Earnings Call: Q4 2016

Mar 16, 2017

Welcome to the K plus S Conference Call regarding the publication of the financial report full year 2016 hosted by Doctor. Burghardt Law, CFO. For the duration of the call, you will be on listen only. However, at the end of the call, you'll have the opportunity to ask questions. I'm now handing the call over to Doctor. Burkhard Law to begin. Please go ahead. Yes, thank you. Ladies and gentlemen, welcome to our conference call. I'm here joined by our Head of Finance and Accounting, Jorg Bettenhausen and Thorsten Wilkers from Investor Relations. Let's turn directly to Slide two. Our legacy project is heading towards its official opening. The rail connection to the Canadian Pacific Spur line has been completed and the first of our railcars have been delivered. The new harbor facility in Port Moody near Vancouver is almost complete and at the production construction is largely finished except for the areas that were directly affected by the collapsed crystallizer last summer. Six well pads will initially be available to mine MOP. All of this gives us confidence that we will begin to produce potash in the second quarter of this year. We expect to have saleable product already in June. Our goal to reach a capacity of 2,000,000 tonnes by the end of twenty seventeen is also expected to be met. As well, the budget remains on track with our projection of €3,100,000,000 Now please turn to Slide number three. It was a great relief when we received the deep well injection permit at the end of twenty sixteen. This is an important step in securing long term domestic production. In 2017, however, production may not run as smoothly as hoped due to the fact far reaching restrictions of the permit, including a maximum limit for the daily injection volume. This will continue to impact in particular production at our Huttof plant when the Werra River water levels are low. We saw this already happened during the first weeks of this new year. The standstill to date had a negative impact of about €40,000,000 Therefore, we continue to implement alternative measures for the disposal of wastewater. In addition to existing measures, for example, the mining field Springer or the old Bergmannsiegen Hugo Mine, we now also have the ability to use old gas cavern for permanent storage near our salt plant in Bernburg. This increases our flexibility, but is still not sufficient for full production in dry periods and it comes along with higher costs. There is good progress, however, on one important element to reduce dependency on the weather. The new KCF facility, which is currently under construction, will reduce saltwater residues by around 20% from 2018 onwards. This will help us to secure production to a large extent and make us much more independent from the water levels and the KCF extracts further marketable products. Now please turn to Slide four. Our SALT twenty twenty strategy is full on track to achieve the target of a normalized EBIT level above €250,000,000 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 consumer brands will enable us to meet our goal. We firmly believe in the de icing business and are confident that it will deliver attractive margins over the time. However, as we continue to strengthen other segments of the business, the percentage of earnings coming from the more stable non de icing segments will increase to more than 50%. This will reduce volatility of earnings in the salt business further. Please move to Slide number five. The cost discipline plays an important role in our company. Our Fit for the Future program, which we initiated in 2013, delivered very good results. Since then, we have saved about €600,000,000 and outperformed our expectations. The measures we have implemented will reveal their full effect in later years. This and further top down targets should reduce costs across the company by another mid double digit million amount by 2018. Now let's have a look at the main drivers for the reported results on Slide six. The sentiment in potash markets remains strong. Demand is on the rise as our prices for MOP from the lows seen in the third quarter. Also SOP in sulfate based fertilizers like Kiserite increased again in Q4 last year. In the Salt business, the non deicing segment was again stable in terms of pricing and demand. The deicing business had a sound fourth quarter, especially in North America, but overall remained well below long term averages. The 2017 showed a good start in Europe, but North America and thus the entire business unit has remained behind its long term average. Slide seven, please. Our salt business helped us to see profits in the fourth quarter after a loss on a group level in the third quarter. This was achieved despite a year over year decline in potash prices. In addition, the restricted deep well injection in combination with dry weather conditions led to another quarterly loss in the Polish and Magnesium Products business. On a full year basis, we finished 2016 with an EBIT one of EUR229 million. The restricted permit resulted in a loss of around EUR200 million, while ramp up costs for the legacy project running through the P and L amounted to around EUR90 million. The adjusted group net income declined accordingly, and we ended 2016 with €131,000,000 I'm mentioning this because our dividend