Earnings Call: Q2 2016

Aug 11, 2016

Welcome to the K and S Conference Call regarding the publication of the Half Yearly Financial Report 2016, hosted by Doctor. Burk Hadlohr, CFO. 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. I'm now handing you over to Doctor. Burkhard Loehr to begin. Please go ahead. Thank you. Ladies and gentlemen, welcome to our Q2 conference call. As usual, I have Jorg Bettenhausen and Thorsten Wilker here with me. Let's take a look at the highlights of a really challenging quarter on Slide two, please. We pre released our Q2 result estimate on June 27 as the quarterly EBIT was significantly below the previous year and certainly below what was expected. We regret that this caused trouble in many ways, but it was unavoidable. And why? Alongside developments like the significantly lower average selling price in Polish and the low activity in salt because of the mild winter, there was an unforeseeable factor. In the June, it became clearer that we faced more production since still stands because of the dry weather in the Werra Valley than anticipated. This alone costs us around EUR 60,000,000 in the second quarter. Three weeks ago, there was an incident at our legacy site. During hydro testing, a crystallizer dropped. Of course, this is not insignificant. But from today's point of view, it will not have a material impact. I will come back to that later. Finally, we expect an EBIT one range between EUR 200 and EUR 300,000,000 for 2016. Let's go into detail on all of this, starting on Slide three. We already talked briefly about the main effect. Alongside our inability to produce, we saw a significant decline in potash prices. Overseas prices were a negative driver. Europe proved to be relatively stable despite it could not fully decouple from the overall development in other regions. On top of that, the production standstill at the Werra caused an unfavorable product mix. Q2 salt results also declined year on year, which can be mainly attributed to the mild winter. Please turn to Slide four. As I said earlier, during hydro testing for pre commissioning on July 17, one of five ECC crystallizers fell. Of course, the most important point is that nobody was injured. Together with our partners, we are currently undertaking extensive efforts to fix and evaluate the damage. What does that mean? We can continue the gradual commissioning of the other parts of the plant. From today's point of view, production of the first tonne will be postponed into Q2 twenty seventeen. The expected 2017 production volume of up to 1,000,000 tonnes will not be achieved. No doubt, this incident is serious, but the most important milestone seems not to be at risk from today's point of view. We expect to reach a production capacity of 2,000,000 tonnes per year by the end of twenty seventeen. Now please move to Slide five. Saline wastewater disposal remains a challenge. There's an ongoing review of the application submitted by us in April 2015 regarding the continuation of deep well injection until the end of twenty twenty one. Since the beginning of the year, production has been largely based on water flow in the Werra River. In other words, our ability to fully produce remains highly dependent on the amount of rainfall unless the new permit will be granted soon. To be very frank, the third quarter is usually drier than the second, and the effect from an absent permit may hurt us even more in the current quarter. Now please move to Slide six. The current situation is difficult, but not without hope. We are working on measures that will help us to mitigate the effect from the missing deep well injection. The possible measures range from additional storage in owned and third party premises to various smaller measures. We are currently working on implementing those requiring minimal effort and are in talks with relevant authorities to get the necessary permits for the others. Beyond 2017, the situation will ease significantly as we will then have the so called KCS plant up and running. This new facility will recycle brine from the production. This will help reduce saline wastewater and even deliver additional marketable products. Nevertheless, obtaining a new deep well injection permit remains crucial for dealing with saltwater, especially in very dry periods. Now please move to Slide seven. In the past weeks, major contracts in India and China were announced that should stimulate potash demand for the remainder of the year. Of course, the absolute price level is not satisfying for suppliers. But given the prevailing sentiment, we consider this as a good indication that we found the bottom. As previously discussed, we have maintained our belief that prices in Europe will be more robust, but they are also they also cannot be completely decoupled from global development. We have, therefore, adjusted prices in Europe for selected specialties downward, but once again, not as much as in overseas markets. And still, our broad specialty portfolio supports a certain robustness. SOP, for example, we believe the peak in pricing seems to be behind us. It is still trading at historical high prices and significant premiums to MOP. Looking at magnesium sulphide products, they are unaffected from the potash price decline at all. And this brings us to Slide eight. In Q2, we were also active in M and A. By acquiring the fertilizer assets of a Chinese producer of synthetic magnesium sulphide, MagPower, we made an important step in expanding into Asia and strengthening our position in specialties. Synthetic magnesium sulphate is used as a fertilizer for oil palm, soybeans and sugarcane as well as for industrial applications. MEG Power will complement the existing K and S teseride production by adding highly active effective water soluble magnesium