 2018 on slide 4. The already pre released EBITDA range has not met market expectations. What happens. Some challenges are holding us back somewhat longer than expected. After discussing and assessing all timings over the course of last week, we came to the conclusion that we need to adjust our internal forecast for the year. While our former wording on the outlook for 2018, expecting that full year EBITDA should be up significantly is still true, we also had to accept that the now guided range with an EBITDA midpoint of 1,000,000 is clearly below latest consensus. So what are the findings we need to talk about? Please turn to Slide 5. First of all, let us talk about our new Betting mine, which has come a long way. And I want to emphasize we are making very good progress. From now on, we have to we are going to increase production capacity and commencing secondary mining very soon. However, Bethune is still in the ramp up mode. What does that mean? Please turn to slide 6. While KTO content is excellent and that is very important, and our Canadian team is doing a great job. We still have to be aware that we are ramping up the 1st greenfield mine in Saskatchewan in 40 years. This also includes a learning process on production, processing and shipping. Product quality and availability is the most important task for us to ensure that we satisfy our customers. The hardness of our granulated product was a challenge until However, it is now fixed. Regarding the caking, we know precisely what to do and are already making progress. However, there will be an impact on this year's Canadian products. When you are modeling our forecast, it might be helpful to indicate that we now expect our full year production in the range of 1,400,000 to 1,500,000 tons, granular and standard. Already in 2019, we intend to start secondary mining with a volume of 100,000 to 200,000 tons. Making us confident to reach a total production of about 1,700,000 to 1,900,000 tons. Nevertheless, we confirm our former given targets to achieve a positive EBITDA contribution in 2018 already and to reach added breakeven in 2019. Bethune remains an excellent investment. However, Germany remains challenging and some issues take longer to be resolved. Please turn to slide 7. Where do we stand at our German potash sites? Shortage of staff high illness rates and the lack of motivation are still issues at the vera, which we need to be which need to be managed. After changing the management team, vacancies have been partly filled and illness rate has already been halved We are now in the process to qualify the new colleagues and to fill the remaining open headcount till the end of 2018. This also includes moving experienced colleagues from Wigmundshall to our Veracyte. Furthermore, machinery and equipment required extensive maintenance breaks, which led to downtimes in production. We have changed our maintenance schedules and started to replace our tape machinery. We expect 50% to be fixed by the end of this year and the remainder by the end of 2019. As a result of crossing appears with lower quality. This will be resolved by the end of 2019. And finally, our site in Neuho has lost about 50,000 tons of production in the second quarter on the back of lower roof stability. We have implemented additional safety measures and expect production to start to improve in the third quarter of 2018. However, all nutrient content in German is not improving. Please turn to slide 8. In Germany, we are operating mature potash mines and the overall K2O content is diminishing. Compared to 2017, the annualized impact in 2018 will be about 100,000 tons. However, This trend is not coming as a complete surprise and we have talked about this several times. And together with our consultant McKinsey, which is very experienced in this field, we are currently evaluating countermeasures. This program called operational excellence has started with a site by site investigation and today we have already identified many opportunities to increase the efficiency across all sites current schedule implies an implementation starting in 20 19, which should stabilize our current production in Germany on the back of a significantly increased efficiency showing a compensation of the effect as of 2020. Further details will be released on our Capital Markets Day in September. To give you some more insight In the past, when we talked about volumes, we were talking about Today we want to give you a better feeling for production base. In 2018, we expect a German production of about 6,400,000 tons to 6,500,000 tons. The soon is likely to add about 1,400,000 to 1,500,000 tons of granular and standard products. Next year after the closure of these models with an annual production of about 600,000 tons which scheduled a German production of about 6,100,000 tons to 6,200,000 tons. This number includes an improvement on the back of the above discussed measures of about 300,000 tons to the German production. The solution adds 1,700,000 to 1,900,000 tons including about 100,000 to 200,000 tons of low cost secondary mining and supporting our target to reach breakeven on an EBIT level. All in all our operational excellence program is in favor of compensating the declining nutrient content in Germany after 2020. Let's turn to slide 10 and the closure of Sigma. Already at the end of last year, we provisioned the closure of Sigma Salle in the magnitude of 1,000,000. However, since we have finalized The redundancy program and dismissals were announced. Our productivity in Ligmundshall is far from normal business. We therefore expect in 2018 a negative EBITDA contribution of dignitall in the magnitude of 1,000,000. Some