Earnings Call: Q2 2017

Aug 15, 2017

Welcome to the K plus S Conference Call regarding the publication of the Half Yearly Financial Report H1 twenty seventeen hosted by Doctor. Borgard Lohr, CEO. For the duration of the call, you will be on listen only. However, at the end of the call, you will have the opportunity to ask questions. Please note on Page two of the presentation, you will find a disclaimer. I'm now handing the call over to Doctor. Burkhard Lohr to begin. Please go ahead. Thank you very much. Ladies and gentlemen, welcome to our Q2 conference call. Since I have taken over my new responsibilities, the time has been quite a busy one for many of us at K plus S. My team and I have many ideas to give the company a new fresh shape. The outcome of our new strategy will be published in autumn. We are looking forward to the upcoming months working hand in hand with all our stakeholders, our employees, customers, societies and, of course, our investors. I'm joined by my colleague and CFO, Thorsten Burkhardt our Head of Finance and Accounting, Jorg Bettenhausen, Jorg Grutten, our new Head of Investor Relations, is not present today. His youngest daughter has her first day at school, and nothing is more important than family. But now let's get started on Page three. I'm very proud to announce that we have the first potash volumes from our new Bethune mine in our hands and even two weeks earlier than we expected. Many of our colleagues have been working very hard on this. Now the first trains have started to Vancouver. We do expect about 600,000 tonnes production in 2017, which is mainly back end loaded. We'll reach our capacity of 2,000,000 tonnes annual run rate by the end of this year. Here, we want to repeat, due to our low fixed cost basis at Bethune, we have the flexibility to adjust production for the very first time. That means we are not flooding the market with additional potash if it cannot be used. Please also keep in mind that that unit is partly replacing our depleting capacities, for instance, our Diegmundsall mine, which is to be closed by 2020 at the very latest. And now please turn to Slide four, and let us have a look at the situation at our Werra plant. Last year, we were hit hard by low water levels and missing permits. This has turned positive in 2017. After twenty five days of production outages, we did not have to put production on hold with regard to wastewater disposal in the second quarter. As we made good progress with our countermeasures and also the expansion of basin capacities helped a lot. However, further production limitations in long periods of low water levels in the River Werra, as we have seen in the first quarter, cannot be ruled out for the rest of the year. That means production cannot yet run at full capacity in 2017. This will change 2018. We are making good progress with our new KCF facility. The start is scheduled for early twenty eighteen, and we continue to expect a reduction of saline wastewater by 1,500,000 cubic meters on a full year basis. This will help us to secure production to a larger extent and will make us much more independent of water levels. Meanwhile, the expansion of tailings pile capacity at Hartog remains challenging. We are working on a solution along with the regulator. At the same time, we are optimizing the capacity of the existing tailings pile. The important message is we believe to solve the issue without further standstill in Atoll. Now please turn to Slide five to talk about the potash market. In the quarter under review, the MOP markets have been pretty strong. For example, Brazilian market demand rose by 50% in the first half year over year. The Chinese and Indian contract prices met market expectations and underpin the recent global price level of about USD260 per tonne in Brazil. However, this also means that there is still a notable gap to our price assumption of USD330 per tonne in Brazil made in 2015 for the year 2020. That's why our EBITDA target for 2020 of EUR 1,600,000,000.0 no longer looks realistic from today's point of view. But we are nevertheless doing our utmost to close the gap with further measures. Moreover, with our strategic review, Faping 02/1930, which will be released in autumn this year, we will also give you an update on our financial aspirations. Back to the market. The demand for specialty products remained strong in the second quarter. We saw continued good demand for our SOP products, and market prices remained healthy. Nevertheless, due to a somewhat less favorable regional mix, our average selling prices came down slightly quarter on quarter. For the remainder of the year, we expect our average selling price in potash and magnesium products to move up slightly on last year's achievements. On Slide six, we give you an update on salt. Here, we saw stable revenues year over year in the nondeicing business. Also, the average selling price remained on last year's level. On the deicing side, a better winter business in Europe was able to partially offset lower volumes and prices in The U. S. The biddings are done now by roughly 80% in North America and about 50% in Europe. The trends we have already seen in Q2 can also be applied to the remainder of this year. So what is the bottom line? And therefore, turn to Slide seven. Whereas revenues stayed firm, we achieved an EBIT one of EUR 29,000,000, which is almost twice the figure of last year's Q2. Our potash business improved from the very depressed second quarter twenty sixteen, mainly due to higher product availability. In Q2, we built up some inventories on a generally low level. Unfortunately, we had to cope with some small hiccups. Production fell a bit short on our potential due to some logistical problems at our rail partner in Germany on the back of stormy weather. In addition, we had hot weather and high temperatures in Germany in June, resulting in a short suspension of production at our Werra plant. Higher costs with respect to our countermeasures to maintain production, lower de icing prices in The U. S. And planned higher ramp up costs at Bethune affected our earnings negatively in the second quarter. Nevertheless, on a cash perspective, free cash flow improved significantly due to lower investments in Canada. Please