sulphate through scalable low cost production and further expand our global coverage. And now please move to Slide nine. Let's switch to our salt operations. After a mild winter leading to high inventories in North America and Europe, de icing volumes and prices are down year on year. A significant portion of North American bidding is now behind us, and what we have seen in Q2 can also be applied to the remainder of 2016. On the other hand, our broad product portfolio and strong consumer brands helped by acting as mitigating factors. The non deicing business also showed improvement in Q2, thanks to higher prices, and we are continuing to make good progress on improving our cost base and by executing our SALT 2020 strategy. Slide 10, please. In line with our company's strategy of growth in the Salt business, we have added another component to our Salt 2020 strategy. With the purchase of mining licenses in Western Australia, we are looking to expand our fault business into Asia. The project is still at a very early stage, and we are currently preparing the required documents to apply for the necessary permits. Expected production capacity will be 3,500,000 tonnes with a possible production start in 2022. CapEx is estimated at around EUR $225,000,000. The salt produced in Australia will be mainly supplied to the chemical industry in Asia, particularly to China. And now let's come to our outlook for 2016 on Slide 11. The business unit sales may face a tangible decline in earnings due to the mild winter. The decline in potash prices remains the biggest factor. We believe in higher prices in the long term but tends to remain cautious for this year. The second big factor is the situation at the Werra. Amongst other things, we assume a normal year in terms of rainfall for the rest of the year and that our countermeasures will help us to reduce the impact from the missing deep well injection permits. If and when we receive a new permit will impact our costs and the expected sales volumes. Currently, we calculate with 6,200,000 to 6,400,000 tonnes. All in all, we expect an EBIT one between EUR 200,000,000 and EUR 300,000,000 for the full year. To state the obvious, given that we achieved an operating profit of EUR $233,000,000 in the first half, especially Q3 is expected to show a negative EBIT one, and Q4 will be significantly below the previous year. If we do not receive a new permit soon, we will rather see the lower end of the range. Nevertheless, I would like to stress a positive aspect. We are facing two significant burdens this year. As planned, legacy is included with a negative EUR 120,000,000 in the EBIT. The missing permit is expected to cost us between EUR 150,000,000 and EUR 200,000,000 after countermeasures. Stripping that out, we will see operating earnings of between 5 and €600,000,000 I know reality is different, but I think it's worth to note the underlying earnings power of the group even in such a difficult market environment. And now please move to Slide 12. To end with a positive note, the challenge we are currently facing will not distract us from believing in a great future for the K and S group. We are continuing to work on opening legacy as well as expanding into an enhanced portfolio. Our continued cost discipline will become even more focused. We are also sticking to our target of achieving an EBITDA of €1,600,000,000 in 2020. The legacy project will contribute significantly to this goal, and the salt business is also in a good position to solidly achieve the goals of its own 2020 strategy. Of course, when we created the €1,600,000,000 goal, we were in a better potash environment. For example, the MOP price we used for the granulated product in Brazil was slightly above USD 300 per tonne. But we always maintain the belief that the current potash market situation is not sustainable. We expect to see the bottom this year and believe that we will experience positive impact from the announced production cuts in the industry. Ladies and gentlemen, thank you for your patience. We are now ready to answer your questions. Thank you. Our first question comes from the line of Joel Jackson of BMO Capital Markets. Joel, when you're ready, please ask your question. Okay. Thank you very much. Good morning. So I have a few questions. First on Legacy. So can you give an update is the crystallizer that fell, does it need to be repaired or replaced? Can you run the mine with only four crystallizers? Would you have to redo the piping network? And yes, that would be the first question I want to ask. Thanks. Yes. Thank you, Mr. Jackson. First of all, as I indicated in my speech, we will start commissioning as planned at the August, and that means that we can run the mine with the existing four crystallizers. The crystallizer that fell, by the way, to give you a flavor of the magnitude, 28 meters high, 10 meters diameter. So it's obvious that everything which was below that vessel is destroyed. And the crystallizer itself has to be replaced, and we have to build and implement a new crystallizer. Okay. And then what would be the lead time to replace the new crystallizer? And is there an engineering flaw in the support structures that are holding the other four crystallizers? Yes. As I indicated, we are expecting on today's knowledge, we are expecting to still keep the most important milestone of achieving a capacity of 2,000,000 tonnes at the end of twenty seventeen, full capacity of Phase I. And that, of course, means that until then, we will have the crystallizer replaced. Okay. My final question would be on your guidance. So if I understand what you're saying, if you don't get the permit, you should still be able to produce 6,200,000 to 6,400,000 tonnes in potash and magnesium, but it will be at a higher cost because of countermeasures. So