of you seem to wonder about the expectations of our average selling price in the potash and magnesium division for 2018. Please turn to slide 11. For our potash and magnesium division, we expect this year's average selling price to be up slightly over 2017. While we agree on market expectations, on the overall potash and regional mix is reflecting the production start of the soon. Compared to our specialties, MOP is lower priced And an increasing part of business with customers in China and Southeast Asia is also having an impact on our reported ASP. Finally, the weather is also having an impact. On our current earnings, please turn to Slide 12. This year's record summer in Germany is stretching our logistics, mainly at the various sites. The good news is that so far we have not been faced with any standstill related to the weather level with the water level of the Werra. The KCS is fully up and running and reducing the salty water wastewater by 20%. Furthermore, our additional measures we implemented last year are also quite supportive. The entire team is doing a great job. On the other hand, inland shipping capacities are short and freight rates are increasing. All in all, the extreme weather situation is causing additional logistics costs, which we expect to impact this year's profitability by about 1,000,000. Finally, it is still too early to get a feeling for the impact on Karma's yield and the implications for our business. What is our appraisal of the current situation? Please turn to Slide 13. First of all, we are pretty sure that the problems now have been discovered and addressed. However, we have to admit that our challenges are holding us back somewhat longer than previously expected. Nevertheless, the entire management team has started taping 2030 program on efficiency and cost effects will be supportive in reaching our targets. What are the moving parts of our EBITDA guidance for 2018? Please turn to slide 40. This year's EBITDA will be burdened by the topics we have just discussed. However, we will also be supported by higher potash volumes and prices. Profit from Bethune are increasing and EBITDA is scheduled to be positive in 2018. However, currencies higher logistics costs and to discuss production issues remain challenging. As said earlier, in 2018, we do expect some costs related to our new Shaping 2030 strategy which should turn into net savings already next year. To significantly improve over last year's achievement in the range of 1000000 to 1000000. Please note that this implies no outage date in 2018. As already mentioned, the adjusted free cash flow showed a strong development and should improve significantly year over year. Ladies and gentlemen, there are many boards in the air. The soon is the first greenfield potash mine for 40 years. And the Zitman's high closer in mind that ran more than 100 years is also weighing on the organization. Furthermore, the shaping 2030 related pre organization is demanding and requesting the utmost of all our colleagues Please note that this is the Shaping 2030 will transform K PlusF into a new company and rest assured that the target becoming free cash flow positive in 2019 as the highest priority for the entire organization. As we will start road showing in Frankfurt and London tonight, there will be plenty of additional opportunities to identify the discussion. Thank you. Please standby whilst we prepare the first question. The first question comes from the line of Markus Mayer calling from Baader Helvea. Please go ahead. Yes. Good morning, gentlemen. I have 3rd question. I will ask it 1 by 1. Kenneth, firstly, can you remind us what would be potential cost for the outage day is now the drought for the summer remains as it is right now in Germany. That's my first question. Yes. Thank you for the question. First of all, I would like to, again, mention that we have really improved the situation we would have had that summer 3 years ago, we would have had significant outage days already. So, we have really seen significant progress In the past, we have given you a number of roughly 1,000,000 a day, but would be slightly higher as the prices are higher than, we had in 'sixteen, for example, when we had this significant amount of outage days. But the rough number slightly more than 1,000,000 is a good move I found. Okay. And then, the second question on this is on this lower nutrition content and at your German mines. And with this new fact in mind, could you give us a new kind of cash breakeven point for your German mines? First of all, that is not a new fact. I think we have talked several times about the situation that we have a set of old mines with a perfect deposit because we make all our specialties out of this as we have high margins with our product. That on the other hand, if we lose some production that has a significant impact because in addition to that, we have high fixed costs. And so it's not it's not really new and we also talked about the fact that year by year with the distance from from the shaft to the face is getting longer and longer. So it's something that one should have assumed in a way. But the cash cost per ton, is, of course, affected by that as well, but I cannot give you a precise number, but again, 100,000 tons in a year based on the volume of 6,500,000 tons doesn't have a significant effect. Most importantly is we see the opportunity with our operational excellence project with a lot of measures to stop this development from 2020 on. So the production number that we give you for next year should be a base, which is good for at least the next couple of years. And then, the 3rd question is, with the quality issues in Bissun, but