turn to Slide eight. With the start of Bethune and the start of depreciation from the July 1 onwards, K plus S has harmonized its useful life of similar assets globally and cross business units. This has been the first adjustment for more than ten years. We have been guided by tax account in the past, but now we use the actual life of our assets, which is in line with IFRS. This procedure has led to overly high D and A in the past. The impact in 2017 should be about a positive €40,000,000 The full year 2018 impact equals more than twice the 2017 value. As a remark, our new D and A policy is compared to our peers still on a more cautious side. Now let's come to the outlook for 2017 on Slide nine. All in all, we expect an EBIT one between $2.60 and €360,000,000 for the full year. This is in line with our previous wording stating that we expect a tangible increase over last year's achievements. Our guidance is based on the assumption that the overall product availability in the potash and magnesium products business unit will be significantly up on last year. We expect normal weather and water conditions for the rest of the year and again, the successful execution of our countermeasures to reduce the disposal of saline wastewater into the River Werra. In total, we expect potash sales in the range of 6,800,000 to 7,200,000 tonnes. On top of the volume increase, we would not be surprised to see a slightly higher average selling price for potash and magnesium products compared to last year's level. On the other hand, the start of our production in Canada will burden our EBIT by about an additional €60,000,000 compared to 2016. In source, we expect a moderate increase in volume by selling prices, but selling prices are soft as a result of the mild winter season at the beginning of this year. The upper and lower end of our guided EBITD one range are determined by the still ongoing ramp up of Bethune, uncertainties about the weather conditions at the water and the water levels at our Werra site. Furthermore, our guidance is based on normalized winter conditions and a ten year average. Currency effects and the potash price development remain uncertain. When talking about 2017, please keep in mind that the current year remains a transitional year for K and S, as we stated earlier. On Page 10, we want to show you why we are that optimistic with respect to the upcoming years. My colleagues and I are working hard on giving K plus S a perfect pace. As I said earlier, in autumn, we are going to release the first details of our all new strategy called Shaping 02/1930. We are very excited about the outcome. And there's so much more to come. In 2018, our new Bethune mine in Canada is ramping up quickly, and EBITDA contribution is turning positive. Our salt activities will be even more profitable than they are today as we are going to merge some of our sites and logistical hubs, which will further reduce our costs. Finally, in 2018, our new KCF facility will help us to reduce the volume of saline wastewater by 1,500,000 cubic meters per year. This means that we will diminish the risk of production standstill significantly, another huge tailwind, and the KCF delivers additional specialty volumes. At the same time, our investments will come down significantly in 2018, and we expect our adjusted free cash flow to turn positive. 2018 will, therefore, be the year when we will start reducing our financial debt and strengthen our balance sheet again. So ladies and gentlemen, many good reasons to be positive for the time being. Thank you for listening. And now we are happy to take your questions. Thank you. You. The first question comes from the line of Paul Walsh from Morgan Stanley. Please go ahead. Yes. Hi there, guys. Thanks very much for taking my questions. I'll start with my first question. On the D and A charges, Doctor. Law, for 2017, do I back out that the D and A charge for Bethune is about €50,000,000 for this year? And can you give some guidance on what the D and A charge for Bethune will be in 2018 and beyond? That's my first question. Yes. Thank you, Paul. We have guided in the past that we are expecting D and A monthly of €10,000,000 to €15,000,000 and that is still the case. So that will be the case for this year and for 2018 and the time to come. That's great. Second question, just on CapEx, euros 900,000,000 this year. Can I tempt you into giving a steer for 2018 as well, please? Yes. We always said that we expect in 2018 the CapEx to drop again. And currently, we would expect about €600,000,000 for next year. Okay. And final question from me, if I may. The cash costs per tonne, so sales minus EBITDA in PMP fell to about $2.00 €5 a tonne in the second quarter. Again, just on that front, wondered if for the full year, you can give any steerage on what the cash costs per tonne are going to be because that's a clear step down in Q2 versus Q1. And I know the reasons why the additional wage costs, the days outages and the countermeasures and so on, but our next year for the year as a whole would be helpful. Yes, Paul, we different way to look at it. I mean we always strip out the EBIT contribution from the fume because it's negative. And we also strip out the effect from the lower water levels in the Werra. And you know that we expect for the remainder of the year still thirty days of production standstill. But including all, we would expect to stay at about the level we came out in the second quarter. I mean we are working hard internally on costs. We always said that our Fit for the Future program will also have ripple effects into 'seventeen and 'eighteen. And we have, on top of that, but not given it another name externally, installed further cost discipline measures, which we are executing. And this is the reason why you can counter the higher costs from driving away the brine from the Werra to somewhere. The next question comes from the line of Michael Schafer from Commerzbank. Two questions basically. The first one is on the ASP. You reported a quarter on quarter decline in the second quarter referring to some regional adverse regional sales mix and lagging phasing in effects. So nevertheless, you confirm basically that for the full year 'seventeen, you would expect ASP to be slightly up