payout of 40% to 50% is based on this result. We will propose a dividend per share of €0.30 to the AGM in May. This represents a 44% payout ratio. Please turn to our guidance for 'seventeen on Slide eight. On the positive side, we expect tailwind from potash prices and from higher volumes in both business units. We will continue with our initiatives to reduce costs across the group and execute our SALT 2020 strategy. On the negative side, mainly the production start in Canada will burden our EBIT significantly more than the EUR90 million seen in 2016. This is because D and A kicks in at amounts exceeding first profits from potash sales. Taking into consideration all of the above mentioned items, the 2017 operating profit should increase tangibly compared to the depressed results in 2016. However, in the business unit Polish and Magnesium Products, the forecast remains complex. The permit we have been granted along with our additional measures should give us some relief, but is not sufficient for full production during dry periods. This means depending on the water levels of the Werra River, our Huttof plant will continue to operate on an on and off basis. Extraordinarily dry periods could have a significant negative impact once again on our German production, which could impact profitability heavily. Ladies and gentlemen, I would like to finish my presentation on a positive note. The road in 2017 remains bumpy, but we are looking into the future with optimism. The new KCF facility will help us to reduce the volume of saline wastewater by 20% from 2018 onwards. This means that we will reduce the risk of production standstill significantly. Our legacy project is expected to deliver a positive EBITDA in 2018. Our salt business continues on its path to consistently improve earnings. The group's CapEx will be about half of what we have seen in 2016. This will result in positive free cash flow from 2018 onwards, and we will make the first step towards deleveraging the K plus S group. Last but not least, our midterm outlook look on Slide nine. Our solid 2020 strategy is well on track to deliver an EBITDA of more than €400,000,000 by 2020. Our business unit potash has developed a new vision and strategy that is based on nine action fields to shape the future of the business. The aim is to achieve an EBITDA contribution of €1,200,000,000 from 2020 onwards. Legacy is of course one important component. We are aware that today's potash prices make the target very ambitious. However, we still believe the prevailing low price environment is not sustainable. Additionally, everybody within the K and S group is very committed to delivering the €1,600,000,000 by 2020, irrespective of the challenges we are facing right now. We want to keep this momentum. Ladies and gentlemen, thank you. And now we look forward to your questions. The first question is from Joel Jackson from BMO Capital Markets. So my first question is looking at potash volumes in 'seventeen. So if your guidance for first saleable tonnes in June at Legacy occur and you get to 2,000,000 tonnes end of the year, how much production could we see out of Legacy this year? And then at Werra or sorry, in Germany, if you get normal weather, how much incremental production in 'seventeen could we see versus 'sixteen? Thanks. Thank you for the questions. Yes, I think we have indicated in the past that we are talking about roughly 700,000 tonnes from the legacy side. But I want everybody to take into account, we are talking about a $4,000,000,000 project ramping up. So we will not be able to precisely predict now what the outcome will be. It doesn't mean that we will differ significantly from that, but it's we always should look into ranges, maybe six hundred seven hundred thousand tonnes is what we expect for this year production. And we will take roughly 100,000 tonnes out of that to put it in our stockpiles in our storage facilities. Germany, of course, that depends heavily to the situation that I have described earlier. But again, we are better prepared this year. We are having a better deep well injection permit, and we have our measures. So maybe we try to answer the question coming from the potential risk of standstills in Huttow. We have seen in the first quarter already twenty five days, and that cost us roughly €40,000,000 EBIT. When we take into account from now on normal conditions in this area for the rest of the day of the year, sorry, we will most probably lose another thirty days. And in total, that would mean roughly a lost production of 200,000 tonnes. So significantly lower than last year. But again, if we will see a drier summer or autumn, the outcome could differ from that. Okay, that's very helpful. And just my last question would be on potash and magnesium costs. So costs, they went down a little bit sequentially in Q4, but they stay high. How will potash magnesium costs ramp across the year? Can you give us some ideas of what to expect maybe in the quarter Q1 and then for 2017 versus 2016? I know there's a lot of moving parts, Werra, legacy, but if you could help us out, that'd be very helpful. First of all, I'm thankful for that question because if you look at the 'sixteen numbers, and I'll come back to 'seventeen later. If you look at the 'sixteen numbers, you have to take into account that there is, of