also in Germany. And could you quantify the EBITDA impact so far and what do you expect for the full year and how long do you expect to remain this into 2019? Yes. First of all, the quality issues are only Canadian topic. We have no quality issues in Germany. Top quality that we produce. The only issue is that we are not producing currently the amount that we are that we have expected at the beginning of the year. By talking about the quality in Bethune, we have taken a very important first step. We have developed a binder, which gives our granular product the hard disk, which is a expected by the customer. So tick in the box that is done and we are improving the caking situation month by month. I said the final step will be done at the end of last year with the cooling facility. But this is already taken into account with the numbers that we have given you. So this year, 1,400,000 to 1,500,000 and next year 1,700,000 to 1,900,000 ton is reflecting the development of this quality issues. In Germany, the situation that we have described in a Severa and in Neuhof. It's also totally reflected in the numbers that we have given you for the production. And into in 2019, we will have solved the last of these mentioned issues. Okay. Then I had a question on this. So we should expect then after 2019 that the ramp up of Bethune is running as expected. Is this a fair assumption? That is a fair assumption because only that what I described is, is hindering up from being on the expected ramp up the curve. So once we have overcome the situation that is improving month by month and will become done by the end of next year. We are back on the ramp up phase. The next question comes from the line of Christian Faitz calling from Kepler. Please go ahead. Yes, good morning, sir. A couple of detailed questions. The line is not very good. Can you pick up a little bit? Do you hear me now? So a couple of questions, please. Can you please elucidate the roof stability issues you have faced in Neuhof And what are your geologists saying about any future potential problems? And then second question, can we do one by one? Okay. Yes. Thank you. Yeah, the roof is, we are, we ran into geology. We knew that this would the problem, but we did not expect that we would lose so much volume So the second quarter was effective with 50,000 tons. And we now have adjusted our blasting and saving technology to diminish this effect So we are expecting to be back on normal production in oil in the fourth quarter. So far, our theological forecast are not showing any further areas like this. But again, of course, we are not foreseeing the whole area, which is in front of us. But again, we have found solutions with adjusting the normal way of a producer of of a drilling and blasting and saving to to come back to normal in Q4, starting in Q3 already. Okay. And then second question, and that will be the third one. You mentioned the lack of motivation on Slide 7 that is blocking your workforce at the various sites. What have you done to resolve these issues other than moving workforce from Sigma sell down to the Werra sites? Thank you. Yeah. First of all, we have not moved people from reconcile to to the Werra yet because we will produce until the end of this year. But we are very happy that we could convince more than 100 colleagues to change it to move in January from, we consulted several other German lines so that it will finally solve our open issue situation and Most importantly, they are qualified. So, mining is not there are not so many minors available in Germany anymore, but that will help a lot We had a big program, a motivation program, the 1st and most important steps I believe is that they understand and believe that this site has a bright future that maybe you remember the mentioned cattle demonstration against the behavior of our authorities, which did not hand over our environmental approvals in 2016. That was a very big event. And they really ask themselves do we have a future in this site? And I think we have done a lot of events town halls Q and a's uh-uh to get this confidence back and a good indicator is always in this race. We know that it's a mix of different effects and motivation is one effect, which impacts the illness rate. And we have half this rate and we have seen even further improvement in July. So I'm very confident that this will be history from Okay. Then a last question, continuing with motivation, McKinsey. Why do you have to bring in McKinsey? Are there any steps in operational excellence in mining where there are any better versus your own in house mining know how? I mean, I'm fully aware that consultants often use as an excuse but why not optimize the mature minds yourself? Yes, that's a very good and valid question. But it's not only the knowledge it is it is the process as well. So if you if you really want to undertake what we are doing now. We question everything we are doing, every single step we're doing in operations. And that's we're doing on all our minds. We need to have somebody who is managing this. Also, we we are not always talking about the big measures which deliver 100 1,000,000. Sometimes it's small ideas and somebody who's advised, almost all mining companies worldwide brings a lot of good ideas and best practices into the company. And not only in identifying it but in changing the processes, changing the the step in production and in the mining. And that is a big program ahead of us and I think without an experienced advisors that would have been by far more difficult, maybe impossible to do such a big move that we are doing currently. The next question comes from the line of Thomas Swoboda calling