my question would be, is that on your guidance, is it about a €25 per tonne cost disadvantage if you don't get the permit? And can you produce 6,900,000 tonnes next year without a permit just at the higher costs? Yes. You put a lot of questions in this one question. First of all, of course, without a permit for the entire year 2016, we will be closer at the 6,200,000 tonnes sales volume. But that does not necessarily mean, for example, that the whole range, 200,000,000 to €300,000,000 EBIT, is only dependent on this event. That is a good portion of the range, but not the full range. But again, even with no further deep well injection permit, we will keep the 6,200,000 tonnes. Was I right from extracting from your commentary that's about a EUR 25 per tonne cost increase without a permit for if you keep doing countermeasures? Yes. That is too easy and too general because we have three sites at the Werra. And even without a permit, we are able to run one or two of the sites. And then it's a question of what is the production volume. We are producing different products in the Werra area. Question of which product, which volume of which product. So in every I'm not able to give you an average effect on the cost per tonne. And my just the last part of the question I asked. And if countermeasures are successful and you have no permit and water, I guess, rainfall is normal, is 6,900,000 tonnes next year quite reasonable? As you know, we give the guidance for 2017 in March of twenty seventeen, but I don't want to leave you completely without information on that. We believe that there will be more measures in place in the course of 2017. So we will have higher production capacity and output as in F 'sixteen. But I'm unable to not willing to give you a precise number now. But for a full production, the permit of the deep well injection still is crucial. But I think at this point, I once again want to focus that the situation will ease significantly in 'eighteen. Of course, with the KCF plant, the production saltwater will be significantly lower. So we have to overcome the situation of the rest of this year in 'seventeen, and we will face, for sure, by far more relaxed and normal situation in 'eighteen. Hopefully, we receive further deeper injection permits so that we will come back to normal situation in 'seventeen as well. But as we speak, we do not have this in hand. Okay, Burkhard. Thank you very much. Thank you. Our next question comes from the line of Andrew Benson. Andrew, when you're ready, please ask your question. Thanks very much. You talked about 500 to €600,000,000 of EBIT if and I just wanted you to explain precisely what circumstances would not have happened to have got to that level. Can you also talk a little bit about the price of specialties and SAP price in the third quarter now relative to the second quarter, just so we can get an idea of the magnitude of that? And have you given any thought to the impact that polyhalide may have or polysulfate may have on SAP prices now that ICL is will be ramping to 500,000 tonnes or so of production relatively soon? Okay. Three questions. And I would like to ask further questionnaires to give us one by one, but we took the three questions, and we will answer them. First of all no problem. First of all, our view on this year is to deliver an EBIT between 200,000,000 and €300,000,000 for the full year. And I highlighted that there are two significant extraordinaries in this expectation incorporated. First of all, that is well known that we have the ramp up of the legacy project and OpEx of €120,000,000 without any sales so far to compensate that. That's an extraordinary €120,000,000 And the other is the net effect of the missing deep well injection after countermeasures that will hurt our EBIT by 150,000,000 to €200,000,000 So if you add these extraordinaries on our forecast, you end up with a range of 500,000,000 to €600,000,000 And we believe that this is taking into account the current difficult potash environment. This would be a very good outcome for the year. And of course, that is due, if you look on Page seven, that we have still a very good average selling price in potash, much higher than the prices of our peers. Second, price development, that's what I'm saying now is not only true for specialties but true for all our products. We have taken into account for our forecast a flat price development. That does not mean that we are not expecting that after China and India and there are positive signs in the market that there will be a recovery of prices. But for cautious reasons, we have just assumed a flat development of prices of all our products. And the last question will be taken by Thorsten. Yes, Andrew. I mean we are skeptical about the success of polycythide based products, as you may have heard before. I mean they have a lower nutrient concentration. They contain a broad range of nutrients that make it inappropriate for the direct usage on the soil. It may be something that could be used in the NPK industry. We'll see. Polyhalide based products contain plaster, which means it's not water soluble. And I mean in our core markets, the farmers are used to use our products like Korn Cali, where they know for decades the advantages about, and you need to convince them that there is a better product available where we are skeptical of. So this is what we always said and what we can say about what we think about polyalide. Okay. Well, thank you very much. Thanks. Our next question comes from the line of Markus Mayer from Baader Havier. Markus, when you're ready, please ask your question. Yes, good morning. Several questions on the free cash flow and the financing and then also come back to legacy. Firstly, am I right that the free cash flow is most likely quite negative