course, a legacy effect and that there's a volume effect due to the Werra situation. If you adjust all that, you end up for the full year 'sixteen with a number precisely on what we've seen in 2015. So all our measures have helped measures in terms of cost cutting have helped us to compensate inflation and other developments. The precise number was €216 per tonne for 'sixteen, again, on the level of 15. At the end of your questions, I have to disappoint you because I think it would not be very helpful or not very good early this year in a year where we will see all these moving parts, as you said, to give you a precise number for quarter and the full year. Of course, it will have a significant impact from the legacy ramp up and of the fact how much production are we going to lose in the Werra area. So please be a bit patient for receiving a precise number for 'seventeen. We are not able to do it now. The next question is from Ben Isaacson from Scotiabank. Yes, it's Oliver Rowe on for Ben. Thanks for taking my question. Looking out, there's a few specialty projects in the pipeline in both SOP and also some polyhalide projects. Do you view polyhalide as a competitor to your kezerite? And if not, what's insulating that from increased competition and demand switching? Yes, Ben, it's Dostner. When you talk to our salespeople and talk with them about polyhighlights, they say, well, they're going to make out fertilizers out of it, which are not in the markets today. So customers know, especially in Europe, the merits of our Korn Cali products and around the globe of our potassium sulfate, so the SOP products. And this is something a polyhalide product has to reach, first of all. And then, I mean, when you look at the nutrients included in the polyhalide products, we believe that the specific costs those products will have in the end are much higher than those of the specialties, which are right now in the markets already. And polyhalide has one big disadvantage, which is it contains plaster, which makes it very difficult or it takes very long until the soils can absorb the polyhalide based fertilizer. So we are not convinced about the success of those products. I'll just follow on with one question on salt as well. De icing volumes recovered a bit this year, but they're still down from the earlier years as a result of the mild winters. Are you actually producing less or are your inventories growing? And then further to that, where do you currently see industry wide inventory levels at both producer and customer levels? The season is not completely finished yet. So you know that we have seen some snowfall in The U. S. At the East Coast. But of course, we react with our production on what we've seen in the winter weather. We have done that last year, especially in Europe. The production was lower as normal because season 'fifteen to 'sixteen was by far weaker than the current season. And but nevertheless, we will end up with higher inventories. And this will be the case in the storing facilities of our clients and competitors as well. So it's not in the same magnitude Europe and U. S. Because the European weather in the first month of this year were not that bad. I would even say we were not far away from our average, long term average, but The U. S. Business was by far weaker. But again, we are still in the first half precisely in the March. We even had some weather in April, and then we will see the final outcome of that. It's great. Thank you. We have a question now from Christian Faitz from Kepler Cheuvreux. Actually, a follow-up to the de icing business. I'd like to get a better understanding of weather effects on your de icing salt business. Can you please elucidate and brief if it's more important if there are intraday frost and thaw conditions? Or is it much more relevant if there is precipitation coupled with frost days? Is there an easy rule of thumb we can work with? And then coming to potash. How has the European application season started so far this year? Comparing current weather conditions with a rather wet spring last year, demand should have come off to an excellent start in Europe. Is this an observation you would share? Thanks. Yes, thank you for the questions. The perfect weather for us is around zero and days of a little bit of ice and then at night and over the days dry conditions that the tracks can deliver our product to the clients and the applications on the roads can take place. And this would be the perfect condition for the de icing business. And we have seen this in January in Europe. And this it was about two weeks in Europe, and these two weeks were good for a very significant business. And I said earlier, we might come out on average in the European business, although February and March so far was by far too mild. Yes. And the European business I'm now talking about Polish. The European business starts very promising, strong demand, and your assumption is completely correct. We have a question from Stephanie Bothwell from Bank of America Merrill Lynch. The first one was on your CapEx comments. I believe in your opening remarks, you said that in the medium term CapEx should fall to around half of the levels of 2016. But just thinking more near term in terms of 2017, I think on the Q3 earnings call, you said you still had around €200,000,000 to spend