from Societe Generale. Please go ahead. Yes. Good morning, gentlemen. I have a couple as well. Starting with the potash unit cost, In Q1, you hit 190 per ton. I think your target was below 200 2018. I perfectly, I want to just understand you have given that up for this year given the unexpected headwinds my question is, is this target given up for the longer term or is there any chance you can achieve this unit costs again. How about specifically in 2019, please? Yes, Thomas, it's Sofia. Without giving now 2019 and beyond guidance, but I think the targets for the cost per ton is especially given up for this year for 2018 because we have lower volumes We have extra costs in order to resolve that. Some of that will spill over into 2019 But for the longer term, we certainly haven't given up our target of cost per tonne going below 200. Right. Perfect. So just for the record 2019, you probably will still be above. Again, we don't want to we don't want to guide on 2019 now. Let's first see the year 2018 and then what will spill over into 2019 or not? Life. A little bit more specifically on Zigmundshall. I mean, from previous discussions, I remember that that you were commenting the Zigmund side is rather breakeven, or slightly negative EBITDA. Now we have this 20,000,000 of costs, for obvious reasons, and we will lose the volumes from from 2019 onward, if I remember correctly. How should we read the impact from Siegmund's Hall beyond 2018, will you lose some EBITDA now or or how should we see that? Yes. 1st of all, we have already taking the decision to close the McDonald's hull earlier as originally planned. Originally, we thought we would run that mine until 2020. And now we have seen a negative development due to the fact that we are the deepest running operating Mine worldwide and efficiency went down quicker as assumed. So we have taken the decision last year. To to to have the last shift on the 31st December. We have indicated if I remember correctly already in our you one call that we are running into a situation that there is a slight negative impact on a profit, the profitability and cash flow level. So once the mine is and now we expect a 20,000,000 EBITDA negative. So once the mine is closed, it's done because we have provisioned everything that we have to do after 2018 that is mostly closing the mine, flooding the mine, etcetera. So there is no running operational impact anymore. From 'nineteen on. Right, perfect. And last question, I promise, coming back to you to McKinsey, I mean, I can't understand your motivation getting a consultant But if I look at your others line, it looks like you're having quite a significant costs there as well. So it's not just that we see the disappointment in potash, but the others line is more negative than we expected it to be. So how big will be this burden from getting, again, consultants in the company again. Should we be going for 70,000,000 dollars, $70,000,000 negative for 2018 in perpetual? Or is the run rate of $50,000,000 something you would you would like to to go back to? Yeah. 1st of all, I think I need to push that into perspective. That is not a on the current situation. We have always a part part of our new strategy shaping 2030 is is our synergy program and we have promised you to the to save more than 1,000,000 by the end of 2020. And, we have identified 5 different areas. 1 is SG And A. We are quite advanced here. The other one, another one and the biggest one is operational excellence. So we have started that early this year already. And and we have some others. We want to elaborate on that on the Capital Markets Day. And we are quite advanced here and we have engaged in an adviser for SG And A. And we are happy that we've done that. We have engaged in the visor for operation excellent as well, but we are not talking the numbers you just mentioned. We are talking about I think it's roughly 1000000 this year and we will so we will have a negative impact of costs this year, but we will have a positive impact of savings already next year. So again, that is not a reaction that is part of our strategy. The next question Jen comes from the line of Thomas Wrigglesworth calling from Citi. First question, the if I look at the 2nd half run rate for Bethune, versus the guidance of 1,700,000 to 1,900,000 tonnes for 2019. Based on my rough calculations, the run rate of the second half of Bethune to achieve the guidance for 2018 would actually have to be above the guidance for 2019. Is there some kind of maintenance schedule that's put in place for 2019 or is it just conservatism as to why the 'nineteen number looks so low relative to a reasonable estimate of the run rate from the exit of 2018? I'm not 100% sure if I got your question, but we indicated for this year 1,400,000 to 1,500,000 tons. And we will add a number between 304,001,000 tons for next year. In Bethune, having into mind in taking into account that we still have not fully solved our caking issue. But we will have by theendofnextyear. So that has an impact not in the possibility to produce but in the supply chain. So taking means uh-uh delay in unloading and that means that we cannot fully produce the volumes that we could produce. And we will have overcome the situation by the end of 2019. So that's why we are going back to the original ramp up curve by 2020. Okay. So you're currently building significant inventory of unprocessed? No, no, no, no, no, we are not building significant inventory that is small but very effective and clever additions to our to our mind So a grinder pump is is something which reduces the volume of the crystals and that is a very small additional facility and the cooling facility