Hello, and welcome to the K+S conference call regarding the publication of the financial report Q3 2017, hosted by Dr. Burkhard Lohr, CEO. For the duration of the call, you will be on listen only. At the end of the call, you will have the opportunity to ask questions. If at any time you need assistance, please press star zero on your telephone keypad, you'll be connected to an operator. Please note on page two of the presentation, you will find the disclaimer. I'm now handing over the call to Dr. Burkhard Lohr to begin today's conference. Please go ahead.
Thank you very much. Ladies and gentlemen, a warm welcome to our Q3 conference call. With me here is Thorsten Boeckers, our CFO, Jörg Bettenhausen, Head of Finance, and Lutz Grüten, Head of Investor Relations. After a brief presentation, we'll be happy to take all your questions. Let's start with the highlights on the third quarter on slide three. Overall, we report a very nice improvement on last year. In the third quarter, we had no production outages at our Werra plant, mainly as a result of our countermeasures, which we implemented at the beginning of the year. This led to significantly higher sales volume and improved product mix and therefore better earnings. EBITDA rose by almost 40% compared to Q3 2016. After completion of our Bethune mine in Canada, CapEx came down substantially. Our free cash flow therefore improved nicely from last year's depressed level.
We benefited from rising MOP prices. Please keep in mind that our specialty fertilizers reflect MOP price increases with a time lag. This also implies that products like Granular and industrial potash have further upward potential from here. Bethune is a multi-billion dollar investment, it shouldn't be a surprise that ramping up goes along with some hiccups. We have adjusted, as you already know, our production plan. As a result, we had lower than previously guided production and D&A in the third quarter. We have commenced selling our Canadian product beginning of Q4. We can also confirm our previous guidance for the coming years. The operation will be EBITDA positive in 2018 and EBIT breakeven in 2019. Let's go a bit more into detail concerning the potash market and the trading update on slide four.
In Q3, demand in MOP was improving across all important regions, prices picked up further. As a result, our average selling price increased compared to Q3 2016. Higher product availability at our Werra mine fueled an improved product mix. The additional supply of specialty fertilizers, namely SOP, was not fully absorbed by demand beginning of Q3. Prices have started stabilizing on the back of more robust demand towards the end of the quarter. We still expect our average selling price to move up slightly based on last year. On slide five, we will give you an update on regulatory and environmental affairs. We have already spent a lot of time and effort to improve our environmental standards, we have achieved a lot.
After we had received our permit for deep well injection at the end of 2016, we immediately started to implement additional measures to limit our outage days. Instead of the 55 days expected at the beginning of 2017, we are now optimistic to have no additional outage days in addition to the 25 reported in Q1. With the ramp-up of our KCF in 2018, we will further reduce the selling wastewater by 1.5 million cubic meters or 20%. We have commissioned an external advisor to carry out a concept for extracting additional products from selling wastewater. Last but not least, we have just recently, more precisely last Thursday, been granted the approval for early commencement for the needed expansion of our tailings pile in Hattorf. This project remains on schedule. This is an important milestone for us.
Finally, I had the chance to discuss that already with many of you on our last road show, I have amended the way to handle our pending approval procedures and ongoing disputes. It's my aim to settle the most important topics on that list sooner than later. As you might have already seen in the last news flow, we are on the right track to get it done. That is very important to secure our license to operate and to avoid further shortfalls as in 2016 and Q1 of this year. Moreover, we are on track to settle our long-lasting discussions with the German environmental organization, BUND, and Gerstungen, the township in Thuringia, about our deep well injection practice. Let's move on to slide six with an update on the salt business.
With salt, we saw some impacts with respect to Hurricane Irma in the quarter under review. It caused shortages on freight capacity as well as severe damages and some production losses at our mine in the Bahamas. The negative EBIT impact in 2017 is expected to be around EUR 10 million. However, our non-deicing business achieved a very nice volume development quarter-over-quarter and has almost reached the size we reported a year ago. Most of that growth came from low-priced chemical salt products. The average selling price came down to EUR 108 per ton. Looking at the pre-buying for the upcoming winter season, we saw weak deicing business in North America, which was partially offset by higher demand in Europe. The FX development also caused some headwinds in the third quarter.