year over year. So I wonder how whether you can shed some light on the phasing we should expect over the third quarter and the fourth quarter because basically what you said for the full year implies significant increase compared to what you have recorded in the second half twenty sixteen? This would be my first question. Yes. Thank you, Mr. Schaffer. First of all, one quarter is only a snapshot. Positive message and the most important is there is, again, a quite long lasting positive trend in the prices. We have seen MOP prices rising. We have seen specialties stable, but we know that we have that we are talking about especially about SOP, very high premium, and this is continues to be the case. And with the snapshot always has an impact of the regional mix. I think it's well known that we have, especially in SOP business, old contracts, which from today's perspective, has unfavorable conditions that is running off at the end of the year. And we believe with the trend that we are seeing for the remainder of the year, this will compensate for what we have seen in the third quarter. So in total, we should see our average selling price, a price which is slightly higher than the average selling price from last year. Okay. And second one is on German operations basically. Well, you've managed to basically keep production up and running in a rather dry and low water level second quarter. Water flows have improved significantly now heading into the third quarter. So I wonder whether you can shed some light on the visibility you have when it comes to production. And if I get you right, basically, your outlook is still including some significant outage days. So how likely is this? How conservative is this basically baked into your outlook statement? Yes. Thank you. Another good question. First of all, we still have in our midpoint of the guidance for 'seventeen, fifty five days of production standstill in Khattarov Incorporated. Twenty five days occurred as a surprise we have to commit in the first quarter because usually, the first quarter is not that dry as it was this year. We did not have any impacts in the second quarter, mostly due to our very intelligent water handling systems, bigger basin capacities, capabilities to bring water to Bergmannsvagen to Springen, to other locations. And at the end of the year, we should also be able to bring water to Bischerfavore, which is a big one again, but that is not incorporated in our guidance because that might this opportunity might occur at the end of this year. But still, there is a dependence on weather. And if we will have a very dry period from now, it's not completely unrealistic that we need this additional thirty days, but I would call this more conservative. And the good news is next from next year on, we are going to be more or less independent from the situation because we have, in addition to the KCS plant, the lower selling wastewater to handle, this is only a matter of the remainder of 2017. The next question comes from the line of Jeremy from Bernstein. It's Jeremy Rodinius Bernstein. I just want to ask one question about the 2020 guidance. You've mentioned that $330 per ton looks unrealistic now. What are you seeing that causes you to make that change at this point in time? Yes. Thank you, Jeremy. First of all, you're correct. I said it's not longer realistic, but it's not impossible. But it's not entirely in our end. We see a positive trend of prices increasing, but we have seen an additional $11 in China. And that is up to 2020, only a little bit more than two years because we would have to step into 2020 with a price of $330 to have a year's average on that base. And we easily believe, from today's perspective, it is less realistic to believe that we will have two huge steps in prices until 2020. That's why we indicated into the market that this is no longer realistic. I believe in further price increases, but maybe not of that magnitude. And by the way, we all know that there is a guidance out for 2020 for our EBITDA, which already takes into account what we have disclosed today. And I guess then do you expect the additional supply coming into the market to make those price increases difficult? Because I think you could argue on one hand that you sound like you're willing to moderate the pace at which you increase new capacity and you're shutting down capacity. I would imagine your competitors would also be willing to moderate the rate of production to absorb new capacity as it comes to the market. So wouldn't you think that, that might enable the market to still increase prices? Yes, yes. Let's I've what I said earlier took already into account that there are additional volumes coming into the market. Without these next last additional capacities in the market, there might have not been a reason to say it's no longer realistic. But taking into account these additional volumes and the market behavior, and we want to participate in it, it's still fair to believe in rising prices but not in rocketing prices. But maybe having a look a couple of years down the road, there are no additional capacities planned due to the pricing situation and the volatility of the last years. And we are at the beginning of a very positive long cycle in this market. I think we one should take that into account as well. The next question comes from the line of Christian Faitz from Kepler Yes. Good morning, gentlemen. First of all, a follow-up question to Michael Schafer's question. Your old rule of thumb ex obviously the KCF plant, etcetera, used to be that you need 40 cubic meters per second through flow at the Werra River at a certain point. We've been below that quite a few times, and still you were able to fully produce. So could you give us a new rule of thumb of basically just to follow-up what's happening in terms of cubic meters per second? That would be my first question. Yes. It's thank you, Mr. Wright. It's not that easy because, as I said earlier, we have the basin capacity, and we can use these capacities for quite a while, for a couple of weeks, to in periods where we are below this 40 cubic meters per second, which is still necessary to have normal operations without any additional measures. So the second opportunity is, of course, to