is the same. We're talking about small but clever additions. Okay. Because if I look at the, you know, in the first half, if I double what your first half production is, that leaves me around 600,000 tonnes below the low end of your 2018 guidance, of which you say 100,000 of that 600,000 is Hulu Dow. So 500,000 incremental tons look like they have to come from Bethune in the second half. And if I assume that Bethune did, you know, again, which would kind of imply that if Bethune's run rate currently was 500,000 tonnes, I get 1 500,000 tonnes for 2018, right, as per your guidance. But that would imply that the run rate, the annualized run rate for 2019 is around 2,000,000 tonnes, which is below the 2019 production rate. That's my rough maths. So I just, you know, it just looks like you're quite conservative on your 1.7to1.9 given that you're implying the second half of 18 will be at around 2,000,000 tonnes. So I think a little bit of convert business is advised in the current situation, but again, we are still in the ramp up. And we might have the 1 or the other maintenance stop and the grinder pump and the cooling facility. They are not big ish is not big facilities. They're talking about talking about big CapEx. But we need to install them and that has an effect as well. 2nd question, if I may. Could you provide a little bit more detail around the improvements you're expecting in Germany that add the 300,000 tons in 2019? Yes, that is the whole bunch of measures that I have mentioned. So So, we will not have the impact in Norge, for example, that we have seen in the 2nd quarter. And we are talking about 50,000 tons a year. We have lost in the barrel 100,000 tons in the first quarter, the same amount in the 2nd quarter and we are not expecting that's to get down to 0 impact in Q3 and Q4. And so roughly, we lose 400, 450,000 tons this year. And by, solving our HR issues. I'm 100% sure that this will be thought by the end of this year. Solving good part of our machinery issues at the vera and also having the KTO content, not that with the same impact in 2018 and having felt We are very confident to have 300,000 additional tons available compared to 2017. The next question comes from the line of Jason Judashi calling from JP Morgan. Please go ahead. Yeah, hi. Thanks. Thanks for letting me ask a few questions. Maybe first just a clarification, can you give us what was the actual production from Bethune in first half this year? And the second question related to that is, if I take your full year guidance, it still implies second half EBITDA to be up slightly versus first half. And then when I go back and look for the past, usually the second half EBITDA is down more than 20 percent versus first half. So why what is going to drive such a better seasonality for you in second half of this year versus first first half, when historically, it's been a more, you know, offer reduction. Yeah. Let's start with the first question. We have produced slightly more than 700,000 tons in the first half of this year in Bethune. Both products standard and granular. And more and more important, we have shipped this to our customers And now we have reached the quality, which is fine for them. But again, we have to improve the situation to have a perfect supply chain running up and running. Yeah. And with regard to, what do we expect for the remainder of the year? I mean, what you need to see is that Boca talked in the beginning, for example, about increasing MOP prices which is not on the MAT. So also the specialty prices which are going up. So the realization of this prices comes up within with the time lag. So this is what we will see in our accounts more in the second half of the year, than in the first half and especially more than in second half of last year. And when you look back into the last winter, we have seen a decent winter in most of our de icing regions and we also expect higher volumes over year and also better pricing in our salt business. And this is, from my point of view, the most of these drivers. Can I follow-up one question on just the quality issue that you mentioned on Bethune? I mean given the quality issue, how are you selling it to your customers? So in the sense, is is there some sort of a price mechanism to sell the volumes or are you doing something to the quality before you ship for customers to accept it at the market pricing? And maybe just the second question is I mean, to some extent, it seems that there is some sort of execution issues here, you know, because there is sometimes in the German mind, sometimes there is quality issues. So is there something you you guys are doing about in terms of just maybe improving the operational execution within the company at different levels Thank you. Yes, let's start with the second question. The operational excellence program And we will give you a flavor of what we are doing that the real big one comes to the perfect moment. Again, that was triggered by shading but it is time wise perfect. So we really make it efficiency program over all our sites to get a hand on these issues that we are reporting here. 2nd first question, we are selling our vacuum volumes on market prices. So now as we have the perfect hardness of the granular product, we both sell both products granular and a standard on the current market price. From time to time, we give some recover some extraordinary handling costs which might occur with the caking situation but that's all. The next question comes from the line of Charlie Webb calling from Morgan Stanley. Please go ahead. Good morning, gentlemen. Just a couple from me. So first off, just on the volumes, you've guided to production volumes