Having said this, I want to point out that the underlying trend in salt is still very promising. Our earnings have improved compared to the previous years, with similar wins to reduce costs and focus on high-margin businesses. What does this all mean for the full year 2017? Please turn to slide seven. The most important message on this slide is that we confirm our full-year guidance. EBIT I will be in the range of EUR 260 million-EUR 360 million, which implies a tangible increase over last year. What are the building blocks to bridge the EBIT I from 2016 to 2017? Additional volume and positive product mix effect in potash, as just discussed, are expected to have a positive contribution. On the other hand, the EBIT I contribution of Bethune is unchanged, expected to be more negative than in 2016.
Lower prices in our salt division could not fully be compensated by positive price effects in our Potash and Magnesium Products division. Cost savings, currencies, wages, and freight rates will have an overall positive impact on our full-year EBIT I. Our guidance is based on a normal winter and no additional outage days for the remainder of the year. The potentially positive impact from having only had 25 outage days versus our previous guidance of up to 55 days will be compensated by lower volumes, mainly from Bethune. 500,000 tons will be the production at the end of this year instead of the earlier guided annual production of 600,000-700,000 tons. For the entire division, we now expect 6.8 million-7.0 million tons of sales in 2017.
While the upper end of our range reflects a harsh winter, the lower end is reflecting the financial implication of a mild winter and making a decision about the closure of our Siegmundshall already this year. This decision would cause a mid-sized double-digit million EUR amount as one-off costs, but would not trigger any cash out in 2017. The decision is still pending. In other words, even with a decision to close Siegmundshall this year and a mild winter, we would stay in the range. Having said that, let's move on to slide eight and an update on Shaping 2030. At the beginning of October, we published our new Shaping 2030 strategy. Let's recap the most important points. We remain convinced, especially after intense discussions with our shareholders and sell-side analysts, that our one company approach is the best way to generate long-term value for all stakeholders.
We see significant upside potential in our earnings and profitability when thinking and acting as one company. Currently, the focus of our daily work is dedicated to phase 1 of realizing synergies of at least EUR 150 million by 2020 and reducing our indebtedness. By 2023, we aim to achieve an investment-grade rating again. It is of utmost importance to regain financial strength in phase 1 before we are able to start phase 2. Let me give you an update on our current shaping-related projects and what we have done so far on slide nine. What is on our current to-do list? We have set up a project management team, which is steering phase 1 processes. Steering down silos and making sure that we become a more customer-centric organization also needs to be reflected in our organization. The implementation will be finished by the end of 2018.
In parallel, we have now started the bottom-up validation of our synergies, and this should be done by the end of Q1 2018. Last but not least, we have changed the long-term incentives for our senior management. The LTI program will be partially indexed to the relative share price performance of our shares versus the index. Beating the index with its wide range of first-class listed companies is an ambitious target. At the end, K+S management is stepping into the shoes of our investors. As said earlier, we will keep you posted on the findings and give you an update in the first half of 2018. With this, I would like to open our Q&A session and hand over the conference call to the operator, please limit the number of questions to two and one at a time. Thank you very much.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. If you change your mind and wish to withdraw your question, please press star two. If you would like to ask more than one question, please submit one question at a time. Once answered, we will move to your next question. You will be advised when to ask your question. That's star one on your telephone keypad. Our first question comes from the line of Michael Schaefer from Commerzbank. Michael, please go ahead. Your line is now unmuted.
Thanks for taking my two questions. The first question is on your outlook. You provided for the volume, heading into the fourth quarter. You lowered the upper end of your P&M sales volume guidance to seven million. This implies basically two to 2.2 million tons for the fourth quarter. I wonder, given the deferrals we have seen in Bethune, basically, how the visibility is for you in order to make this number at the upper end. How can you make sure, basically, that you deliver, basically, on those numbers you are now projecting for the fourth quarter? And what kind of recovery is included also from the German production? Would be my first question.
Thank you very much for that question. We are now six weeks before the year ends. Of course, we have quite good visibility concerning our production. We will not see further production standstills at the Werra, that is for sure. Yes, we have reduced our expectation for the full year with the Bethune production. That is now fully reflected in the current guidance, and there is no significant risk that we could not achieve that. Together with our German production, we have cut the expectation or reduced the expectation against our summer expectation, but that was mostly Bethune, and now we have high visibility that we can achieve that.
