Welcome to the K+S conference call regarding the publication of the quarterly report Q1 2017, hosted by Norbert Steiner, CEO. For the duration of the call, you'll be on listen only. At the end of the presentation, you will have the opportunity to ask questions. If at any time you need assistance, please press star zero on your telephone keypad and you'll be connected to an operator. I'll now hand you over to Norbert Steiner to begin today's conference. Thank you.
Thank you very much. Good morning, ladies and gentlemen. Welcome to our Q1 2017 conference call. It has been a while since I hosted those kind of calls. As you know, I will hand over to my successor, Burkhard Lohr, who will be in charge as CEO from next Friday on. Thus, it was important to me to host this call one last time. I'm joined by our Head of Finance and Accounting, Jörg Bickenhagen, Thorsten Boeckers, our future CFO, and as crucially, the new Head of Investor Relations. Let's start on page two, please. We are very proud to announce that we have celebrated the grand opening of our Legacy project. Together with around 700 guests, including the Prime Minister of Saskatchewan, we have handed over the site to our operations team.
This finally concludes successfully the five-year construction period within the budget of EUR 2.3 billion as we have projected in 2013. As it is common in Saskatchewan, and as an appreciation to the province and its people, the mine has been renamed to Bethune Mine. Bethune is the closest community to the site. We expect to have the first ton of MOP available by the end of June. By the end of this year, the site will reach its 2 million tons capacity and then ramp up further to about 2 million, 2.9 million tons by 2023. Bethune will contribute positively to the EBITDA in 2018 already. Ladies and gentlemen, when I look back to the multi-year construction period of the Legacy, I must say the road was from time to time bumpy.
To face hiccups is certainly not unusual in case of such a big undertaking like building up a potash mine. Eventually, we can say we made it, we are looking into the future of Bethune with great optimism, it will begin to serve our customers very soon. Globally, we will do this with our own network capabilities. In the U.S., our marketing agreement with Koch Fertilizer will grant us access to customers and the storage space we need to serve them. We do not see any shortage of storage capacity for us like it was rumored recently. Please turn to slide number three. As we have already guided, production in 2017 cannot run at full capacity yet, as the permits we have been granted in December last year includes a couple of restrictions, including a maximum limit for the daily injection volume.
This will continue to impact, in particular, production at our Hattorf plant when the Werra water levels are low. We experienced this already happened during the first weeks of the year, unfortunately. On the other hand, we made good progress to evaluate and implement alternatives for this wastewater. Besides existing measures for temporary or permanent storage apart from our production plants, we have also again increased basin capacity on-site. This increases our flexibility, but is still not sufficient to full production in dry periods. However, it ensures that the runtime should be above last year. Now, for example, the Werra levels are not sufficient, but we expect production until the end of May at least. There is also good progress on the new KCF facility, which is an important element to reduce dependency on the Werra and the water levels.
The KCF will reduce salt water rendered by around 20% from 2018 onwards, which will help us to secure production to a larger extent and will make us much more independent from the water levels. The KCF extracts further marketable and profitable product of around 250,000 tons. Slide four, please. Our Salt 2020 strategy is fully on track to achieve the stated target of a normalized EBIT level above EUR 250 million by the end of this decade. We normalize our annual salt business earnings to account for unusually strong de-icing volumes as we saw in 2015, or unusually weak de-icing volumes as we saw in 2016. This internal measure enables us to track the development of our business without the impact of uncontrollable factors. Our normalized earnings are developing steadily and positively as a result of the numerous earnings growth initiatives we have been implementing.
Focusing on further efficiency measures, new market opportunities like the copper leaching business in South America, and of course, the strength of our highly valued customer brands will enable us to meet our goals. I would like to repeat that there's a good chance that we will be even better off. We firmly believe in the de-icing business, and we are confident that it will deliver attractive margins over time. However, as we continue to strengthen other elements of the business, the earnings coming from the more stable non-de-icing segments will contribute more than 50%. This will reduce volatility in the Salt business further. Slide five. Q1 2017 has again proven that our diversification in Salt works well. Higher revenues from our products that are not applied for road safety increased by 7% versus Q1 2016.