being fairly stable, I guess, 2018, 2019. Sales volumes obviously below that for this year, guiding, I think, 7,400,000 tons to 7,800,000 tons. How should think about sales volumes in 2019, do you still need to replenish your inventories and therefore something similar? Terms of a proportion of sales volumes versus production volumes? That would be helpful. Maybe you start there. First of all, when we talk about the production volumes, you're right, we are more or less in 'nineteen on the same level that we are in 'eighteen, but it that has another quality. We reduced the volumes, from digman size, 600,000 tons, and we indicated that we are losing money currently for that production. And we increase the volumes from Bethune And importantly, there is already some volumes in from the secondary mining that Fluent incorporates is here. With very nice low cost production. And due to the current situation, we have to increase our inventory situation in the company. That's why we are expecting lower sales volume than production volumes in 'eighteen. That is not market driven. You know that the markets are bullish currently. And next year, we should, the sales volume should be on the level of the production volumes. Okay, understood. And then just on SOP volumes, given the nutrient issues you guys are flagging around nutrient content in the German mines, Can you remind us what the SOP volumes were or SOP and specialty volumes were in 2017? And now you're expectations kind of for 'eighteen and moving forward given the lower nutrient content you're getting out of mind? So in 2017, our SLP volumes were about 700,000 tons. Also keeping in mind that we had in the first quarter, we were 20 outage days, 25 outage days, which also affected mainly hotdog, which is mainly producing SOP. So we will the the the case or the nutrient content and this is why you're talking about nutrient is not only affecting KCL. It's also affecting Kizzer, right, and Kizzer right is what we need for, the production of SOP. So it will also slightly impact our SOP volumes. And yeah, of course, this also has a value effect because the price of SOP is, of course, significantly higher than that ultimately. That we don't have a split right now of the 100,000 in MLP and in SOP. Would it be fair to suggest that SOP volumes will be down year on year or even adjusting for that 25 outage days or something similar To be cautious, I would say something on the level of 2017. Okay. And then moving forward to that nutrient problem or availability of the insurance in those German sites, is that a kind of continued degradation process, as in that ability to produce more specialty and SFP grades, it becomes increasingly difficult. Because of availability. Is that something we should as a mix effect continue to expect to see in 2019 2020? That kind of negative mix effect or is it once we've got through this year that is the run rate going forward? It should not have an impact on the mix. It, it, it only has an only, it has an impact on the total volume. So, So if we want to produce the same, if we don't stop that development and we are going to do that, but then we have to source more rock salt to get the same amount of product out of it and process more rock salt. And and that is the problem. It's related with higher costs that are diminishing productions. And we have a lot of ideas how to change things to stop this development. But that is you should not expect that before 2020. But it does not really impact our product mix. Okay, understood. And then just lastly, one last question. Just can you remind us of the kind of obviously you Bethune production guidance for this year and next. When do you I mean, I presume, 2020, you'd expect to get to the 2,000,000 tons you kind of originally targeted But what is the is there a new timeframe to peak production and also what is peak production for Bethune? Has that changed tool? Or is it still somewhere around, I think, is around 3,000,000 tons? But maybe you can just update us at the latest? Yeah, as I said earlier that we will be back on our original rent upwards by curve by 2020. There is the whole capacity is still 2,860,000 tons and we will achieve that. We will achieve that by 20 23 as originally planned. The next question comes from the line of Patrick Rafais calling from UBS. Please go ahead. Thank you, and good morning, everyone. As the first question, can I please follow-up on the last one we just heard, for the potash production bridge? That was a very helpful chart you provided for 2019, but thinking beyond 2019, can you confirm the around 2,000,000 tons or 2.1 or so just mentioned before. And can we also add in the lost nutrient content for the 2020 bridge for total potash production? Yes, please don't force me to give you a number for 20212023. I gave you one number for 23. 