Bethune is basically performing according to plan now.
Now it's performing according to plan. I think not only production is running well. As you have heard, we have sent a ship to China. It has arrived China. Our clients are very happy with the product quality. We are in the market with our Canadian products.
Okay, thanks. Second question would be on cash unit costs. I'm looking at the EBITDA to sales in terms of tonnage. You reported something like EUR 206 per ton in the third quarter, up from EUR 189 in the second quarter, probably partly due to a significantly lower sales volume. I wonder whether you could provide us some indication heading into the fourth quarter when you're obviously expecting a significantly higher sales volume.
Hi, Michael. It's Thorsten. The third quarter is always also, because of overall case volumes, a little bit above the other quarters when you look at cost per ton. This will change again with the higher volumes in the fourth quarter. We believe that when we look at cost per ton on the EBITDA basis, we will stay excluding Bethune at about EUR 220 per ton on a full year basis.
If you include Bethune?
This was excluding Bethune.
Okay, thanks.
Thank you very much. Our next question comes from the line of Christian Faitz from Kepler Cheuvreux. Christian, please go ahead. Your line is now unmuted.
Yeah. Thanks. Good morning, gentlemen. Thanks for introducing the Maginot policy on question asking. One question. What is your definition of above average winter conditions asserted in your outlook, in terms of, obviously, for the deicing salt business? Thank you.
The roughly 3 million tons in the fourth quarter should be a normal winter development. We have seen the first half of November. Here, we are quite in line with our expectations. Decisive is December, of course, because in November, volumes are not that high. In total, roughly 3 million tons should be a normal Q4.
Okay. Maybe as a short add-on, is it true that in Q4, you've already seen some decent volumes, especially in the U.S., after a slow Q3?
No. As I said, we are on budget. November is not the decisive month. It's the December.
Okay. Thank you.
You're welcome. Second question? Oh.
No. There was one question.
Okay. Sorry. Thank you very much for your question. Thank you.
Our next question comes from the line of Joel Jackson from BMO Capital Markets. Joel, please go ahead. Your line is now unmuted.
Hi. Thank you. Good morning. When you talk about the decision for Siegmundshall, whether to close early, can you elaborate more on the puts and takes on what would make that decision to close the mine about a year early? A lot of your peers are believing that potash demand will grow again two or 3% next year after a good up year this year. If that demand is there, you would think there's room for Siegmundshall to stay, or is this a decision that with Bethune ramping and maybe now stabilizing and ramping on schedule, that you have to shut down Siegmundshall to make room for Bethune?
Yeah. Thank you for that question. To start with the last, it's not linked at all to Bethune. We are producing 600,000 tons here, a whole range of products, specialties, industrial products, and only a slight portion of MOP that is purely linked to the status of production in Siegmundshall. This is the deepest mine in the world, which is still active as a potash mine, 1,500 meters, 60 degrees Celsius. I've been there a couple of times. It's really very difficult to work there, and the efficiency is low. It has reached, as we have indicated for years, that the point is close, that it's reached its economic mine life.
Now it's a matter of negotiations with work councils and unions because we are talking about 780 employees, and the question is: Will we have an alignment on how to deal with this matter by the end of the year, or will we need a couple of weeks more? If we should take the decision this year, that would mean we close the mine by the end of 2018, because it takes a while to get all the permissions that we need to not produce any longer, but go into the after-usage phase, and that's the driver for that decision.
Okay.
Maybe I could add, that's why we cannot quote precisely the costs which are linked to that. It's not the mining obligations, because we have built provisions for that already, as you know. We talk about redundancy costs, and you can only build provisions for redundancy costs if you have an agreement with unions and work councils. It's not that sure whether we have to build that for the entire team, or we can convince a couple of people to stay in other mines, and that is the moving part here still.
Okay. Thank you. I may have missed that nuance, that if you make a decision to close in the next couple of months, it's to close by the end of 2018, which is sort of in line with your prior guidance, correct?
We are more or less in line. We always talked about the closure could be at the end of 2018 or at the end of 2019.
Right.