On top of that, we saw a stronger winter business in Europe and in Canada, which was able to offset lower volumes in the U.S. Please turn to slide number six. The sentiment in potash markets remains sound. Demand, especially for specialty products, was strong both in Europe and in Asia. In Germany, for example, in particular, corn farming was strong as customer inventories were on low levels. We also saw continued good demand for our FSP products, especially granulated, and healthy price levels. The average selling price continued to increase quarter-over-quarter. We are now 9% away from the low in Q3 last year, and this despite we faced again an unfavorable production due to the production standstill in Kassel. Please turn to slide number seven. All in all, we achieved a 3% revenue increase in both business units.
The bottom line faced various headwinds that led to an EBIT 1 of EUR 137 million, about 40% below last year. Our potash business improved from the very depressed second half in 2016, but again suffered from the production standstill of 25 days in Q1, burden us by about EUR 40 million. On top of that, the still lower year-over-year potash prices and the one-time payments to our employees as a result of a wage tariff review burdened the EBIT by around EUR 30 million each. With regards to the one-off payment, we agreed to do this in this way instead of increasing monthly wages, which enters into the P&L over time. With regard to the business unit Salt, the good non-de-icing business and higher volumes in de-icing were offset by lower prices for road salt in North America after a mild winter in the season 2015-2016.
Please turn to slide number eight. We hereby confirm our outlook provided a few weeks ago when we released our Q4 numbers. EBIT 1 for 2017 is expected to increase tangibly versus the EUR 229 million reported for 2016. Slight tailwind from potash prices and from higher volumes in both business units is projected. We will continue with our initiatives to reduce costs across the group and execute our Salt 2020 strategy. On the other hand, mainly the production start in Canada will burden our EBIT significantly more than the EUR 19 million seen in 2016. This is because D&A kicks in at amounts exceeding the first profit from potash sales. We anticipate a negative EBIT contribution from that field of about EUR 150 million as per now. On top of that, the visibility in the German potash environment remains low.
The permit we have been granted, along with our additional measures, will give us some relief, but it might not be sufficient for all production year-round during the dry periods. This means, depending on the water levels of the Werra River, our Hattorf plant will continue to operate on an on-and-off basis. Extraordinary dry periods could still have a significant negative impact once again on our German production, which could impact profitability heavily, and the summer is still ahead of us. From 2018 onwards, the new KCF facility will help us to reduce the volume of Brine wastewater by 20%. This means that we will reduce the risk of production standstills significantly. Our Bethune mine is expected to deliver a positive EBITDA by then, and our Salt business continues on its path of consistently improved earnings.
The group CapEx will drop, and this will result in a positive free cash flow from 2018 onwards. The group will make a first big step towards deleveraging. Last but not least, our midterm outlook on slide number nine. Our Salt 2020 strategy is well on track to deliver an EBITDA of more than EUR 400 million by 2020. Our business unit Potash aims to achieve an EBITDA contribution of EUR 1.2 billion from 2020 onwards with the help of its new market strategy. That field, of course, is an important component in this respect. We are aware that today's potash prices make the target very ambitious. We still believe the today very low price environment is not sustainable as the mid- to long-term trends remain intact.
Additionally, everybody was indicated as who is deeply committed to delivering the EUR 1.6 billion by 2020, we will keep this momentum. Ladies and gentlemen, thank you for listening so far, and we now look forward to your questions. As always, we are going to answer the question one after the other. Thank you very much so far.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, please press star two. You will be advised when to ask your question. The first question comes from the line of Christian Veit from Kepler Cheuvreux. Please go ahead.
Yes. Good morning, gentlemen. Thanks for taking my few questions. First of all, how do you see the inventory situation for de-icing products at present on both continents heading into the Q3, Q4 demand season? Second of all, on the potash side, in terms of demand trends for potash in Europe, how has this developed so far in the crop season compared to last year? My final question, and then I get back in line. Can you please share with us some details about the Hattorf expansion, either the tailings pile capacity? Thank you.
Thank you. The first question pertaining to the icing inventories. Of course, the question is to be answered quite simply. We will have a relatively normal situation in Europe as this is an issue that it also looks to be answered maybe in general. There have been areas in Europe where we are strong, where the winter was below normal, and therefore also in these areas, the inventories are above normality. That means that the early procurement for the winter season 2017/2018 will be also reduced. In other areas, winter was good and long, and therefore the inventory is low. That means that there, of course, the requests for shipping in the rest of the year will be higher.