bring the water into Bergmannsding, Zugosling, etcetera. So with empty basins, we can and basins are empty currently, we can secure for a couple of weeks full production even in times when the water flow is below this 40 cubic meters. So we have a bit of a visibility for the next couple of weeks, but that's it. And we do not know what's going to happen after that. That's why we follow this cautious approach and leave the additional 30 standstill days in our forecast. Again, it is cautious. Again, that is only a matter of the remainder of this year. We come back to a more normal behavior and more manageable situation in 2018. Okay. And then my second question, actually staying on wastewater disposal. Could you please give us an update on the planning for the UVA visa pipeline, timing, costs, etcetera, if there is an update? Yes. First of all, I would like to put this into perspective. The master plan, which we have agreed with all states which are related or which are relevant for Werra and Deza, have seen and are foreseeing two alternatives to the deep well injection, which will end by 2021. First is to bring these waters in our old mines to deposit this in our old mines. In the Werra Valley, there is a lot of capacity, and that will easily be good for the remainder of the sites until 02/1960. We have to solve a lot of technical issues to make this happen. But the plan is that we are going to have a solution for that in 2018, mid of twenty eighteen, and then discuss with the states and go for permission. We need that at the end of twenty twenty one to continue after we have no deep well injection any longer. If this is not possible for technical reasons, then the alternative would be this pipeline to the Oba Weta. And we are working we are the works are in plan. We believe that it is possible to build this pipeline until the end of twenty twenty one, challenging but possible. And the cost would be €250,000,000 which are in our forecast already and in our midterm planning. That is still valid. But potentially, as I said earlier, maybe we do not need this option. But that will be known more or less in the mid of next year. Okay. Great. And then final question. You know that de icing salt inventories are high, I mean, as senior year salt results over the past few quarters. Could you give us a guesstimate of high of how high they are in a historical context? And when would you expect prebuying to kick in? Would that be in September as usual in Europe? Or would that be at some point earlier in Q4? And what's new on your with your salt asset in Australia, I think it's called Ashburton Salt? Yes. The inventories actually really are on a higher level than in the long term average. I think, Thorsten, can you please have a look how much exactly this is, but I continue with the question. And that had already an impact on the in the billing season. I said earlier that we have 80% bids done in North America and 50% in Europe. And the outcome was that we are have a strong decrease in prices in the Midwest, a slight decrease in prices in The U. S. East Coast. Canada is flat. And Europe, after a very good January this year, we had prices seen even going up a bit. So all these price trends, which will, of course, be relevant for the rest of the year, are incorporated in our forecast. And we believe that this will, of course, will be a normal winter in the fourth quarter. That is always our assumption because it's not possible to predict something else. And as you might know, yes, the inventories are high, but two weeks of a good winter weather can change the picture entirely. Two years ago, remember, we did not have any material left in the middle of the winter in some areas in North America. So that does not really concern us a lot. Australia, the potential new mine to deliver the very interesting Asian markets is on time. We are still working, but that was planned. That takes a long time in Australia on the environmental approvals. And if we have this in hand, we have to decide to make a final decision on the investment. But we always indicated that there will not be a production before 2021. The important, do you have the Yes. Mean, we're interestingly, we're a bit reluctant to give out concrete numbers there for two reasons. I mean, first of all, we the market is always a guesstimate. We know what we have in terms of inventory. And so we would not give out the concrete numbers for competitive reasons. But I can tell you that you need to distinguish between the regions. I mean North America, especially The U. S, is well above the long term average. And Europe is, thanks to the good quarter, well below the long term average. But this is where I would like to leave it for now. The next question comes from the line of Markus Mayer from Baader Healthier. Several questions from my side as well. I'll start first one by one. On this new accounting, maybe can you shed some light what kind of assumptions have changed besides the last? And also what was the base previously? And how what kind of assumption you now have? And as far as I understood, this is only for the German mines, am I correct? What else does this accounting have on the mining obligation? What kind of impact? And also, if theoretically, the potash price would fall below the €200 per tonne level, would you have to reduce in the lifetime of the asset again? That's my first question. So that's your first question with four or five sub questions. Markus, let us know when we didn't cover everything. I mean we used this the production setup with fuel to review our asset lifetime globally, actually. And I mean we have different categories, and the main change happened in technical equipment and machinery. And here, we went from four to twenty five years to eight to forty years. But when we compare this with our competitors, we are still not very aggressive there. I must admit, I forgot the rest of the other question. Does it have an impact on the provisions? No impact on provisions. So as to another question, do I understand the script? Do you only change basically the equipment, not the license equipment, not of the end of lifetime of few mines, correct? Yes, exactly correct. Okay, understood. Okay, then forget all the other questions. So