on legacy. So could you give us a bit more clarity in terms of what you expect the overall CapEx budget to be for 2017? If I look at consensus, it's currently factoring in around €600,000,000 Can you confirm your comfort with that? And the second question was on the $40,000,000 negative EBIT impact that you've had from the stoppages from the dry weather in the first part of the year. I think you also did in your introductory remarks, you had about an additional thirty days stoppages would be expected for the rest of the year. So is it fair to assume that negative €80,000,000 for the whole year would be reasonable if that indeed was the case? Yes. Thank you for the questions. CapEx, yes. 2017 is, in many ways, a transition year. It is true for the CapEx number as well. We have a lower CapEx number than last year but still higher than in an average year. We had some shifts from legacy due to the incident. It was difficult to precisely predict what can we finish in 'sixteen and what is going to have to be done in 'seventeen. So the CapEx for legacy will be higher than the €200,000,000 that you mentioned. And this 'seventeen is a year of high CapEx in our KCF plant and some other environmental investments. So the number will be higher than the €600,000,000 that you mentioned would be the guidance for the CapEx in 2017. 40,000,000 is the number for the impact that we had in the first quarter on the Werra situation. We can give you a rule of thumb. It's a bit more than €1,000,000 impact per production standstill day in Hattorf. Then you surely wonder why €40,000,000 on twenty five days because we have additional costs for our measures that we use. So it's roughly €1,000,000 per day, and we have fifty five days in our forecast and some €50,000,000 for additional measures all over the for the full year. Then you should have the impact based on a normalized weather situation for the rest of the year. Okay. Just to go back on the CapEx comment once again. So if I take the €1,200,000,000 in 2016 and a €600,000,000 medium term average and I just go to the midpoint to around €900,000,000 would you be comfortable with us assuming that for 2017? Does that seem reasonable? That's by far closer than the 600,000,000 Okay. So 900,000,000 You're welcome. We have a question now from Neil Tyler from Redburn. Good afternoon. I'd like to come back to the legacy project, please, and a couple of questions there. Firstly, it feels like piecing together your guidance that the operating costs at legacy before depreciation will be in the region of €220,000,000 or so next year. Is that do those calculations or does that result sound sensible to you based on the production schedule that you're planning? Yes. Have to be careful because this year 'seventeen, I guess, you were talking you said next year, but you mean 'seventeen, right? Yes, 'seventeen, yes. Because we have a mix of still ongoing production construction, sorry, construction and of the start of the production. We shouldn't talk about OpEx, we should talk about an EBIT impact. And that is going to be roughly €150,000,000 this year. Out of all the components I mentioned earlier, some OpEx during construction site, then kicking in D and A and other cost components, but we expect negative impact of roughly €150,000,000 Okay, okay. Perhaps if I can ask another question sort of related to that, just to make sure that the assumptions I'm using are broadly accurate. How should we think about the realized price that you're or the best benchmark to use for the realized price for the legacy projects relative to other realized prices that you disclosed? I mean, we just look at a Vancouver FOB price and work back from that? That a sensible way of looking at this? Yes, the realized prices, of course, is a mix of our deliveries. We will be a new entrant entry in have a new entry in The U. S. Market. Luckily, we have seen strong increase in The U. S. Prices there. We are going to deliver via Vancouver into Asia, China and India. We are targeting to increase our footprint there. When we are able to deliver into these markets, we will see the new price indications due to the new contracts. Everybody is expecting higher prices. What the final outcome will be, we will it remains to be seen. And there will be portions into Brazil. And important always to remember that 20% to 30% of the production that is not going to be this year, but 'eighteen and 'nineteen with strong volumes, we will have KCL99, so industrial product with completely different prices. And that will be the mix of the price impact of our legacy side. Okay. And just one final housekeeping point. Just in terms of the reconciliation line in the at an EBIT level, can you give us some help on how to think about that for 'seventeen and beyond, please? So it should be it should not be far away from what we have seen in 'sixteen and 'sixteen. I mean you have always a little bit of movements there. But when you see it was in fifteen minuteus 16, now it was minus 30. So somewhere in between for the next couple of years should be a valid assumption. We have a question now from Markus Mayer from Baader Helvea. Three questions, if I had. First one is on the what you stated in your presentation, additional measures beyond future. Can you give us a flavor on the impact for 'seventeen, 'eighteen? Also, what