in Q2 and the second half of this year and also then next year after legacy production was delayed? And in this respect, can you also remind us on your covenant for your credit facilities? And when your leverage is then close to 8x, including the pensions, do you expect to get rating downgrades? And also, how easy should it be for you to get fresh money from bonds, Schulzer and Dalins, etcetera, when you have then this downgraded rating? It's basically a lot of questions in the first question. Markus, can you answer those questions first before we move to 15 questions, Okay. But I got it. I got it. Yes, you're correct. We are expecting but that was expected independently from all the other negative developments, negative cash flow free cash flow for the rest of this year. And there will be a negative free cash flow for 'seventeen as well. But we expect after legacy will run as planned in 'eighteen, that we will significantly decrease our net debt to EBITDA number from 'eighteen onwards. And yes, in between, we will have a quite high number of net debt to EBITDA. And you might have seen that there was an announcement by Senate and Ports Senate and Ports that they put us on the watch list with negative outlook, meaning that there might be a downgrade. But that is obviously, as we understood, not only a KNS issue. They are facing the total industry due to the surprising from their perspective, surprisingly negative price development. It remains to be seen what that would mean. But from today's point of view, we are fully financed even with this cash flow development that I just focused on. So we have our funds in place. They will not be affected by that. The first refinancing requirement will be in 'eighteen. We have to pay back a bond of €500,000,000 But I'm not seeing any difficulties for a BB plus rated company, if we should be on that level in 'eighteen, to enter into the market. But I'm quite sure that we will come back in the investment grade area pretty soon. Okay. So the next question. Yes, sorry. The next question is on the dividend payment, if this is still something we should think on for 2016? And then the last question is just what is the theoretical price for such a new calcination vessel? So is it then 10,000,000 to €15,000,000 So what is the kind of a house number for this kind of additional CapEx? Yes. Dividend. You know our dividend policy is to pay out between 4050% of the net profit. And I'm not seeing a reason to deviate from that. But of course, the base for that is under stress this year. This is unfortunate, but we are not seeing a reason to, again, to deviate from our strategy. Yes, you asked for the price of the vessel, that is a tricky issue because it's not only the material cost of the vessel. There was a lot of piping destroyed below. Then we have definitely we have to redesign our production program. And there are a lot of parties involved here, including insurances, the outcome of this is very tricky to expect and is by far too early. And it will maybe even take months or even years before we have the final outcome. A technical solution will be delivered pretty quick, I guess. But before we precisely know which party has to pay what, there will be it will take some time. But at this point, we have to be that frank to say that we cannot completely rule out that this means that we cannot keep our 4,100,000,000.0 budget. But on the other hand, I'm not expecting a disaster. Okay. And only last question I forgot. Sorry for this. Maybe I have my Bavarian glasses on, and we have a lousy summer here. But on the weather map also, looked that there was a lot of rainfall in the Fulde area. So it looks like that at least the water level so far in the third quarter is higher than it was in the second quarter. Is this true? Unfortunately, it isn't. But we are not below our expectations. We are on our expectations. Even in June, I have to say, I'm sitting in Castle, I thought there was so much rainfall, but obviously not in the, for us, relevant area. So the water flow was too low. But July, and that is the most current data we have, we were the yes, the weather patterns were as expected by us. The next question comes from the line of Sophie Jorda from Liberium. Sophie, when you're ready, please ask your question. Yes, morning. Thank you. I've got two questions, think, but one by one. First of all, just you mentioned the product mix negative impact from the curtailments of the Werra facility. Could you just explain those in a bit more detail, which products were affected that drove that negative product mix? That's the first question. Yes. The Werra area is the main area where we produce our specialties. And almost the full almost, not entirely, but almost the full range of products are affected from the situation. So mainly specialties, that's why we have, if you look at the average price, a negative impact from the product mix because, for example, Zilitz, which is a pure MOP site, is, of course, not affected, and we have sold the entire MOP production whilst we had a negative impact in lower specialties like SOP and others from the Werra side. Okay. A second question. You talk about doing a feasibility study on additional wastewater disposal means trucking water various mines and cabins around the place. If you don't get well, I just want to understand that a little bit more. If you do get a renewed permit, presumably you don't need to do that. Can I just check that? And if you don't get a renewed permit, how soon do you think you can implement these additional means? Yes. There are to make it visible, maybe it's worth to have another look on Page on our slide or Chart six. The main portions or the main measures are to store our saline wastewater in our own mines. We have old mines, which are able to take a