In these areas, I could foresee that we at least stop the trends towards lower prices and maybe have the chance to add one or two or the one or other EUR on top of that. Canada was more or less in the same line, attractive, and also there, as we were not significantly above normality in the first quarter 2017, it will be normal business there as well. As you might remember, in that area, we have long-term contracts with an embedded price formula that grants us small additional, let's say, revenues on that, and this will continue to happen in 2017/2018 as well. On the other hand, of course, North America was not really successful when it comes to de-icing, and we know the answer of that. Inventories are high. The price trends will turn downwards even more than in the last year already.
We don't have any indication where it could go to because it's much too early to talk about early procurement and the price formula for 2017/2018. There is not a very strong tailwind for price increases in that area. Second question, European demand for our fertilizers. As I've mentioned, the first quarter was rather strong, and it means that our customers had to fill up their warehouses first because the early procurement in 2016 was on a relatively low level. But it means that also much material has been shipped into the market already. It is premature today on the 9th of May to say something for the rest of the second quarter, but it is an old experience that after a strong first quarter, the second one is not that strong anymore. So this should indicate the trends exactly.
Once again, I'm absolutely shy to give you an outlook on that, what we will have achieved at the end of the second quarter. But all in all, I have the impression that our business unit, Potash and Nitrogen Products, is rather content with the business so far and also optimistic for the rest of the spring season and also for the year 2017. Third question, expansion of heaps. I think when you follow K+S as you do over a long period of time, you have seen that nothing within the conduct of mining activities goes without a permit, and that the requirements to get the permits have been increased significantly. The bureaucracy has increased very, very much.
We need to have an expansion or additional land that we can use for the tailings pile in the Hattorf plant, like other tailings piles as well in the future from 2018 onwards. In order to prepare the underground for the storage of that salty residue, we need to start earlier, and this is what we want to achieve in the next couple of weeks. As it has proven in the past that we cannot exclude some kind of delay, we wanted to give that hint also a little bit more specifically in our Q1 report of 2017, like we have done that in other cases as well in the past.
From that perspective, I'm not shivering right now, on the other hand, we cannot exclude that our expectation to have it done by the end of June can be postponed for a couple of days or weeks or so, this means then for us that we need to adjust our preparation operations for that. This is something, once again, where K+S needs to say that we are meanwhile accustomed to that.
Okay, great.
Any additional questions for us then?
Thank you very much, all the best for your next step in life, Mr. Steiner.
Thank you very much.
The next question comes from the line of Jeremy Regnier from Bernstein. Please go ahead.
Jeremy, it's Thorsten here. Let us answer the question one after the other, please.
He is shy.
Jeremy?
Hello, Jeremy. Your line is now live. Please go ahead with your question.
Okay
Please check if your line is muted? Okay, would you like me to go onto the next question?
Yeah, of course.
Maybe he comes later again.
Okay, thank you. The next question comes from Lisa De Nijs from Liberum. Please go ahead.
Good morning. You delivered strong sales volume in specialties. I believe it was 15% high year-on-year. I believe if you could provide some color on the dynamics you were seeing in the first quarter, how much of that would be related towards restocking? Would it also be possible to provide some color for the rest of the year? That's my first question. Thank you.
Lisa, it's Thorsten here. We have indeed seen a good demand for specialties both in Europe and overseas. It's time to remind you that specialties is not only SOP. We have sold a lot of Korn-Kali into all regions, actually. It was really because of a favorable weather situation, it was applied to the soils, we don't have the feeling that there was a lot of inventory upfilling. On the other hand, we may not see the same demand in the second quarter, right? There was a lot of usage of favorable weather situations in the first quarter, this will not continue into second quarter.
Okay, thank you. On the weather disruptions, we had EUR 36 million of weather disruptions in the first quarter, where I believe EUR 1 million and 25 days gives you EUR 25 million related to the Hattorf interruptions. I would just want a bit color for the rest of the year. What is your base case assumption? Do we still assume EUR 55 million of Hattorf disruptions for the full year? Thank you.
It's a good question. Norbert Steiner again. What we have indeed seen in the past is that we have had 25 days of standstill. When we look down the road, of course, we have a certain idea about the situation at the Werra. Please take into consideration that compared to the last year, we have made a lot of progress due to the stabilization of also the entire normal production of the Werra plant, particularly Hattorf. First of all, we have increased the size of our basins where we can store salty waters. That enables us for a longer period of time to continue with work, even if the water levels of the Werra River are low.