second question, given your new mine in Canada, can you update us on the ForEx sensitivity then for next year? And also, with the hedging, what does this mean? What kind of U. S. Dollar euro rate would mean what? That would be very helpful. Yes. First of all, we are quite happy with the situation. As I said in my speech, first, trains are on the way. At the end of this month, there will be an official opening of our facility in Vancouver, and we are quite happy with the quality of our product. Ramp up is doing fine so far. Usually, we are facing big problems. We only have faced small problems so far. We are hopeful that this continues as optimal as the production phase legacy when, obviously, the ramp up goes as well. Although we have the nameplate capacity at the end of the year of 2,000,000 tonnes in hand, we are not expecting a 2,000,000 tonnes production for next year because still ramp up, there might be there will be more maintenance interruptions than in a normal fully running situation. So a couple of 100,000 will not be produced compared to the potential of 2,000,000 tonnes. But everything is running so far fine. We know precisely where to sell our first product. It will be Asia, first of all, because now we are producing standard white, and we have not started granulating. And the granulated product will then go into South America. When it comes to currency hedging, our policy is to have, of course, the full year fully hedged the running year fully hedged. And the following year, up to 6070%. So in 2018, we have a good chunk of our expected sales. And of course, the Canadian dollar costs, which compares to the U. S. Dollar sales already in a safe haven acquisition. And the sensitivity has not changed compared to the past? The activity has not changed. Of course, there is now an additional currency to take into account the Canadian dollar cost. But the system is the same, and the activity to have a rolling hedging system is unchanged. Okay. Then my last question is on the increase of the logistic costs. Do you so far already see this? And how if you have hedged your or are locked in the logistic costs for next year, maybe some light on that would be helpful. Mostly, the higher volumes were the driver of the additional logistics costs. There's only very, very small price effect, not worth mentioning. And we are hedging currencies. We are hedging gas prices with real deliveries, but we are not really hedging logistics costs. And that's why we are we have to take the market conditions, but which are still very favorable. The next question comes from the line of Neil Tyler from Redburn. First question, hopefully, a quick one. In respect of the combined wastewater costs this year, which I think, including your guidance, amounts to about €100,000,000 of which 40,000,000 is the additional measures and then sort of 60,000,000 or so, the interruptions. Can you just clarify how you expect that to shape up in 2018? I know the 60,000,000 is falling away, but how much of the 40 That's the first question, please. Leo, thank you very much for the question. The situation will be by far more relaxed in 2018 with the KCF. I cannot stress this often enough because that is really a burden in 2017. It was in last year, and it's a burden this year, but it's going away. It will most probably be not zero in next year because part of that is not standstill cost, it's transportation cost. And we might be forced in dry periods last year to still bring our waters into Gernburg or whatever is available next year. So it will be a very small number, maybe double digit, but not more. That's great. Secondly, with regard to the Bethune EBIT contribution, year to date, I think, is about negative €50,000,000 at the EBIT level. Can you help us with your expectations for the full year latest update on that number? And if you're prepared to give anything for 2018, that would be great. Yes. 50,000,000 for the first half is correct. Now with the July 1, D and A kicks in. And we always said in the past, it might be €150,000,000 for the whole year. And I can confirm that maybe a little bit below that. From next year on, we are not really talking about production side any longer. It's a running mine. And the only indication we are giving is the EBITDA contribution, and that should be positive in 2018, big achievement. And again, another factor which does not burden our bottom line any longer. That's helpful. And final question. With regards to the Sigmundshall mine closure. You said that that will stop producing from 2020 at the latest. How should we think about the output from that mine in the next two years then, 'eighteen and 'nineteen? Yes. As I said the latest, we might not see an output in 2020. But for sure, there will be the full production in 2018 still because then if we would have decided to close it already, then the decision would have been made. So question mark about 'nineteen and 'twenty. But that will not have a huge it will, of course, have an impact on our volume, but no big impact on our bottom line because that is the reason why we're closing it because we are in a depth of 1,500 meters. Efficiency is very low, and there is no negative significant negative impact on the bottom line. So more or less compensated by a change in sort of cost per tonne effectively? Yes, exactly. The next question comes from the line of Patrick Rafaisz from UBS. Also three questions, please. The first, again, on 2018. Based on previous comments you just made on Bethune volumes, I assume the 1,700,000 to 1,800,000 tonnes for twenty eighteen still makes sense. And you said in the past that excluding Bethune, twenty eighteen volumes should be rather flattish, I. E, not more than 7,000,000 tonnes. Is that still correct? Yes. That's the one, yes, 1.7 to 1.8 is a fair assumption. But please take into account, we are talking about the mine, which is still in the ramp up. We should see clearer in the beginning of twenty eighteen. But 1,700,000,000.0 to €1.8 is very profitable. And the remainder of the €7,000,000 for the rest is a fair assumption as well. That would then mean a small increase compared to this year because we lost production due to the Werra situation in 'seventeen. So we increased significantly from the in