significant amount of saline waters. There are caverns available, third party caverns who could take saline waters as well. But for all this, we need permits by mining authorities. It should be by far easier to achieve these permits than the permit for a deep well injection so that we believe that part of these measures can start already in this year and will have a significant positive EBIT effect. Okay. And if you get the permits eventually for the deep well injection, will you still need to implement these additional measures? Yes. It depends on injection that we have applied for or still another limited volume. But nevertheless, we start. We start with the measures. And CapEx that we need for that is limited. It's not a big amount. And therefore, we will be able to better deal with the situation even without a missing deep well injection, at least in 'seventeen. Okay. And sort of finally, on that bit. Can you give us any idea of the additional costs that, that would bring? Presumably, it would be additional costs, would it? Yes. It would, in terms of CapEx and OpEx, require only a low double digit million amount. Okay. And then sorry, one final question. Just on your potash volumes in the quarter, I was a little bit surprised, I guess, to see that the overseas volumes seemed quite flat year on year. So the hit was taken on volumes in Europe. I guess I would have expected it the other way around just in terms of European customers being perhaps more important to K Class S, both in terms of relationships and in terms of the profitability. I wonder whether you could explain that. Sophie, it's Gottmir. I mean we said that the production standstill mainly affect our specialties, and we sell a lot of specialties in Europe. So this is why you see the effect in overseas but here on the continent. Okay, great. Thank you very much. Thank you. Our next question comes from the line of Stephanie Bothwell of Bank of America Merrill Lynch. Stephanie, when you're ready, please ask your question. Yes, good morning and thanks for taking my questions. First, I'd like to go back on the Verra. So your previous expectations, I believe you communicated was for an update on the deep well injection permit to be completed in the summer. I wondered if perhaps you can give us some additional color in terms of what actually has changed versus your expectations and how the negotiations with the Castle Regional Council are actually proceeding? That's my first question. Yes. You're correct. Our expectation was to have this in summer this year. Now we are not working with a full expectation, if you wish. We have two scenarios because it's really after what we had faced difficult to give it a probability. One scenario saying that we could have an additional deeper injection permit soon. And the other, just to be on the safe side, what would happen if we would have run the full year without any permission. We don't believe that this is a very probable scenario, not to have anything in hand this year. But still, to be cautious, we have built both into our forecast. And yes, how are the discussions going? That's difficult to describe. It's all around the question, what happens to the underground if we continue to deep well inject? And there are different experts saying different potential outcomes, but we feel that the view is narrowing and that we are closer to a solution than we were earlier, but still we are still not able to predict a precise date. Okay. And perhaps just a follow-up. You said no permission you saw as quite an improbable scenario. Is that based on discussions that you've had with the local authorities? Or is there can you give us any sense in terms of why it's not a probable scenario? Has there been any kind of developments in recent weeks or months? Yes. As I just said, that we believe that different experts working on that are closer together with a firm view on what happens to the additional volumes that we inject. And that gives us hope that there will be something in the course of this year. But again, we have two scenarios with and have not given them probability A or B, but my personal view is that we are completely without anything at the end of the year. I don't believe in that scenario. Okay. That's very clear. And my second question is on legacy. Obviously, you have turned down the guidance for sales in 2017. You said that you no longer expect to do the 1,000,000 tonnes. Can you perhaps give us more color in terms of what level we should anticipate for 2017? And the second question is on the ramp up costs on the OpEx side. You're expecting to occur €120,000,000 in 2016. And I think expectations for that to roll off in its entirety next year. Given the delay in the ramp up, should we be expecting any additional Yes, volume. As we start with the first tonne or with the production in the second quarter of 'seventeen, this has, of course, a negative impact of our entire production of the legacy site in 2016 'seventeen, sorry. But as we indicated to achieve the 2,000,000 tonnes capacity still at the end of twenty seventeen, there is a quite steep ramp up curve in the second half of the year. So it's impossible, as we speak, to give you a precise number, but we should not lose or we should lose less than half of the production that we have originally assumed. The cost effect, that is very tricky because next year is a mix of still being a project and being the Bethune site, which, of course, has production costs beside. It's not only OpEx like this year, a ramp up OpEx. So maybe the best to answer the question is we have assumed before we had this incident that in 2017, we would see EBITDA breakeven. That is most probably due to the lower production not going to happen in 2017, but 2018 will not be affected. That's all I can tell you to