If we close at the end of 2018, we rather have to decide it very soon.
Okay. Thank you. My second question would be on SOP. You talked about that there was some weakness in SOP. It's now stabilized. I believe the company has been a little concerned about some new SOP capacity in Egypt. Plus, of course, your tons are getting better because you haven't had any issues at Werra. Do you think that if you look into 2018, SOP might get soft again? Are you concerned on that, or do you think you're stable now?
No, we have seen the effect of all the additional capacities and us coming back in the market with normal volumes, as we did not have any further standstills at the Werra in the first part of the third quarter. We have seen at the end of the third quarter already stabilizing, in terms of demand and in terms of pricing. We are hopeful for Q4 and for 2018 that we will see a nice development here.
Are you less worried about the new Egyptian capacity than you were maybe two months ago?
Sorry, I didn't get that question.
Are you less worried about the new Evergrow capacity in Egypt than you were maybe two months ago?
I don't remember that we were very concerned about that two months ago. Maybe in some one-on-ones we elaborated on that a little bit more intensively. We are not concerned. The outlook I just gave you takes all capacities into consideration, including Egypt.
Thank you very much.
Thank you.
Our next question comes from the line of Neil Tyler from Redburn. Neil, please go ahead. Your line is now unmuted.
I've got two really, related. They both are linked to the 2018 free cash flow guidance. Working back from your guidance of a modest negative free cash flow for 2018, if I think about the run rate of D&A tax and interest, suggests to me EBIT close to EUR 400 million. First of all, I suppose that's the first question, is that in the right ballpark for the 2018 EBIT figure that I should be thinking about?
Interesting question, because we are talking about the third quarter and the guidance for 2017. As you know, in March we will give a qualitative guidance. With that number you have just quoted, it wouldn't cause significant concerns to me.
Okay. In which case, I'm going to sort of stay on this topic and throw a few numbers at you, so apologies for that. If I think about where euro-denominated realized prices are at the moment, some sort of EUR 10 or so above last year, and add the modest improvement in volumes in Germany, alongside an absence of hurricane impact in salt and a lower D&A cost. All of that, excluding the improvements in EBIT in Bethune, all of that gets me to a tailwind, an EBIT tailwind of about EUR 140 million-EUR 160 million, 2018 versus 2017. I think you've said in the past that Bethune EBIT will still be Well, you said today that the EBIT will still be negative, but significantly less so than 2017.
I wonder if you could sort of help me understand some of the offsets that will materialize to mean that year-on-year EBIT won't be up anything like as much as the amount that I'm getting to in that sort of bridge scenario.
Initially, you asked for the cash flow of 2018, and maybe we could narrow this topic from another perspective. All I'm saying is well known so far, but we haven't seen that reflected in some expectations published for 2018. Earlier we had said we expect free cash flow breakeven in 2018 with a US dollar expectation of 110. The dollar is weaker or the euro is stronger, depends on how you look at it, and we have adjusted this. That is the main reason for us to believe it will not be breakeven any longer. We expect a more negative free cash flow for the last time. After that, we will have a significant positive free cash flow in 2019.
Okay, thanks. I'll probably follow up with your Investor Relations afterwards. Thank you.
Okay, thank you.
Our next question comes from the line of Andrew Benson from Citigroup. Andrew, please go ahead. Your line is now unmuted.
Yeah, thanks very much. Just on the Siegmundshall mine that you're going to close down. First question, can you indicate the level of your billion of mining provisions that relates to that site and the sort of shape of the cash outflow? Can you give an indication as well of the other cash charges? You talked about redundancies, and I wonder if there are any others, and try and quantify the magnitude of those that would be crystallized by that decision.
I'm happy to do so. Maybe let's start with the redundancies. Assuming that we close the site at the end of 2018, the cash impact of the redundancies will start in 2019. Not the whole impact will be in 2019 because we have a lot of work to do. After we have closed, we have to flood the mine. Before that, we have to take out the equipment. We have to handle the tailing piles waters. We have to cover the tail piles, and we need employees for that. That means that we have the biggest portion of the redundancy payment in 2019, but it will go until the mid of the 2020s. That was the first part of the answer. The second is, we have a mining provision of roughly EUR 100 million linked to the Siegmundshall mine, and I mentioned what we have to do.