That means that, of course, we need to stop that utilization of the basins when we do not see the possibility anymore to discharge the salty residues into the river system or into the underground. From today's perspective, we are of the opinion that at least up to maybe the end of May, and I would also say mid of June, this is the visibility that we have, we continue to operate there. Secondly, we have opened the door to ship away salty waters into one of our mines in Lower Saxony, where so far we had the ability to discharge salty waters from the piles, but yesterday we received the permit also to use it for the discharge of production water. This will also be the good volume.
Of course, this will require transportation costs, but this is certainly always more beneficiary for the plant compared to the standstill when we use springs in the neighborhood, we are filling end-of-lifetime gas storage facility in Bernburg, and therefore there is a multiple opportunity to get away from that. We want to show or we want to say that we cannot exclude that with all these additional means, it might happen that Hattorf will see a standstill again, but the likelihood that it occurs compared to year 2016 has significantly been reduced, and therefore I do not want to speculate about any day or any days or any time where the standstill in Hattorf can occur. Nevertheless, it is something that we want to make sure to the financial market that it cannot be excluded in that, let's say, more remote situation when we compare it to 2016.
Okay, thanks very much.
I want to make one remark. This EUR 40 million that you were referring to includes two elements. This is, of course, the element of the lost day costs or non-revenue of the lost day, and of course, a certain portion to ship material to other areas in Germany. I would prefer for the future, but I'm not there anymore, to have it separated because it is then more transparent to us and also to you.
Okay. Thank you.
The next question comes from the line of Markus Mayer from Baader Helvea. Please go ahead.
Yeah. Again, a question on Hattorf, again. This potential delay of this permission, basically, as you just said, I only expect for a few days or maybe one to two weeks, it's nothing very expected. This might even maybe be late longer. That's my first question.
We can only be transparent, insofar transparent to you that we say there is a upcoming necessity for further permit.
As the past years have shown, it might be that our expectation to get it in time might not be fulfilled by the respective authorities. It is absolutely impossible for me to speculate if a delay occurs, whether it is a delay of days or weeks also.
Okay.
For us, and personally for the Board of Executive Directors, it's necessary to make you aware of that there is a risk, but not to speculate about days or weeks or months of delays. Therefore, I will also not be sitting here and speculate on that.
Then with this longer and more complicated approval processes, is there any chance for you then for this permissions for 2019 and beyond to start this permission process earlier, or has this no effect on the timing and if there's a delay or not of the permission you get then?
We are accustomed to long permit processes, Obviously, we are seeing that also the requests for data and explanations from the authorities also is increasing more or less within every of such a procedure. I would not swear that the time that I mentioned right now is correct, I think we have started with the approval process for the expansion of the Hattorf mine already three years ago also.
Yeah.
Yeah, in 2011 already, You see where it is. In the beginning, it is always slowly because people see, also from the authorities, there's much time, Then the momentum starts, and You need to see that also with view to their own positioning, they ask for more and more and more, what we cannot foresee at the beginning of such a process. I think we never started too late, and It cannot be our future to say, I need an extension. I am now putting a figure into it there, in 2027, To start right now. Nobody can foresee that. Yeah. It is reality in Germany, Therefore, we need to do the utmost. I can only assure you that we have increased the number of personnel that is dealing with that kind of request significantly.
We are having external consultants also on board in order to come to that timely permits. Once again, you are always surprised, Then you are running after the questions and the reasoning of the authorities. This is from time to time, I admit, also frustrating, We work hard on that.
Okay.
To give a complete different color on that, how it can be done, we achieved the permit for the tailings pile in our Bethune mine within 32 days after the request for approval. This is something which you also need to see from time to time, that Canada facilitates the matter.
The last question regarding the news which popped up, I think few weeks ago on, again, the German legislation looking on the recently given permission for deep well injection. Can you shed some light on this kind of process here as well, please?
I know you might remember that a couple of people within K+S and also the mining authorities in Thuringia are prosecuted, including me. The court for mining has rejected the request for that legal treatment or legal procedure last September, we expect to have the final decision of the superior court in Jena within the next couple of weeks or months. It is not possible for me to indicate the right timing. In that context, this state attorney has also extended his view into not only into Thuringia, but also into Hesse. He is collecting material with the same background, as he has obviously been able or been given a lot of material from the Hessian authorities, he has to do a lot in order to review that by himself and by his reports.