this. Just one final question to You said before the incident, you expected the EBITDA breakeven in 2017. Under today's current price assumptions, assuming that you still were doing the 1,000,000 tonnes in 'seventeen, which was the original guidance, could you have been EBITDA breakeven if the incident had not occurred? On the current assumption for 2017 for the prices, which I'm not disclosing now, but we were pretty sure that we could achieve great EBITDA breakeven in 'seventeen before the incident. Okay. That's very helpful. Thanks a lot. The next question comes from the line of Neil Taylor of Redburn. Thank you. Good morning. Following on from the same point, actually, while we're on the topic of legacy. I understand the OpEx and production costs are difficult to quantify. But could you help us understand the perhaps the free cash flow implication of building up working capital at legacy? Presumably, won't be vastly different to your previous assumptions and how we should think about that in the short term in 2017, the working capital buildup? And then I'll wait for the second question. Thank you. I think, yes, I think we have never guided on that. And that is even as we are not precisely know what will be production capacity of the output of 'seventeen. This is almost impossible to answer without going at risk to give you an incorrect answer. I'm sorry for that. Okay. I'll try to properly answer your second your next question. Well, you can try. As I understand, you don't actually have any specific covenants in place around your financial instruments, but there is a flexible rate applied to a number of those instruments. And as you specify in one of your slides, I think Slide 12, the leverage ratios are far higher than they had been. Can you give us an indication of how that will impact your finance costs next year? Very, very little because there's only one instrument affected or can be affected by a downgrade and not even by a higher leverage, and this is our syndicated loan. If we should move into a noninvestment grade area, that would have a slight impact on the cost on the loan. All the other instruments are not affected at all. Our next question comes from the line of Oliver Schwarz of Warburg Research. Thank you for taking my question. I tried to cramp enough single questions into one to get the most out of it as well. Firstly, can we switch topics for a second and turn to salt? Did I get you correctly, Mr. Lohr speaking, that we'll see a similar development in salt, which we saw in Q2 also for the remainder of the year? Did you refer to the pricing level? Did you refer to the decline in volumes? Or did you refer to the absolute volume level? That would be my first question. And secondly, just quickly on legacy. I'm still getting my head around your guidance here. First, you said that all the major events will be triggered despite the incident you had in a timely matter. But and you said you may run the plant on four crystallizing units, which would give you, let's say, 80% of nameplate capacity. But then you also say you won't reach 50% of nameplate capacity next year and might even start up the plant by Q2, thus having less than 1,000,000 production of 1,000,000 tonnes per year in 2017. How does that fit with each other? Could you please elaborate whether basically, the bottleneck is that holds volumes back? And has you producing from a later point in time? And does that affect depreciation levels of legacy? Okay. Let's start with the legacy issue because it's very important to understand. So we have to differentiate between nameplate capacity and total production of twenty seventeen. So why are we expecting a significantly lower production? I did not say 50%. I said it's too early. And I said I'm not expecting or I'm expecting less than 50% loss of the production. It could be higher, but it's still too early. The accident is only three weeks ago. And if you would have a look at the math that we are having there, you would understand that this is we cannot precisely calculate what will be the effect. But to understand the logic, So we can start commissioning with the four remaining crystallizers. But we are going to install a new crystallizer before the end of 'seventeen so that we are able to ramp up the nameplate capacity up to 2,000,000 tonnes at the end of twenty seventeen. That means the effect of the incident is only the year 2017. From 'eighteen on, we run as planned. But the fact that we start later with the production and we start with one crystallizer less until we have the fifth crystallizer installed again means, of course, that we lose products. And that is the explanation to your question. May I ask a silly question perhaps? The load out the set out of your plant is 2,000,000 tonnes nameplate capacity. You have four of five units in place, which are, I guess, fully operable which can fully operate, that would give you, let's say, 80% of nameplate capacity leading up to 1,600,000 tonnes a year. And the ramp up until the end of the year will be basically up to 2,000,000 tonnes. So you'll basically ramp up faster than originally planned, the target remains basically the same. But still, you're saying you'll get less than 1,000,000 tonnes, which is basically less than 50% of nameplate capacity. I still don't get it why you can't produce 1,000,000 tonnes in 2017 based on four or five units operating. Mr. Frans, even without the incident and we had all the five crystallizers in place, we have ramped up. That's the meaning of ramp up. So we achieved the nameplate capacity at the end of the year. And it's not a linear function. So somewhere in between, that's why we assumed 1,000,000 tonnes without the incident. And now we started later and we assume a lower volume. Got it. Is it clear? Okay. Salt, I think we