are the costs for that measures? Secondly, on this outlook, can you also give us more flavor on what you expect for the overall potash market in terms of demand for 2017? And also, it's the same question for de icing. In your presentation, you stated you expect higher de icing volumes. Why is this the case? And then lastly, maybe an update on the forest hedging strategy and the impact you expect for 2017. Okay. This gives me the opportunity to ask please to ask one question by the other, but I guess we have taken all these. Sorry. We want to keep the momentum with our cost discipline. And we have delivered by far more than we have targeted with our Fit for the Future program. And there are still ideas in the company to be more efficient and to save here and there. That is why we believe we will not only let it go, we are going to reduce our cost by a defined number. And that is a mid sized double digit million amount annually from 'eighteen starting in 'eighteen. And the costs that we are going to have with these cost reductions are very, very low, or I would even say not meaningful. So it is almost a net effect. The de icing question, it's a normal technique that we use. We take a ten year average for our forecast. That's the best you have, best you can use to forecast to de icing volumes. And as 'sixteen was, in total, below long term average, you end up with an increase in volumes, in de icing volumes. And now you have to help me out with the question. Yes. Sorry, the question, the same basically the same question on the potash market in terms of global demand outlook. So you always give it for MOP and SAP together, whereas the potash Corp. Only looks at MOP. Maybe some more flavor on that would be helpful. Markus, it's Tosthen here. So we have seen 64,000,000 tonnes in our world, I. E, including the specialties in 2016, and we expect a slight increase on that number. When you deduct the €4,000,000 you see that we are not far away from what the whole market is expecting there. You asked also about the pricing, I think, in potash, same as on We the small I mean, you see price a positive price effect because of the volume mix because when we expect normal weather conditions for the rest of the year, Burkhart elaborated on our volume expectations earlier, this means also we can produce more specialties, and this means our ASP is not as depressed as it was last year. And this is what we have factored into our guidance. And then the last question on the hedging strategy or an update in general on hedging. No, that is we stick to our strategy, but I think that is not your question what is which technique do you use. I guess you want to know what you think. Quite more than interested in that. If euro dollar parity or if the currency exchange rate is on €1.2 we're going to lose roughly €20,000,000 always compared to 2016. If it should stay on 110,000,000 we gain €36,000,000 And if you would even see parity, then we gain roughly CHF100 million. These are the current numbers. Assuming this stays throughout the year, right? Yes, of course. Average of the whole year. The next question is from Michael Schafer from Commerzbank. The first one is a clarification one. Doctor. Lawyer, you mentioned previously on the, let's say, average type of production you're expecting in Germany and primarily relating to 2017 with the working days, something like fifty five working days off basically in Hattorf. Have I got you right basically that you said 200,000 tonnes lower production compared to kind of base year? I mean looking in 2013, 'fifteen period, I mean these have been the years where we haven't seen any kind of negative impact from permitting, etcetera. So you produce at group level something like 6,900,000 tonnes or sold 6,900,000 tonnes of P and M products. So is this the right base we should deduct 200,000 from? Or how should we read this? Yes, that's the right base. On that base, we've lost in 'sixteen roughly 800,000 tonnes. And if we only lose these fifty five days, we would lose 200,000 out of these roughly 6.9. Okay. Second one is on legacy of Asun. So you mentioned €93,000,000 it's probably in the annual report and OpEx burden, I. E, EBIT burden in 2016. So you guided back in 'sixteen something like €110,000,000 So is there kind of carryover effect we should assume into 'seventeen also contributing to the €150,000,000 negative you are guiding to in full year 'seventeen? So can you quantify this, what kind of extra costs you still account for in 'seventeen basically, which would otherwise happen in 'sixteen? The change of that number was also due to the impact to the incident that we had with our crystallizer and that we had completely changed the plan how to continue with the project. But everything which comes additionally in 'seventeen is already incorporated in the number that I gave you earlier, the €150,000,000 that we expect negative EBIT impact for 'seventeen. Okay. And last but not least, a quick one. On KCF, you mentioned construction is currently underway. Is there any kind of milestone we should look at, any kind of headaches you have experienced in the meantime, so which would dilute basically visibility for commission start in 2018? No, not really. We are very well on track. We had, in case of insolvency of one important supplier, but we have overcome that situation