2,860,000 tons. And as we will have overcome the last quality issue by the end of next year, I think the development from 2020 to 23 will be quite linear. So you can make up your calculation. I didn't get the second part of your question. Sorry for that. No, that was just related to nutrient content, which you specify as minus 0.1000000 tons in the nineteen bridge, should we add 0.1 to 2020 here as well? No, no, you should not add, but we do not need to reduce the 2020 numbers by another 100,000. That is the target. And the second question is on the operational excellence countermeasures you talked about. We saw in the 2018 EBITDA forecast bridge the impact from 1 offs should we model any material costs associated with these additional measures in the 2020 bridge or 2019, sorry? Give us a chance to talk a little bit more intense and with more material about that on the capital market. Say. And it is not so far away. It will be the beginning of September. But I think we have already indicated that we will see all of the whole synergy project, the positive net effect in 'nineteen. So the savings will be higher than the cost that we have to take that we have to yeah, except for achieving the savings. Okay, good. And the last question is on Salt obviously seasonally not an important quarter, but can you give us an update how price negotiations went here so far and can you quantify the the logistics costs you're assuming for 2018, you did become a bit more cautious, right, saying that EBITDA 20 18 will be flat now versus 2017? So, we are quite quite far with our bidding in the bidding season. We have in Canada, we are already done We are, only at the East Coast, we have 50% of our fixed in all the other areas, we are between 70% 90%. So we have quite a good indication where the price is tending to And we are seeing a slight decrease at the East Coast. But in all other areas, including the Europe, very nice increases of prices. So that gives us hope for the next season, which as you know will have its biggest impact in the first quarter But with this price base and with this, with the low inventories at our customers, besides you at East Coast, we are quite optimistic. But freight cost is still an issue. They rocketed in the first quarter. We have not seen the coming download the situation in the second quarter. We now expect that they stay on that level and we have started as we have indicated in the Q1 call. Transferring these costs to our customers via higher prices. That is the process which has a significant delay of course between occurring of the cost and then agreeing and achieving the higher prices. So that's why we see here a significant negative impact on the salt business, but I believe it's not only a case of issue that is true for all our peers as well. The next question comes from the line of Neil Tyler calling from Redburn. Please go ahead. Hey, good morning. 2 for me, please, both relating to, I suppose, price mix effect. Apologies if I missed this in your earlier answers, but with regards to the lower ore grade, you've encountered. Could you help me understand or help us understand at what point that became apparent and how you at this point have confidence that that is not going to recur over the remainder of the year or over 'nineteen and 'twenty. That's the first question. The second one relates the best output. Let me maybe do one by one. That was not really an impression related to our every selling price but again, I understood that you asking about the decreasing KTO content in our German mind. Yes. It is something that we have of course I'm not talked about in every single call because that is an ongoing situation and But if this comes together with all the other issues that Pepe mentioned earlier, then of course has another relevance than in the past. So that is something every mine in the world is facing where other shaft, of course, in the best area of the dip deposit. And the more you move away from the past, from the shops, the probability is high that you come into areas with lower KCO a K2O content and that is the case at K Plus as well in Germany. It's completely different in the solution line that while we are not talking about such a situation in Bethune for example. And we have in the past not giving you a number, but this time we said that is a special situation. We want to be more transparent than normal That's why we have indicated we are seeing 100,000 tons. At the same time, we have started this operational excellence program and we have not only identified opportunities to save significant costs in operations, but also to work against this development. And that's why we believe we can stop that by the end of next year. Does that give you a flavor? Yes, that does. Thank you. So this, I mean, this has been happening in the past, but on this particular occasion, the incidence is just greater? Yes. No, not greater. Together with all the others, it has a higher relevance. I see. Okay. Thank you. So moving on to Bethune, in that case, I don't know if you'll be able to, but can you help us sort of break out the, perhaps in a euro per ton quantity, the price mix effect of the product that you are selling out of out of Bethune and how that impacted the average selling price in the business? We have tried to, to give you an indication for that on the on the slide 11. That shows the change in our regional mix and in our mix between MLP And Specialties, between the step up I would say between 'seventeen and 'eighteen. I'm not able now and here to give you exactly an exact euro number per maybe therefore we should come back to IR. The next question comes from the line of Andreas Heine calling from MainFirst. Please go ahead. Yes, thank you for taking my question. I basically would like to ask 2. Starting with the first one. Looking on Slide 9, you give the breakup, what you can expect from the pottery production in Germany in 20 19. I think the Sigma time line with minus 600,000 tons is all KCS are not affecting the specialty. So that should not change the mix, then looking on the increase in KCF. May I answer that directly? Yeah. Thank you very much. No, that is both. That is MLP And Specialties, the fifty-fifty split roughly. Okay. Then coming to the KCF. It was said in former calls that the KACF plans in the first place solves the wastewater issue, but it does not contribute to the earnings. So it's fair to assume that these 100 kilo tons from the KCR plant, basically neutral if it comes to the profitability from 2018 to 