This will take years, and the handling of the tailing piles water is an eternity task. The annual cash impact are minor. We are talking about single-digit million EUR amount.
All right. Okay. Then the K-UTEC consultancy, you've talked about both the KCF plant and other measures to manage waste better and/or extract value from waste, both in terms of the tailings and the water discharge. Can you give some sort of dimension to what you hope that you can extract from these wastes in order to mitigate the costs of the environmental challenges you face?
Yeah. The KCF plant is, I would like to call it the best of two worlds. First of all, it reduces our salt water residues significantly, 1.5 million cubic meters per annum, and we gain some specialty products. If it's fully ramped up, it has a capacity of 300,000-400,000 tons annually. Together with K-UTEC, we are looking for solutions to maybe do more in this, doing something comparable, but even more efficient. We will not reach the same quantities. The volume of salty water that we save will be lower, and the additional products will be lower as well because every new step, of course, starts from an already optimized status. I can give you only this qualitative indication. It's too early to be precise on water and product volumes.
Okay. All right, sir. Thank you very much. Thanks.
Thank you.
Our next question comes from the line of Markus Mayer from Baader Helvea. My apologies. Markus, please go ahead. Your line is now unmuted.
Good morning. I have a question on the Forex sensitivity. On your chart, I understand the hedging strategy, but maybe you can give us now a new guidance as there are now more volumes into the U.S. market. That's my first question.
Markus, it's Thorsten. What kind of guidance would you have for 2018, right?
Exactly.
Rough numbers, when the U.S. dollar would move to 130, we would have a minus of about EUR 50 million.
15? One, five?
Zero. Five, zero.
Five, zero. Okay.
This goes also into the other direction when the US dollar climbs to 110.
Basically, this is kind of a guidance we can take as a run rate going forward? Or is this, of course, also including the hedge policy?
This is what we will see in the P&L, and this is now for 2018.
Yeah.
It's a little bit difficult to give you guidance for 2019, given that we may have a different starting point, and we haven't yet started to hedge a significant amount for 2019. This is for 2018 versus 2017.
Could you also give us a guidance, excluding hedging in?
I don't have the number with me, you know our dollar exposure.
Yeah
In the potash business, which is about $1 billion, you know that most of the salt business is a natural hedge because we are also producing in dollar areas.
Okay.
It's a significantly bigger effect if the dollar falls to 130, if we wouldn't have hedged.
Okay. Understood. Then I have another question on the new joiner in the club, EuroChem. Can you maybe elaborate how you see their cost curve versus your cost curve and also I've heard something that they also have the target to enter the SOP market. Maybe some words from your side.
I have no information about the EuroChem cost curve, only expectations. I wouldn't like to share that publicly. I think they are very far away from doing anything in SOP.
Okay. Thank you.
Thank you.
Our next question comes from the line of Knud Hinkel from Equinet Bank. Please go ahead. Your line is now unmuted.
Good morning, gentlemen. One question from my side on potash and magnesium. While average prices in the division have been up in the last quarter, it seems that prices for MOP have been down quarter on quarter. According to my calculation, its realized price is $227 versus $230 for last quarter. Given that the spot prices for MOP have been robust recently, can you explain this development? Is it due to currencies, or what is the reason for that?
The good news is that the market price shows a very nice development. Very nice development. If you remember where we were in the second quarter of 2016, we were partially below $200 per ton in Brazil, MOP granular. The prices really have picked up and sustainably, and we see that development has not finished, and we expect that we will see a comparable good development in 2018 as well. If you look at our average selling prices, we have, of course, a lot of effects to take into account. The product mix, the U.S. dollar impact, et cetera, and the regional mix between European business and overseas business. Very important is the market price development, which is nice, and that will roll into our price development in the next couple of quarters.
Thank you.
Thank you.
Our next question comes from the line of Thomas Swoboda from Societe Generale. Thomas, please go ahead. Your line is now unmuted.
Yes. Good morning, gentlemen. Two questions from my side, please. Firstly, on the SOP contract, which you have to renegotiate for next year. The question is, have you completed the procedure already? Related to that, is the recent pressure on the SOP price changing the setup here? Thank you.