This means quite simply that this procedure will continue most likely also beyond the final decision of that court in Jena. The legal background from our perspective is not different. We have been granted permits in Thuringia as well as in Hesse according to law, therefore we are not, let's say, amused about the procedures that the state attorney puts forward, we are also not afraid from the situation. No real, let's say, indication about any end of that procedures.
Okay. Thank you so much, all the best for the future, Mr. Steiner.
Thank you very much.
The next question comes from the line of Paul Walsh from Morgan Stanley. Please go ahead.
Thanks very much. Good morning, guys. My first question, how many days of disruption have you suffered in Q2 so far? In terms of the EUR 10 million in costs that you guide towards in terms of transportation in potash and magnesium products, is that a good run rate from Q2 to Q4, please? That's my first question.
So far, we had no standstill days in Q2. This is the answer to the question.
You were referring to the costs to bring the brine away, or?
Yes, exactly.
We once said that we have now the ability to bring brine into old mines and all the measures Norbert was referring to earlier in the amount of a good million cubic meters. Some had to be transported by truck, some by train, our best guidance is that every cubic meter costs us between €25 and €30.
25 to €30. Thank you. My second question, really just a clarification. I think you pointed, Mr. Steiner, to Legacy costs of about €150 million EBIT burden this year. Is that correct?
Correct.
Okay, EBITDA positive next year. Any rough idea on EBIT?
Yeah.
Thank you. My final question, any insights into the China-India contract settlement? What might come first? How you think the negotiations are going according to what you guys are hearing?
No, as we are not yet part of that discussions, and therefore, no insight. Unfortunately not.
Okay.
That China will be prior to India, but it's a gut feeling.
Okay, that's very clear. Best of luck with everything in the future, Mr. Steiner. Thank you.
Thank you. For you as well. Thank you.
The next question comes from the line of Georgina Iwamoto from Bank of America. Please go ahead.
Good morning. It's Steph Bosto here from Bank of America Merrill Lynch. Thank you very much for the presentation and for the opportunity to ask my questions. I'll start first of all on SOP. You comment in the release on the solid demand environment for SOP over the course of the quarter. If we go back to the early part of the year, we saw some price hikes on SOP. Can you just comment in terms of what you've seen in Q2, whether or not you've been able to push through additional price hikes there? The second part of the question, again, on SOP is, you have a long-term supply agreement, which is rolling off this year on SOP. Can you just confirm when exactly in 2017 that rolls off, and perhaps if you could remind us what the contracted volumes under that contract are? Thank you.
We'll start with the second part. I assume that you are referring to the contract that we have with EuroChem, this contract indeed expires at the end of the year. I need to say that I have not in mind the volume that is under contract, but we certainly foresee that there will be negotiations between us and EuroChem in order to continue this contract also for the time after, because they might have the opportunity to source SOP from us for their Antwerp operations, and this is the most convenient thing for them. This is extraordinary contract as it is so long, has been established for a long time, but it will continue like other contracts for the SOP delivery to the NPK industry. They are, of course, only quarterly or half unit contracts, but this will have a longer duration.
Hopefully, and I'm quite optimistic, also favorable conditions for us.
Georgina, with regard to demand, we highlighted our specialty, but please keep in mind, specialty business is not only SOP in our portfolio. On an annual basis, about a quarter of the specialty volume is referred to as We also produce a bunch of other specialties, the Kieserite or Korn-Kali, and here the Korn-Kali demand was also pretty strong
In the first quarter. We talked about prices for SOP because it's always in the discussion on the market, and we are still experiencing high prices. We said already in the last quarters that we are away from the peak, but the prices are still on a pretty healthy level.
Okay. Thank you. Just to go back on the EuroChem contract then. The existing contract doesn't expire until the end of the year. If you do perhaps get an increase in price on that particular contract, it wouldn't come until 2018. Is that reasonable?
Yes.
Okay, perfect. My second question was just going back on Legacy again. Can you just confirm what you do expect to sell into the market during H2 2017 and in 2018, please? Thanks.