2019? That's true because we said, yeah, it's not neutral because, yeah, let's discuss the following. We said and we have calculated the KCF the way that we with the additional volumes we gain, we are able to cover the operational costs. So it's uh-uh 0 game. If you wish, we do do good for the environment and we save costs with having an opportunity to reduce the sourcing waters by 1,500,000 cubic meters. And on the other hand, we gained some additional product and that is that ends up in a 0 game. But as we are ramping up the KCF this year, We have not the whole quantity available that we are expecting in a completely up and running status. Which will be the case next year with roughly 200,000 tons and the additional 100,000 tons is the ramp up of this KCS, if you wish. So with only 100,000 tons this year, we have a slight negative impact and next year it will be 0. But the main achievement then if it comes to the bridge is taking out the 1,000,000 of Sigma tile is the improvement by kilotons in the term mine 100 you lose with lower K2O content and then 100 you get with the additional improvement measures you will take from this year from this year to next year. Is that the right reading? So that effectively a little bit from KCF, but other than that, it's 200 kilotons, there's a decent profitability, what you should add in next year? Yes, that's the right way to read it. Yes. And on top of that, you have potentially 4500 kilotons more of what you have to build up in inventories this year to be able to deliver in the high seasons in Q1 next year? Right, right. And this is both in Germany and in Canada. Okay. The very last one on SOP. So having, in mind, what you said in sigmundshall and having the lower K2O content, in mind, what will be then the future SOP capacity you have, let's say, midterms after 2020 when all these measures are in place? I have in mind that your capacity is 800 kilotons. You produced 700 last year as much probably this year. But what will be midterm your SOP capacity? Yes, our targets would be coming back to the 800,000 tons. Okay. That's signed as segments are being off? Vikmentsal Andreas produced MOP and TV rights. But the Kiserite from Siegfried was not used for the SOP production. We sold it straight into the Kiserite industry. Thank you. So SOP should stay at 800 kilo tons. Thank you very much. And these are my questions. The next question comes from the line of Philip Kehl calling from DZ Bank. Please go ahead. Yes. This is Philip Kuehler from DZ Bank. I have three questions, if I may. First one, you don't give a guidance for the cash unit costs by on 2018. But for 2018, you forecast cash unit cost of $205,000,000 to $210,000,000 a tonne. So midpoint would be $207,000,000, which is $7,000,000 below the 20.17 teen level of 2014, with the increased contribution of Bethune and do the cash unit cost decrease faster than we will see in 20 2018 period? That's my first one. Yes. First of all, the additional volumes from Bethune in 'eighteen compared to 'seventeen is higher than 'nineteen to 'eighteen. But there is an additional effect, positive effect with the secondary mining, which is very low cost production. So, it's difficult to precisely figure out what the effects from June in 2019 is, of course, we have an idea about that, but please give us the time until we guide the whole set of numbers for 2019, but you should expect a positive development. Okay. And the second question is on Neuhof again. You said that you lost 50,000 tons in Q2. Due to the roof stability problem. When you expect to resolve this problem in Q4, does that mean you will lose similar volume in Q3 as in Q2? No, it should be less, and that is all modeled into the number we have given you for 2018 and Q4 should not be affected anymore. Okay. And the last question. It's more common question. What expectations do you have regarding the contract negotiations with Chinese and Indian potash fertilizer customers. And will K and S play a stronger role in these negotiations as a result of the that above Bethune? Yes, I think we are still a couple of years away from strong stronger role of K Plus S in that game. Maybe when we are fully ramped up in Bethune and again, even with the upper end of of the production guidance for Bethune that we gave you. There's another 1,000,000 tons to come. Until 2023. So, but your the core of your question was, what is the outcome? I think it's well known that we are talking about a range of between $40.70 per ton. And there was a the short rumor that Campbell takes has already agreed on 40. I didn't believe that and the next day they said that was not true. Obviously part of this negotiations with the rumor, but it's impossible to predict an outcome. So, it's very probable that it will be in the range, but no idea will it be up closer to 40 or closer to 70. Okay. Thank you for clarification. Somebody told me that this was the last question. I would like to thank you all for being on that call. I'm I'm aware that the situation is not that easy. I think we hope that we help the situation with the higher transparency that we have given you. Is there another question still? It was another one just disappeared. So maybe it's not included still on the line? Okay. It's not the case. Sorry for that. But this gentleman will have the opportunity later on to us. So It was an intense call. I really enjoyed the question because it helps us to make the situation print print. You see us here sitting and being still optimistic for the time to come. And we are looking forward to seeing you very soon in Frankfurt and in line. Thank you. Bye bye. Thank you. That will conclude today's conference. Thank you for