should not stick to one or two sentences. I would like to give you a flavor where we are standing with the salt business. After the mild winter in North America and in Europe again, Of course, we have seen some price pressure of different magnitudes in the different areas. Bidding season, we have achieved in at the East Coast, 65% complete. Prices are slightly down on what we've seen before. Midwest, 85% completion of the biddings. Prices are tangibly down. And Canada is pretty stable. No changes in prices and volumes with the completion of roughly 70% of the bid. And yes, that is that will affect our second half and, of course, the winter weather. So less the third quarter, but the fourth quarter will be, as usual, dominated by how much snow we are going to see. Okay. And my question regarding depreciation at Legacy, will that be hold back by the later start up of the plant? Or will that be according to the original schedule? No. It will start with the first one. And so no depreciation this year and no in the first quarter of next year. So a lower level of depreciation for 20 When I say lower than no, of the legacy side. And in total, a lower level, yes. Okay. Our next question comes from the line of Jeremy Radinius from Bernstein. Jeremy, when you're ready, please ask your question. Hi, it's Jeremy Radinius. Thanks for taking the questions. I've got three. Firstly, just back on the permit issue, are there any particular milestones or dates that you're looking for, for the review that will give you the knowledge of when in fact you have it or don't have it? No. No, there are no milestones I could elaborate on. It's more or less the discussion between the experts I mentioned earlier, and they are ongoing. That's why it could be quick and it could take some more time, and that's why we have projected this the way I explained in our forecast. Right. And secondly, if I understood your scenarios correctly, did you rule out that this could be an issue in 2017 as well? Or ask differently, could this continue to be an issue in 2017 as well? As we have not given a guidance for 'seventeen, we have not ruled out anything. Sorry for that kind of joke. But this it could be that we still have that issue in 'seventeen. We will be, in a higher magnitude, able to compensate via measure. But for full production, we need some deep well injection volume. But again, 'eighteen will ease the situation significantly due to the KCF plant. Okay. Understood. And then a couple of questions on potash price. It sounds like you're talking a little more positively about the second half of the year for potash prices, certainly market prices. I can see the production cuts, I can see the benefits of the Chinese contract being settled. Is there anything else that you're seeing and recent increases in Brazil, but is there anything else that you're seeing that gives you some confidence that the market prices improve in the second half of the year? Yes. First of all, to make it clear, we have not assumed a higher average price in our books. So we took the prices from the second quarter for Q3 and Q4 as well just for cautious reasons. Another thing is the development of the prices in the market. And I think you have elaborated on the most important issue, the positives already. We always said with the contracts in China and India, and the contracts were on a level which some participants in the market thought it could be even worse. So we have seen a crystallizing situation, and the demand is strong anyway. So we have never had a problem with the demand in this industry. Very strong demand. Brazil is very strong again, and we have seen all these production cuts. And we, not by purpose but for other reasons, we're short in capacity as well. And that was clear that, that would have a positive impact earlier or later. And that's why I'm positive for the Polish product development. In Brazil, are you seeing any credit issues affecting farmers' ability to purchase? No, not really. Okay. And then last question I had on potash price. Coming back to your 2020 guidance, I heard you say that when you originally set that guidance, prices in Brazil were above $300 a ton. So that would be pretty meaningful upward price move from where we are today. Looking out over the next several years, are there factors that you say that you see that could make potash price increase to that level? Because I'm struggling to see that a little bit with potash supply demand probably being roughly stable at best over the next several years. Some other factors that you might be seeing that would give you some support to increasing First of all, I said it's slightly higher than $300 And we have seen a more meaningful decrease in one year. So why shouldn't we see a normalization in the course of the next four years? And there are good reasons to believe in that. And by the way, this industry has managed to cope with high capacities for many decades. This alone is not an issue that should hinder normalization in pricing. Our next question comes from the line of Michael Schaffer. Michael Schaffer, Commerzbank. One is coming back to Joel's initial question in the beginning of the call on your guidance. Doctor. Law, you mentioned that permitting issue at Werra is one contributing factor to the low end of €200,000,000 EBIT. So I wonder whether you can shed some light what else have you baked into your expectations to the low end of the guidance range, given that you are almost through to the bidding season in salt, etcetera, and you normally assume normal weather conditions in winter. So this would be my first question. And the second one and I'll ask the second one later on. Yes. The rest is normal life. So all the assumptions like currency, like production capacity outside the Werra and whether potash