Yeah. We have a plan to sell around 600,000 tons to the market in 2017, in the second half of the year. In 2018, I would say we have been a bit prudent in the past, not to say that the entire 2 million tons, that potentially we can produce, will also be produced and sold to the market. I would say maybe 10% below the capacity means that we are in the neighborhood of 1.7, 1.8 million tons for the entire year 2018.
Okay, 2018 will be around 1.7-1.8 in terms of sellable volume.
As we started later, you might remember that our initial plan to start the operations was in the end of 2016. We need to shorten, and steepen the ramp up, in 2017, significantly. Therefore, we do not want to frustrate the markets by saying, we were not able to do 2 million tons. This is maybe an issue of, to be cautious, if we are able to do more, then we will. You should calculate with 1.7, 1.8.
Okay, great. Very helpful. Thank you very much and all the best for future. Thanks.
Thank you.
The next question comes from the line of Neil Tyler from Redburn. Please go ahead.
Yeah, good morning. A couple, from me as well, please. Mainly concerning the Bethune project. Following on from Steph Bosto's question, bearing in mind the ore grade available, how should we think about the impact of those 600,000 tons and again in next year, on the overseas realized price, that you expect in comparison to what you sell currently? That's the first question.
Yeah. As I have mentioned in my speech to the grand opening last week, I mentioned that we will enter into the market with our Legacy products, as an experienced long-time party and supplier in the potash market. That means, this is obviously the background of the question, that we will not undermine our price levels by the volumes that we will get out of Bethune. Please remember that we always have indicated, and this is still also the truth, that our customers have asked us to deliver more to ship more than we were able to do from our German operations. This is now the time where we can sell more to them. With due to that, I'm only referring to that what the business units have said, and are deeply convinced that it is also the real truth from the markets.
We will be able to sell in the combination of MOP and specialties, the entire production that we will be able to do in 2018 and the years beyond. Once again, this will not be pushed into the market with, let's say, brutality, because we want to maintain decent price levels, and so far, we never have undercut price levels in the past, and we'll continue to do so, to act in this way. We will find also the areas and the room to place our material without maybe negative impacts to the entire market. This is what I have learned, and as I have been following the sales policy of our potash and the group in division for more than 20 years, I can only say this is what we have always been doing and will continue with that.
Thank you.
Switching away from Bethune specifically, but if I sort of tease out the various one-off costs in the potash business in the first quarter, relating to the interruption, to those startup costs, it looks like the cost per ton came in at something close to €190, just above. A little step down from last year, which I think you quoted at 201. Can you help us with your estimate of what this ought to be, on a clean basis again in 2017 and also in 2018, if you're able to, once the additional operating costs relating to the KCF plant and any other measures have stabilized?
You can strip out a lot. When we take our usual method, revenues minus EBIT over volumes, then strip out the negative contribution from legacy to the EBIT, I don't want to call it OpEx, it turns from ramp-up cost to real OpEx, you can tell.
Yes.
The end of this year should be approximately on the end of 2016. We said that we go ahead, that we first of all see effects from Fit for the Future becoming effective still in the coming years. We also go ahead with our cost discipline. I'm not going to lay out a number now for 2018, we shouldn't expect a jump in cost. Not at all.
Very good. Thank you. Just to be perfectly clear, the end of 2016 number that you're referring to is what, in terms of cost per ton?
I think it was 232 when you strip out Legacy.
Right. Okay. Thank you. Just on volumes, finally. If we think about 2018, again, excluding Canada, including the 250,000 tons from the KCF plant as well, should we now be thinking about something between 7.2 million-7.3 million tons from the German operations? Is that the right way to think about it?
I'm talking about a time where I'm not the officer anymore. No. I think we should be a little bit more cautious and think about rather seven than higher. We need to see that the KCF will be operated from the 1st of January onwards. In the first quarter, if I'm not completely wrong, it is dealing with the method to reduce the salty waters, but the production starts later. The year 2018, we'll also not see yet the entire possibility of the 250,000 tons. Rather, I would recommend to go to seven rather than above.
Okay. That is very helpful. Thank you. Thank you for all your help over the years, Mr. Steiner, and all the very best.
Thank you very much.
The next question comes from the line of Andreas Heine from MainFirst. Please go ahead.
Two questions I would like to ask. Starting with the first. Just to remind myself, is the CapEx for Legacy completely done with Q1, or is there still something coming in Q2?