Yeah. Thank you for that question. It's, of course, difficult to talk about a single contract. As you have knowledge about that, there will be an agreement at the end of this year. Of course, it will reflect the current market conditions. I cannot tell you more precisely what the conditions of the contract are. It's impossible. Sorry for that.
It's not concluded yet. That's the message.
The year is almost done.
Second question on the free cash flow and the net debt guidance you have given with the strategic update. Have you included the cash outflow for Siegmundshall and the cash outflow for the cost savings program you have announced with the strategic update in those numbers, or should we be stripping those potential costs from the numbers you have or from the indications you have provided?
Thomas, when we talk about cost savings we are targeting, this is of course in the number. Cash outflows in Siegmundshall, you will not see before 2019.
The question is this included in the indications on free cash flow and on net debt you have given?
Yes. Yes, it is. Yes, it is, but not for 2018. When you think 2018, you won't see any numbers there, but for the years after it is, of course.
Understood. Does it apply as well to the cost savings program? You haven't so far shared the costs and the cash costs for this program. Is this included as well or not?
We have assumptions included, yes.
Okay. Perfectly clear. Thank you.
Our next question comes from the line of Stephanie Bothwell from Bank of America. Stephanie, please go ahead. Your line is now unmuted.
Yes. Thank you very much, and thanks for the presentation. Just a couple of small clarification points from me. Firstly, on Bethune, can you just clarify what the ramp-up costs and D&A associated with Bethune were in the course of the third quarter? In addition to that, previously you guided for EUR 150 million EBIT loss on Bethune for the full year. Can you update us with your current expectations as of today? The second question was on SOP.
Sorry. One by one, please.
Sorry. Yep, go ahead.
We are not talking about a project any longer. As it was a project and we talked about EUR 3.1 billion investment, of course, we gave you a lot of information, which is far beyond what we do usually for sites. Now we talk about the sites, and we are not giving single D&A numbers, for example, for Zielitz and Werra, which is bigger than Bethune. That's why we just want to turn into the mode of giving earnings guidance. The earnings guidance is for the full year, a number of the EUR 150, which will be most probably a little bit below that. In 2018, EBITDA positive, and in 2019, EBIT positive. For the last time, as we started that in this year, D&A, we always said the run rate is roughly EUR 15 million a month.
As we have started depreciation in the last month of Q3, you have the number. Please accept that we, in the future, talk more about total earnings impacts than the P&L position.
That's helpful. When I look forward to 2018, 2019, 2020, can you just confirm it's still reasonable to use the current operating assumptions on cash cost per ton that you have out there in the market for full ramp-up by 2023?
We have not adjusted anything besides our expectation for 2017, the 500,000 ton. In 2018, it was not really an adjustment. We said always 1.7 million-1.8 million tons. Now we rather see 1.7 million tons. The full capacity of phase 1, 2 million tons, is available at the end of the year. Of course, we cannot use it in the first year because it's still ramp-up, and we need a little bit more maintenance force. It's still our target to start with the very profitable secondary mining by 2020, and we will have fully ramped up by 2023.
I was thinking actually more on the cost side, because obviously energy costs have moved, FX has moved since the guidance was originally set. I wondered whether or not we should consider any update to your current guidance for Bethune, or whether we should still be running at the old assumptions that I think were set in 2013, 2014.
Yeah. The biggest cost item is natural gas. We have secured deliveries for the next couple of years. The natural gas costs in Canada are still on a level which is significantly below our initial expectations. There's no reason for having a more negative view on the next couple of years. Everything we are seeing, of course, is incorporated in our guidance. EBITDA positive in 2018 and EBIT positive in 2019.
Okay. The second question was on SOP. In your release, you make some comments around the additional supply in the market in Q3 and how that's impacted upon pricing. I thought earlier in your comments, you suggested that Q4 should be a little bit stronger on SOP, but perhaps I misheard. Could you just clarify what you're seeing in the SOP markets? Whether or not you would anticipate a further strengthening in spot prices from here, or whether or not current levels are a reasonable expectation as we go into 2018. Thank you.