as well. There is good reason to believe that we will see the full effect in 2018. We have a question now from Patrick Rafaisz from UBS. Maybe two questions on legacy. Of the volumes you plan to produce, has the destination for your targeted customers changed in any way over the last few months? So are you still mostly targeting Brazil at the first instance in 2017 and then expanding further into U. S. And other Asian markets by 2018 as you ramp up? That's the first question, please. As you know, we have an agreement with Coke Fertilizer. That they are going to market up to 500,000 tonnes for us in The U. S. Market. So I wouldn't say that Brazilian is first and then the rest goes into The U. S. Market. We want to materialize this contract and then in parallel, go into the other markets. So you already plan to ship to The U. S. In the second half of this year? Yes. Of course, not the full 500,000, but that will ramp up to the 500,000 that we have agreed with Coke. Okay. Good. And then the other question, just on your visibility or your understanding of the quality of your resources at Legacy? You said you have six well pads. Do you already have a feeling of what kind of material is going to come out there? Because as I understand, it can be a very complicated process with a lot of surprises with production start ups with these kind of projects. We have even we are working on more than all the six pits. The six pets are now completely available for us for starting the production. And of course, we have a very precise idea of the quality of the product, and we are very happy with the quality of the product. And we are not waiting for the outcome out of the PETs. We have a lot of geological research work to make sure what is the quality of the deposit and where to position our wells. So we are very we shouldn't have a surprise out of that. We have a question now from Lisa Denis from Liberum. A question actually on what you're seeing in the SOP market. Some consultants are revealing improved demand in the first quarter, and some competitors such as Sindelo are cautiously optimistic for 2017. Could you provide like a bit of comment of what you're seeing and expecting for SAP this year? Lisa, we have seen a good Q4 and both pricing and demand wise. And we are seeing both in Europe, all around the globe actually, that the demand and also the pricing will remain at the levels we are currently seeing. So we are pretty optimistic about the SOP markets. Okay. And just a quick second one. On the Fit for Future program, you mentioned that you target additional double digit cost savings by 2018. Could you provide some color on where you are seeing these further savings and efficiencies? The FIT project was had the focus in the production, logistic and administration. And these are the same areas where we are going to work on for the additional cost savings. We have a question from Andreas Heine from MainFirst. First, could you a little bit elaborate how you see the potash pricing environment in spring now in Europe, your most important area? And then I would like to understand why you would think that your unit costs under good conditions in 2018 will be with the cost savings in place and the QCF plant coming on stream? And then lastly, it was very helpful that you have given us what your best guess is on the production level with this head of issue. Would you also provide what, let's say, a worst case scenario under very dry conditions could be? So what is, let's say, the range we have to think of if the weather becomes nice and hot in the summer, which would obviously not be fun for you, but potentially for me, that would be helpful. Yes. So I said earlier that we are quite happy with the volume development in Europe, and that goes along with a healthy price development as well. I think in almost all areas over the world, we see a recovery of prices, partially a bit quicker, partially slower, but no further development that could keep us awake at night. And Europe is, from both perspectives, price and volume, very promising. Yes, let's skip to the second question because I'm not quite sure if I got this correctly. I directly go to the third, and then I would like to ask you to repeat the second question. And for all the other participants, please, one question after the other. Yes, worst case weather. This is almost impossible to answer. I only said every single day, and we are only talking about Huttof because we believe with our additional measures, we are able to keep all the other two sites running. That was not the case in 'sixteen. We had closedowns not only in Hathof last year. This year, we expect it can only impact Hathof. So we expect an impact of roughly 1,000,000 And now it's up to you to imagine how dry a year can be. We are safe for the next couple of weeks. But what's going to happen after that, I don't know. I'm sorry to not be able to give you a worst case number. On the other hand, why shouldn't we always see the downside? It could rain more, and then we are not then we have some upside here. Yes. I was just looking on these both upside and downside. Yes. And repeating the Yes, question was you asked about the KCF, but I'm sorry, I didn't get it completely. Well, completely, this is just I would like to have a flavor what your unit cost will be if everything is