Let's say, in fact, it's done. It's built-in, but the invoices come later and therefore, of course, it will run, I would also say, over the entire year with reducing volumes quarter-on-quarter.
Okay. It is booked and accounted for accordingly. It's not that if you have reached a milestone and then you are obliged to pay, you wait for the invoice until you book it as CapEx. Is that right?
What is it?
It's the
Your second half is answering. I hope he is a little bit away from the phone.
The construction is finished, then we book the assets accordingly in the balance sheet. Not only if the invoice is coming in. Only the point when we have to pay. For the capitalization, it is necessary to have the construction done.
Okay, in the cash flow, it is an issue for the full year still, declining quarter by quarter. In the balance sheet, basically done.
That's correct.
Yeah. Coming to the trends going forward in the second quarter on prices. The market prices were slightly going up over the recent months, and you should have, with the Hattorf plant fully in operation, also a better mix effect. Is it fair to assume that the upward trend you have seen in the last two quarters on the average price will continue in the second and third quarter based on this assumption?
I would say this is correct to assume that. Indeed, we had the first sale of Hattorf in 2016 from the second quarter onwards. Of course, we were there in a situation that we could make use of our own inventories, that it was not feasible. Immediately, but in the third quarter, inventories, particularly with with a view to SOP, were reduced significantly. That at least from the Q3 onwards, you would see, assuming that Hattorf plant will run smoothly and continuously, we should have a positive effect from that mixture situation. Of course, we still are looking to those people that are negotiating in China and in India. I think everyone in the world holds thumbs and crossed fingers for them that they increase the price to some extent. I'm optimistic on that as well. Altogether, we should perform in that direction where your question goes to.
Okay, thanks a lot for my question. Again, also all the best to you.
Thank you. Thank you. Thank you very much.
The next question comes from the line of Patrick Rafferty from UBS. Please go ahead.
Patrick, good morning. Two or maybe three questions. The first is on the one-off payments for employees. I understand you had a similar payment a couple of years ago.
How should we think about this going forward? Is that something you'd expect to reoccur on a two or three-year basis regularly going forward, or will there be, at one point, an increase in wages and a sustainable increase in costs, or how should we think about this?
You never know. It depends on the situation in which the company is. Then the two parties, that means the workforce as well as the union, sits together and discusses what is the best for that particular situation. There are also numerous reasons why in the one year we say we make a one-time payment, or as we come to the general procedure that the wages are increased by a certain percentage. The difference is that this one-time payment do not really increase the level of the wages. That means that the money is there, but the level of personal wage continues over the year and is not increased in that percentage. This is, from time to time, also an advantage for the company, compared to a situation where we do that annually on a certain percentage basis.
It depends on the situation of the company, on the view that the two parties of that salary contract have, and also on maybe situations like elections of the works council, et cetera. The general rule will continue to be the % increase. From the perspective of the company, also these one-time payments are rather attractive, but we cannot come to that maybe on a year-to-year basis. Unfortunately, no rule to be established on that.
Okay. Thank you. A follow-up on the tailings pile expansion. I realize you don't want to give us too many details, but by when would you need the permit the latest, so that given the lead time for the expansion, you will be ready for a seamless transition in 2018? Let's assume worst case, and you don't receive the permits until year-end, how much production could you actually lose in a worst-case scenario 2018?
Sorry, I do not speculate on that. You will not get an answer on any tonnage that we might lose. Once again, I can say that we are in the position to will start for the preparatory works during summer. This also has something to do with seasonality, that you cannot do everything in Mother Nature that you would like to do at any point of time. Maybe you can shorten that, or you could postpone it into maybe one month or two months or three months or later. There are various elements that should be taken under consideration in order to come to a solution. Of course, at one point of time, and by the way, the final permit is expected only for next year. We are talking about permits for the preparatory work here.
When we are able to squeeze that from normally three months to two months or so, we gain time. Our main purpose was to make you aware of that situation because the only reference to the explanations that we have put into our annual report, when we see the necessity are, from our perspective, not, let's say, clear enough, not transparent enough. We are working on that. Therefore, I will also not publicly, and this is public call somewhere, will not speculate about any worst-case scenario. Please accept that.