the German mines, the output and, of course, in Canada. That's why I'm not tired of saying how big the step will be next year. Okay. Makes sense. And then maybe you could give us an update on the permit for the tailings pile. With Q1, you were hoping to get it within a few weeks, but you haven't really given us a potential financial impact, but you were just highlighting it and to take it into consideration. Can you update that? Would it be possible to give us some ranges or indication on potential impacts here? Yes, of course. I'm happy to do that. But first of all, we did not say that we expected in a couple of weeks. We said we would need it in a couple of weeks to be sure to have no interruption in cutoff in next year. But the situation has changed a bit. We have optimized the lifetime of the existing tailings pile. So we are fine for the next couple of weeks or maybe even months. And currently, we are working very cooperative with the regulator on a solution for the new tailings pile. And I believe that there will be a solution in the next couple of weeks, and there will then be no standstill in Hatov. And without standstill, there will then be no negative EBIT impact. Okay, clear. And the last question, you probably can't really answer it, but I was just thinking about your Shaping 2030 targets and the strategic review. Can you allow us a peek into what exactly is going on? I mean, it's a very long term time frame. Should we expect some financial targets as well later this year in autumn? Or will it be more qualitative statements on strategy where you want to steer the company? Without saying too much, I think we're talking about the year 02/1930. How do we believe will the company look like? And in what condition will it be like? What will we be able to what will the profit contribution look like in 02/1930? But that is granted that is very far away. But to comment to that, to 02/1930, first of all, we are a mining company, and we need such a period to really radically shape the company. A loan legacy from the first idea to the first time, there was eight years in between. So now we are talking about thirteen years. But I know for the capital market, this period is too long. That's why we are going to describe the way to this 2030 as well. So there will be information about what we are going to do in the next couple of years and maybe even financial targets, which is in between today and 02/1930. The next question comes from the line of Thomas Swoboda from Societe Generale. I have two questions. Firstly, on your currency sensitivity, in the past, were actually sharing with us the exchange rate levels you have locked in. I'm sorry if I missed it. Could is it still possible for 2017, 2018? What do you have in your books, please? Yes. Have locked in our total volume. So all the expected U. S. Dollar sales are hedged. But as these are hedged a from a cash flow perspective and we have some cash U. S. Dollar cost still on our Bethune side, there is still a small remaining impact with a weaker or a stronger U. S. Dollar. But from today's perspective, there's only more or less a single digit million amount, which could be going to one or the other direction with a stronger or weaker U. S. Dollar for 'seventeen. And Thomas, we have for this year, I mean, it's not much less. But even if the dollar goes to €1.2 we would see versus 2016 a low double digit positive contribution from that. And for 2018, we are not yet fully through. We are now hedged with our net position at about 50%. And let us do the rest first, and then we give you the best case and the worst case because it will change when we are going up with our hedging rate, which would usually be above or around 80% in ordering for the next year. But one thing is for sure, without this instrument, we would have a huge impact currently due to the very weak U. S. Dollar. Yes, yes, yes. That's pretty clear, I think. Yes, it's fair enough. I will try a second question, and it's regarding the potash volumes in H2. If I remember correctly, in Q3, you started you shipped increasingly to Brazil. Question 2a, if you want. So do you see any negative impacts from the currency devaluation in Brazil and the political unrest? How are your shipments to Brazil going? And to B, for the second half, should the volumes be rather equally distributed over the two quarters or rather back end loaded? Yes. Brazil was very, very strong in the first half. If I remember correctly, the volumes went up by 1515%, as I said, compared to twenty sixteen. As they had such a strong demand in the first half, that should relax the situation should relax a little bit for the rest of the year, but that is the only reason not the environmental the political and currency impact that we are seeing. So Brazil is very strong, and we believe remains to be strong. And we believe that we will again sell our entire production. The problem is the shortage of production due to the Werra situation and that we are, of course, still ramping up legacy. So the guidance is 6,800,000.0 to 7,200,000 tonnes. And yes, that is a clear message how we see the second half of the year in terms of potash output. The next question comes from the line of Oliver Schwarz from Warburg Research. Just a quick one, clarification one. I heard you saying that the FX sensitivity rule of thumb has not changed. Is that correct? And if so, why is that? Because you are about to ship more volumes in on U. S. Dollar prices into the market than you did in the past. So why if I heard that right, why has the sensitivity not changed or is not about to change? I think Boca said the system, how we deal with this is not going to change. We will, of course, have a higher exposure to the U. S. Dollar. Okay. But rule of thumb change in U. S. Dollar, let's say, by €0.10 how that would unhedged affect you in your business model currently? That is not something that you want to provide at the moment. I think unhedged is what you can calculate on your own. Hedged, as I said, I mean, we're currently expecting for the remainder of the year a higher dollar than we expected at the beginning of the year. So we went with €1 into the new year. We now expect €1.15 and it may even go higher. So the euro may go higher. But even if