solved in 2018. So with the KCF plant in operation and no issue anymore with this water flow level of Savara, Would that still be on this level of two sixteen mentioned for '15 and normalized '16 or would it be different? Andreas, I remember the first question from Joel was what could be your unit cost for 2017? And we said it's pretty tough to work that out. So we're going to wait a little bit more until into the year before we answer this question at concrete. We have a question now from Andrew Benson from Citi. Funny enough, most of questions have been answered. But can you just give us a bit of an update on what you think the financing costs and tax rates are going to be this year? And also, you've made two acquisitions. Can you just give a little bit of detail on those and how they're to fit and what the financial contribution is likely to be this year? Financing costs, do you mean the total amount of interest rates or financial result? Yes, the financial results, hedging, any pension costs as well as the financial charges. It was I mean, just to be sure that we are on the same side. I mean, financial result was last year, so it's 16,000,000 minus 52,000,000 And this includes everything, interest income, interest cost and cost on provisions, etcetera. And I would assume that this goes up because we are no longer that much capitalizing the finance cost for legacy. This should go up into the area of a little bit north of €80,000,000 Yes. Did you mention the tax rate as well? Did I get that correct? Yes, that's right. Are there any tax breaks in Canada The take it tax rate for us is about 28%. We were a bit below in the last two years, but that is what one should expect. And then the acquisitions? There is due to the fact that we are we have acquired a debt burden already because of the biggest investment of the history of the company, legacy namely legacy, there is nothing meaningful in the pipeline with additional acquisitions, meaningful in terms of cash requirement. And we have a question now from Oliver Schwarz from Warburg. I'll cope with your demand and get to go one by one. In regards to the measures, wastewater removal from the mines, Are there additional measures to come? Or are you satisfied with the measures in place? Now we are working on additional measures. For example, currently, we are only allowed to bring our waters from the stockpiles into Bergmann St. Grugu. We hope that we will be able pretty soon to bring our production waters into that old mine as well. That would have a meaningful impact because there's a big volume available there. And the next big one is Bischefer Oder, another old mine with a meaningful available volume. We hope to get a permit to dispose water there in the second half of this year. These are the most important further steps in addition to what we have in hand already. Would that affect Hartorf? Or would that mostly affect the other parts of the Werra mine? That could have a positive effect on Hartorf. Okay. And just coming back to the calculation on the negative impact on impact in the first quarter you gave, the €40,000,000 you referred to. Just trying to do the math here, euros 25,000,000 for the standstill, but obviously around about 15,000,000 from the cost of additional measures. But you said, on the other hand, 20,000,000 to €30,000,000 for the measures for the full year. So why is that front loaded? Because I said slightly more than 1,000,000 Okay, okay. All right. So could you give us an indication, should legacy start up, let's say, of July 2017, how much depreciation? Because that's certainly something you can control very easily. How much what would be the level of depreciation for 2017 for legacy? Would be a number between 10,000,000 and €15,000,000 per month. Okay. And lastly, I'm still a bit puzzled about the lack of movement in the provisions for mining provisions. When you look at the pension provisions, depending obviously, on the interest rates, they tend to move all over the place, up and down depending where the interest rates go. That's simply not the case in the provisions for mining. Assuming that we'll retain that silly low interest environment for another extended period of time, how would that affect the provisions for mining you have in your balance sheet? Yes. We are affected by an adjustment of our discount rate on the mining provisions. So we have reduced the discount rate from 3.5% to 3.3% following the market and following our methodology, and that had an impact of additional mining provisions of roughly €130,000,000 In total, we have increased our provisions due to interest rates development by €150,000,000 and that all drove our net debt number as well. But we believe now we have achieved the end of that story because there are more indications for rising rates than further decreasing rates. But we have taken the whole hit already. Okay, okay. Understood. And lastly, just a housekeeping question. The royalties you're going to pay to the Canadian government for the production and of legacy or better to say for the sale of the product you produce at legacy, would that be recorded or recognized as production costs? Or is that part of your tax payment? Part of the EBIT. And this was the last question, right? Yes, it was. Everything is fine. And you ask one by another, everything is okay. We have