Steph, you heard us saying in the second quarter already that we see some demand weakness in the standard industry, in the NPK industry, demanding standard SOP from us. We have seen this in the third quarter or in most of the third quarter again, we spotted at the end of the third quarter a stabilization there in terms of demand, this gives us confidence that we have also seen a stabilization of pricing again. We still see good demand for Granular, this is a smaller customer group. From here, we would say we see stabilization in the prices and need to see what's happening in the fourth quarter.
Okay, that's very helpful. Thank you very much.
Welcome.
Our next question comes from the line of Andreas from MainFirst. Andreas, please go ahead. Your line is now unmuted.
Thank you. The first question is frankly, again, on Siegmundshall. The mine will be closed by the end of 2018, but you might not produce a lot in 2018. In general, my understanding is that the margin was anyhow thin, but with the procedures you have to do to close it, is that something where we have to be even more cautious on the P&L in 2018, or is that not having a great impact?
No. Of course, we knew that there will be a decision that leads to closure at the end of 2018 or at the end of 2019. We had a precise idea what the impact of Siegmundshall in 2018 would be, and that is unchanged and is fully reflected in everything we said about 2018.
Right. From Siegmundshall running down production and having all the preparations, it is definitely a negative impact we have to have in mind.
There will be a slight negative impact in 2018, but again, that was always expected. The production will be slightly lower. That is not 600,000 tons. We are not talking about half of it or whatever. A slight lower production, slight negative earnings impact, and then closing to zero at the end of 2018, if the decision is to do it by the end of 2018.
Okay. The second question I have is basically on the de-icing price. You are probably now done with all the negotiation on the prices for the next season. Could you give some more update how that compares now with the prices we have seen for the last season?
Yeah. The weakest area is the Midwest. Here we have seen significant decreases in prices compared to the earlier season. That is, of course, fully reflected in our full year guidance for 2017. A slight dip we have seen at the U.S. East Coast. Strong development means online or even slightly higher in Canada and in Europe.
If you look on the total global de-icing pricing, has it improved or is it stable or is it down?
Yeah, there is not really a global pricing, market price because we're talking about hundreds.
For your average price we see in your de-icing business.
Yeah, of course
Sales, the volume, is that going down or is it stable?
The average of what I said is, of course, that we have a lower average selling price over all regions. The volume, of course, depends on the weather. As I earlier always said, if we have two nice weeks, that could be good for the total season, to make it over average season. It really depends when and how strong we will see some weather. The November is so far promising.
Okay. Thank you
In the weather forecast.
Okay, our next question. Sorry, did you want to go ahead with the next question?
Yes.
Okay. The next question comes from the line of Markus Schmitt from Oddo. Markus, please go ahead. Your line is now unmuted.
Yeah, good morning. Just a technical question from my side. I saw that you brought about EUR 120 million in the quarter. Obviously you booked the drawdown in the long-term financial liabilities. I assume you draw down from your RCF facility. Is there a reason why you book it on the long-term side and not on the current liabilities?
Uh-
Sorry, that's the other line.
Yeah. Sorry. No, we just You mean you're looking at the net debt number or?
I do not see short-term liabilities going up, because I thought due to the bond refinancing, or what issue you repaid all your drawdowns of your RCF recently. This must be fully available. When you draw down now EUR 120 million in the cash flow statement, I would assume your short-term liabilities should go up by EUR 120 million. Is there an issue on my side that I did not fully understand?
Yeah. You know that we have issued after the bond financing of the first half, further
Schuldscheindarlehen, this amount-
Okay
Sounds pretty similar to this. What I suggest is we double-check and come back to you. It must be this, but I want to be sure.
It would mean actually you have still EUR 1 billion of your assets fully available and undrawn currently, right?
This is totally undrawn.
Okay
Correct.
Can you maybe elaborate a little bit on the new Schuldschein, because that would be interesting. I mean, maturity and maybe average cost of sales instrument.
It's five years duration. We have interest EUR 65 million is the What is EUR 65 million? Okay. It's a five-year duration, with interest cost of 1.5% on average on this.
Okay. The amount is obviously then EUR 122 million, around about EUR 120, whatever.
This is roughly it, yes.
Okay. Good. Many thanks.
Our next question comes from the line of Michael Schaefer from Commerzbank. Michael, please go ahead. Your line is now unmuted.