we go to 1.2 there will be no negative currency effect versus 2016. Understood. The question I wanted to ask is about the that flexibility you have in your production, given that Bethune is starting up. I heard you say that we might see the 1,700,000, 1,800,000 tonnes next year, which would indicate, let's say, given that you're still ramping up the plant, a full production next year. So I guess any flexibility that you might want to have would kick in only by 2019? And if that is the case, how would that affect your contracts, a, with Koch Industries that are taking on perhaps onethree of the planned production in Bethune? And how would that also impact your gas prices you're paying or let's say the contracts, better to say the contracts that you have struck with your gas suppliers. Are those pay or take contracts? So are you flexible on the volumes for natural gas you're taking on as well? Or is there something that would trigger a payment to your supplier if you're not taking on the agreed volumes? That would be your second question. Yes. You're right. Maybe the year of ramp up 2018 is not a perfect year to not fully use the capacity. First of all, we want to ramp up the site entirely before we cut production if necessary to calm down markets. So then we are talking about 2019. And I think it's obvious a mine, a solution mine, which only has fixed costs over onethree, biggest cost item is gas, has the possibility to bring such a contribution that was impossible in Germany, very high fixed cost base and a combined production. So if we had reduced MOP, we would have an impact on the specialties as well. That's why we were not able to do that in the past. So in the future, with the legacy that is possible, starting in 2017, and our contract with Coke and our guest deliveries give us all flexibility we need to play that game. Very clear. Another one on the KCF plant that's about to start up in 2018. I'm under the impression that you'll reduce your wastewater by generating more solid waste basically, which then has to go to the mining tips. Is there anything we should be aware of essentially with the problem you're currently facing in Huttow? Is there probably something building up as well if your mining tips are basically growing faster than they had in the past in Germany due to the installation of the KCF plant? The KCF plant has no significant impact of the lifetime of the tailings piles. So that is very clear. That is only a reduction of wastewaters, and there is a little bit more dry material that we put to the tailings piles, but that is so little that this does not impact the lifetime of the tailings piles. Brilliant. And just a quick one. Credit rating, any indication that the outlook or the rating as such is about to change? Yes, Oliver, short question, maybe a longer answer. I mean we know that our debt is high, and we also know why. We had significant investments into perfume. We had a weak financial performance last year, and we'll be only tangibly better this year. We are far away from running out of cash. So the funds are in our hands and our financial needs are sufficiently covered. And I mean, Burkhard said this a couple of times now, we expect 2018 to improve significantly due to the KCF, due to the fuel and also due to ongoing costs and CapEx discipline. So S and P usually reviews our historical financial performance, and we'll certainly do this also after Q2. And yes, frankly said, we cannot rule out further rating action, But we are positive for the future here as well as our leverage will start to decline quickly from next year and also our operating results should improve again. The next question comes from the line of Andrew Benson from Citi. Just on the FX, if you can clarify, your half covered for 2018. So if we stay where we are, there will be some impact from currencies and then the full impact assuming the dollar stays weak in 2019. Just if you can clarify and potentially dimensionalize that. And I know we talked about the Bethune production and your potential to curtail. I was just wondering, there much sort of storage? Could you operate at full blast for a considerable period and perhaps build up volumes as a way of and just limit the sales into the market? So is there a lot of flexibility on the storage in Canada? And lastly, when you're talking about curtailing, is there any sense that you'll be sort of I don't know whether it's feasible or not or possible, but will the could the Canadian assets join Canpotex? So starting with the hedging question, same answer as earlier. Yes, they make an effect when the dollar stays where it is or when it gets weaker. But we we have a rolling hedging system, which means we have also locked in already favorable rates. On the other hand, we now are locking in the rest. So I'm not going to give you a number by now, but we will, of course, not have the same positive effect as this year. Yes. Second question, yes, we have significant storage capacities in Bethune and in Vancouver, 140,000 in Bethune and 160,000 in Vancouver. So in total, 300,000. Currently, they are more or less empty. That means we have not only flexibility but the necessity to have a base fill. That's why we are expecting to produce 600,000 tonnes this year but only sell up to 500,000 tonnes, maybe a little bit less because we need this base fill. And when we talked earlier about 1,700,000.0 to €1,800,000 output for 'seventeen for 'eighteen, there will be some stocking up to has to be deducted from that number as well. And again, having these high capacities, it gives us a kind of flexibility as well. Yes, old question always comes up again. I think Campotex itself understood that this does not make sense at all for us to join. Only one reason would be Campotex would be a competitor to us in Brazil because we continue to deliver from Germany into Brazil, and that is a situation you cannot handle. There is only one easy to understand reason for us not to join Computex, and that is, I think, it's clearly fully understood, and we go back to normalized friendly behaviors amongst the producers. The next question comes from the line of Markus Schmitt from Otto Zeitler. Please go ahead. Yes, good morning. Just a quick question on your goodwill accounting. I