a question now from Stefan Kipp from Commerzbank. I'll also start with the first one. Talking about CapEx assumptions for 2017, what do you expect for phasing? So one might think that from because the start up is planned for midyear, that probably CapEx will be higher in H1 versus H2. So what do you think the split will be sixty-forty, seventy-thirty? What is your assumptions for that? Yes. I went by far as I wanted in the beginning of this call. Now you have a very precise idea of the CapEx in 'seventeen. That should be very linear. So there is no reason for believing that we will see significantly more in the first half than in the second. Okay. So there's no remaining CapEx for legacy that would have to be paid before startup? There is remaining CapEx for legacy, yes. But then we have heavy CapEx on at the Werra area. So it almost levels out. You can expect same amount in both halves. Because also after the production starts, pure maintenance CapEx for legacy kicks in, right? So of its fifty-fifty. Okay. That makes sense. Thank you. Staying with legacy, you talked about a minus CHF150 €50,000,000 EBIT impact that you still expect in the first in 2017 due to start up issues. Do you have an expectation of how much the operating cash impact from legacy will be in 2017? I guess it's probably not going to be positive, but can you give an assumption of where that will be, except for CapEx, just the operational cash from legacy? Yes. As we said, EBITDA will not be positive before 2018. That means that we will have still significant negative free cash flow in 'seventeen, which is close to the number that we gave you for the EBIT impact. Okay. So that's minus one But 150,000,000 I would like to use the opportunity, I always say roughly because and we are talking about a €4,000,000,000 project, which is will be ramped up in the course of this year. Please allow us to be not as precise as with the site which has been running for decades. But that is what we believe today. All right. And very clear. And pulling that all together, I guess, if I made the assumptions that there is a very good chance that net debt of the group at the end of twenty seventeen will still be quite a bit higher than it is now. That would not be unreasonable now, would it? That is not unreasonable. In 'eighteen, we will reduce that portion significantly, But it will still be on a high it will still be a comparable number at the end of this year. So not meaningfully more than it is now? No, no, not more, but not meaningfully less than what We we've seen at the end of have a question from Brendan Greene. Just following on from what you said about CapEx. Could you just clarify, I think you said earlier that you expect positive free cash flow in 2018, which will then lead to deleveraging? Yes, that's correct. Positive free cash flow. And not only a very slight number. Okay. And just to clarify what the individual before me asked, you think net debt will be or could be slightly higher than at the end of twenty eighteen than it is currently? No, I said it will not be significantly lower. Okay. But we are not expecting sorry, are you talking about 'seventeen now or again 'eighteen? End of twenty seventeen. 'seventeen. In 'seventeen, it will be only slightly below the 'sixteen number. And the final question we have coming through is from Stephanie Bothwell from Bank of America Merrill Lynch. Just a couple of follow-up questions. So you've committed to being at EBIT loss making level of around €150,000,000 in 2017. For 2018, you're committed to being EBITDA positive at Legacy. I was wondering if you could be committed to an EBIT breakeven level for 2018. Is that reasonable? And the second question is just on your net financial debt. Can you just confirm how much headroom you do have at this point in time on your existing facilities? Yeah. You should expect the positive EBIT in 'nineteen, no breakeven on the EBIT level in 'eighteen for the legacy side. And yes, with our financial debt, we still have significant headroom. We have our syndicated credit facility, which was drawn up to roughly €300,000,000 as of 12/31/2016. The total amount is €1,000,000,000 so it's still quite a significant amount of headroom. But that gives me the opportunity, you did not ask for this, but I would like to give you the indication that there is one bond maturing next year. It is it has to be paid back. And we believe that the current environment is perfect to early refinance this one. So we might see a transaction not far away from today. And at this point, I'll hand back to your host, Doctor. Berhard Law, for any concluding remarks. Thank you. Yes. Thank you very much for joining us today. We had many interesting and important questions. I think it was clear that 'sixteen was difficult. We believe 'seventeen will be better, but still could still be bumpy because we still are dependent on the weather situation. But we are very optimistic for the future. Legacy will kick in. We will finish our KCF plant. Sol twenty twenty is on track. So good reasons to be positive. And if you have further questions, please contact our Investor Relations department. And have a great day, and we are looking forward to see you soon again. Bye bye. Thank you. That will conclude today's conference. Thank you for your participation, and have a pleasant day.