I have two follow-ups, if I may. First, coming back to Siegmundshall. Apologize for this one. Looking back on the Q2 call, basically, you indicated that Siegmundshall was basically contributing zero to the EBIT line. Given the low efficiency and the overall production environment you face there, I wonder whether you can
We confirm this. Related to this, heading into 2018, also looking at the product mix coming from Siegmundshall, are there any kind of compensating factors that you may expand production at other mines, primarily when it comes to specialty products, for instance? It would be my first question.
It's about zero this year. It's slightly negative next year. That's, by the way, the reason. It was always expected. With all the efforts, we cannot bring it back into the positive. That's where we have to find a solution. We always indicated that we will lose that 600,000 tons. There is no short-term compensation possible from our side.
Mm-hmm. Okay. The second would be a quick follow-up, basically, coming back to my initial question at the beginning of the call, talking about unit costs of production. I've referred at that point in time to cash unit cost of production or EBITDA. Your answer was rather referring to EBIT total unit costs, am I mistaken? Just to clarify this, please.
Michael, I'm happy that you asked again. You spotted my mistake. The EUR 220 I guided for full year 2017 was based on EBIT. When you look at EBITDA basis, and this is all in, you end up with a number slightly higher than EUR 210.
Okay, thanks for this one.
Thanks.
Our next question comes from the line of Markus Mayer from Baader Helvea. Markus, please go ahead. Your line is now unmuted.
Yeah, thank you. I have a question on the approvals you received for the tailing piles in Hattorf. Can you remind us, with this approval now the production secured, or do you need any further approvals for this site? That's my first question.
Yeah. Good question, because it's a bit tricky. First of all, we have the approval to start work. That means as we still are fine with the existing approval until summer, autumn of next year, we can now prepare the extension, and in parallel, we have to get the final approval, but that's important. With the approval of starting working, the authorities have given a positive prognosis. They have to have a positive prognosis, otherwise they wouldn't be able to hand over the approval for the start of the work. That means that the probability of the final approval is very high. I would even say it's more technicality. It's not in our hands, that's correct.
Okay, but when you have the final approval, then basically you are safe at the site from the authorities' side?
Yeah. That was really a breakthrough, because the whole process, how to do the works, and how we make sure that there will be no negative environmental impact is already discussed. It's on their table, and they have, on this basis, handed over the approval for the early start. Now we only need the final approval, but we can start preparing, and we should not have, with a high probability, any problems in 2018.
Okay.
Of course, the years to come.
Very good. I have a question on this share price-based incentivization program for the management. A, can you elaborate on what kind of management levels this is relevant? B, when does it start?
It's the level below the executive board. The first four levels, if I remember correctly, the levels below that are not having a long-term incentive. Very important, the top management, and I wouldn't be surprised if the supervisory board would indicate that for the executive board as well, but that is, of course, not in my hands, as you can assume. I am not shy saying that I would appreciate that being in line with the compensation of our top management.
The starting of this program is then-
Sorry, that starts with the beginning of next year.
Beginning of next year. For the management, top management, most likely then, do you also expect this to start then mid of year, potentially? Or is it then more around AGM?
No, the supervisory board is able to change that without the AGM.
Okay. Very good. Thank you.
Welcome.
Our last question comes from the line of Christian Faitz from Kepler Cheuvreux. Christian, please go ahead. Your line is now unmuted.
Yes, thanks. Sorry, another Siegmundshall question, technical question. You mentioned during our entrance question you were planning to flood the Siegmundshall mine after closing, rather than just simply closing the shaft. Why is that necessary? My understanding is that in that geological area, you would only flood the mine if there was brine inflow.
No. That is a precondition. It has always been a precondition that we have to flood that mine. It's in Lower Saxony, and it's a standard, or even law in Lower Saxony to fully flood the mines after they were closed.
Okay, thanks.
You're welcome. Operator? I think that was the last question, if I get the messages right. I just would like to thank you for joining the call. We are very happy that we have solved some problems, including the environmental, and there's good reason to be positive for Q4 and for 2018. I hope that you could feel our positive view in general. Again, we will see you on the road. Thank you very much for joining this call. Bye-bye.
Thank you. That will conclude today's conference. Thank you for your participation, and have a pleasant day. Thank you.