saw in the second quarter that your goodwill came down by about €40,000,000 Could you explain the reason, please? It's currency effect. Just currency. Okay. Good. Many thanks. The next question comes from the line of Chetan Udeshi from JPMorgan. I had a few questions, maybe around cash. So if I look at your CapEx guidance for full year, it's still 900,000,000 You did around 400,000,000 in first half, which implies about €500,000,000 in second half. Now as I understand, the bulk or the peak CapEx has already been spent on your Canadian mine. So why is the CapEx rising in second half? And second question related to Please wait, wait. We have allowed once that somebody came up with all these questions, but that makes it difficult for us. We would like to answer one by one. Okay, sure. Yes. Yes. And I think the answer is, I mean, we are still investing in Canada despite the production started. But as we said a couple of times, we are in the ramp up phase still. And also, we are still investing in environmental protection, as you see in Germany, and namely here, it is the KCF, right? So would you say €900,000,000 is the right run rate level now even with €900,000,000 is what we still expect for 2017, yes. And the second question I had is on cash generation of this business. Even with CapEx coming down in 2Q, EBITDA improving significantly year on year, free cash flow is still negative. So what do do you need the prices in the market to improve significantly from here to turn the corner on cash? How do you see the cash generation of the profile of the company now that the Canadian mine is probably in a ramp up phase and will start contributing from second half in 2018? Yes. For this year, we are still expecting a negative free cash flow. And this is what we also said in the past and has not changed. From next year expect on a group level to be free cash positive again. And here are the same effects as we earlier mentioned with regard for debt, for example. Bethune will deliver a positive EBITDA. The cash drain will go down from €900 to €600,000,000 ish. And also in Germany, you remember that we have production standstill incorporated in our expectations still, and this will ease the situation significantly next year with the KCF being then in operation. But do you have a level that if the prices stay at this level, assuming all the once your plant ramps up in Canada to full capacity, what is the underlying cash generation profile of this business? Not for 'twenty eight? That is less a function of a required price. That is a function of that we finally are getting rid of the extraordinary burdens like €100,000,000 in the Werra and 150,000,000 in ramp up legacy and others. And that will be the case in 2018. And even on today's prices, we should be able to deliver a positive free cash flow. Slide new mid and long term targets in autumn. So question is not on when you now expect to achieve this level through a new time frame, but rather if you think that this is still the right balance sheet structure leverage for the group strategically? You know that €1,500,000,000 is very strict. And it's by far stricter than what would be required to be back in the investment grade area. But please give us the opportunity to answer that question together with the strategy. Okay. We will now take the last question from the line of Joel Jackson from BMO Capital Markets. We will now take the last question from the line of Joel Jackson from BMO Capital Markets. Go ahead. Hi, do you hear me? Can hear you. Yes. About that. Sorry. So you gave a little bit of color on first sales activity at Bethune. I don't know how much color you can share now, but how meaningful will Bethune be for sales into the fall season in North America? And then alternatively, looking into next year, could we expect K plus S to have larger shares of the Indian and the Chinese annual contract processes? Not sure if we got the question right here, Joe, the line with that. But if I understood it right, you mean how much impact we would be on The U. S. Market this year for products? For the fall season, right? Yes. And then next year, what we expect to do in China, etcetera, right? China and India, will you be a bigger player in the annual contract processes? Okay. Thank you for confirmation because the line is really bad. So this year, we are not going to sell significant volumes into The U. S. Market. As I said earlier, we are producing standard wide, and that's more or less an Asian product. And we are now shipping we will ship the trade volumes into Asia. And yes, I'm not talking about zero in The U. S. Market but very, very small amount. We ramp that up partially in the next couple of years. It's known that we have a contract with Koch who exclusively is selling our product into The U. S. Market until up to 500,000 tonnes, but most probably, the whole volume will not it's not going to happen in 'eighteen already. And then with the higher volume in continue to increase our volumes into Asia, mainly China and India, where we are a very small player currently, and we believe the market has the capacity, and we have very promising contacts over there. And we also look into South America with the volumes, and that will be the split. Asia, something between 500,000 tonnes in The U. S. Market and some volumes into South America. I will now hand back to Doctor. Burkhard Lohr for the conclusion of the call. Yes. Thank you very much for joining this call. We are fully aware that 2017 is the transitional year that we have indicated the beginning of this year as well. But I think it's more important to look in the future, and we gave many reasons for being very optimistic in 2018, and there's nothing which is dependent on circumstances which are unprobable. All that is going to happen. No further negative impact from the Werra situation. Legacy is going to deliver positive EBITDA. We believe prices are going to increase further. And that should be the look on K plus S, promising development together with the new strategy. And thank you again for joining us today, and we are looking very forward to talk to you or see you soon again. Bye bye. Thank you. That will conclude today's conference. Thank you for your participation, and have a pleasant day.