Okay. Thank you. The last question, a follow-up on SOP. You already sounded quite confident on SOP at the last call. Would you think sequentially has the markets in SOP improved structurally, for the rest of the year as well? Or would you say we just maintained the good levels we already saw earlier in the year?
Neither bad nor better. It's stable in demand, and it's still healthy in terms of pricing.
Okay. Very good. Thank you, and also from my side, all the best, Mr. Steiner.
[Foreign language]. Thank you.
The next question comes from the line of Oliver Schwarz from Warburg Research. Please go ahead.
Thank you for taking my questions one by one, as we said. Depreciation in Bethune for the rest of 2017, could you give me a number for that, please?
Oliver, we always said we expect between EUR 10 million and EUR 15 million per month as we expected to date.
Okay, great. Secondly, depreciation in the salt business in Q1 was a tad higher than it was last year. Is that a trend or is that just, let's say, a blip on a radar screen that can be disregarded?
Who wants to answer that question? Nobody.
It must be very important.
Sorry, Oliver. Listen, we look it up and come back to you. Is that okay?
Okay, great.
If anybody else is interested in that question, of course, please come back to us as well.
There won't be any, I guess. Lastly, coming back to what you or perhaps not lastly, but in regards to Hattorf, sorry for labeling that again. In regards to the permit that you're expecting to get, can you confirm that you're only, let's say, a bit worried about the possible timing, but not worried about any questions relating to the size of the expansion process or program that you have for that TIP? Obviously, that's related to the permit you got for the wastewater discharge, where you didn't get what you applied for.
I think we are talking about a permit that contains several steps and areas. Therefore, we need to start with step 1, preparation of the area number 1. We use that area and put it up, then we take area number 2 and 3 and so on. I have no idea that we could be limited with view to that what we have asked for the entirety. This is something that will need, maybe expect a year to 2030-something. There I do not have any doubt. It's a question of the, let's say, time of the permit for the first steps. Once we are there, then the final big permit, so to say, should be there in 2018. This will be then allowing us to go to these time frames of 2030, let's say 203X.
I do not remember the year exactly, but it should be then the permit that we have requested for. Of course, this is something that has always taken longer time frames in consideration than all permits that we got for the, let's say, salty water discharge. 20, 30 years in the past have been customary, and therefore, we should be in that area as well for the Hattorf and also for the other expansions of the pipes in Wintershall or in other areas where we are continuing production.
Very clear. Thank you. I'd like to sneak one last one in, if I may. Alluding to what you said, Mr. Steiner, in regards to the sales team and the potash business, that they are supposed to be able to push in additional 1.8 million tons in 2018 when compared to the numbers you have in the German mines. In the past, your sales team was in the position that they had to manage, let's say, declining volumes.
That'll be the first case that they can deal or have to deal with a huge increase in volumes. Still, you're very confident that you can do that without having to put pressure on prices. Why is that?
As we are capable.
Okay.
Please don't forget, we are also maybe in the sunset of our Sigmundshall plant. We are talking about something before 2020 that we will then reduce our exposure by that, I think, 600,000 tons of MOP and specialty. Therefore, our team always has been able to sell more. We were from time to time more included in discussions, why can't you deliver more than you want to have and keep our customers satisfied? I think it will not be an easy task, but I'm full of confidence that the team will manage that without turning the price levels into the south.
Very clear. Thank you very much, and all the best for your future.
Just one additional remark from Thorsten. Thank you very much, by the way. The increase in D&A is mainly FX-related in the salt business.
Okay. Thank you.
Welcome.
We have no further questions coming through, so I will hand you back to Norbert Steiner for any concluding remarks. Thank you.
Yeah. Thank you very much. It was once again and finally a nice hour spent with you. I would like to thank all of you that I have met in the past on a regular basis, and also to you as representatives of the financial market. I can only say that generally, I have been treated kindly and in all fairness. When it was not fair, we were biting against it, but it was only rare occasion for me. Coming now to an end of my duty and service for K+S, I ask myself for kind of a magic formula. I was very much engaged to bring a Legacy to life, and we were talking about 100 years there.
On the other hand, we are confronted with the financial market that might have a time limit of 100 days. I would like to have the magic formula between 100 years and 100 days together. This would be very helpful for the future. On the other hand, it will not be any challenge anymore. We should leave something behind for our successors. Thank you very much, and all the best to you. Thank you.
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