prices, etcetera, could be upside and downside. So you better take a range even if especially if there are still five more months to go, which doesn't deliver a bad surprise if something besides the Werra issue is going to happen. But there's nothing special. Look, in the history, we always had a range June in with our June result, although we didn't have such a difficult issue. So again, all the assumptions could move, and that's why we have defined this range between 200 and €300,000,000 Okay. Second question is coming back to the Werra issue. You mentioned that you have initiated some countermeasures in order to cope with the lack of permits. So starting from where you are, you've shown the slide on the 7,000,000 cubic meters of annual wastewater disposals. Could you quantify what the countermeasures what this will bring on an annual basis in terms of wastewater disposal you can dispose on with alternative routes? This would be helpful. No. And it is I cannot give you a precise number, but it will be a couple of 100,000 cubic meters this year possible, and it will be more in 'seventeen because we have more time to develop further measures. So a couple of 100,000. This for the remainder of the year means, shall we take 1,500,000 cubic on an annual basis as a potential number? Or just to give to getting a rough figure on this one? I'm not confirming that numbers. I'm sorry. I will be more precise as soon as possible, but not today. Our next question comes from the line of Stephanie Vincent of JPMorgan. Just very quick ones from me. Just on your plan to get to the one to 1.5 times leverage target by 2020 and just your expectations on that. Just wanting to know sort of management's maximum feeling about leverage as we get to that goal. Is there a point that maybe if you feel like you're not leveraging deleveraging quickly enough that you would consider things like rights issues, dividend cuts or asset sales? And what sort of maximum leverage that you feel comfortable with as you're going through this phase? Yes. We have a very strict target of 1.5x. But we always said we allow to have even a longer period with higher leverage for such a historical and strategically important investment like legacy. Of course, we could not foresee that we would run also in difficulties with the market prices and the bearer issue. But still, we are not thinking about any measures besides pure debt financing. And we are fully financed with all our instruments, the three bonds, Schuldscheindahlen, the syndicated loan. So we are not going to surprise you with something like you mentioned. Okay. And just going again towards the 2018 maturity, is it your hope that you reduced total debt? Or is this something that you're just planning to refinance and rollover? It depends on the environment by, let's say, by the mid of next year. So we have all options. And I just wanted to indicate if it would be necessary to partially refinance the bond even with a BB plus rating that would not be a problem. Okay. All right. Thank you very much. You're welcome. Ladies and gentlemen, our final question comes from the line of Andrew Stott. This is the last question. Thanks. Andrew Scott, UBS. I might have missed it. I'm just coming back to legacy again and the effects of the crystallizer. The impact on volumes you've broadly outlined, but what about OpEx and CapEx? So in that €120,000,000 number for this year, how much of that is a one off, if any, related to the remedial work on the site? Same question for 2017. Is there an impact on CapEx? And is there any insurance coverage? Yes. The 120,000,000 is all due to the ramp up. So it's operating costs for ramping up the site, and that is the number that we have assumed earlier, and that is not affected by incident. The CapEx question I answered earlier I tried to give a flavor earlier, that will be more difficult to assume. That will be a most probably, at the end of the day, tricky and complex legal procedure with a handful of parties involved, and the outcome could take quite a while. I just wanted to indicate we cannot completely rule out that there are some cost burdens for us as well so that we would run over the €4,100,000,000 this incident, we would have been on schedule and on budget. But we gave you a quite precise view on the schedule, but it's impossible today to give you more flavor for the budget. Yes, there's an insurance involved and there are other parties involved, but it's so difficult that I cannot. And I think as this is a legal procedure, maybe it should not put that into public. But again, that should not mean any financial trouble for us. Have you stated at this stage whether it's your liability or a contractor's liability? Of course, we have looked into that. But again, this is a topic between only a few parties, and you better not discuss that publicly. I hope for your understanding. I get that. Thank you. Thank you very much. Ladies and gentlemen, I will now hand you back over to Doctor. Burkhardt Lohr for the conclusion of the call. Please go ahead. Thank you very much. Thank you for your patience. And of course, 2016 is a challenging year, and we are sorry for the turbulences, but we are working intensively to solve the problems one by one. And we are sure that we will face a significant better future. There are good reasons to believe in that. I indicated in 'eighteen, the pressure from the saline waters will be significantly lower with our KCF plant. Then in 'eighteen, we will see a normal running legacy site, and we are very happy to see improving profitability in our Salt business. So good reasons to look hopeful in the future. And thank you for attending, and goodbye. Hope to see you soon again. Thank you. That will conclude today's conference. Thank you for your participation, and have a pleasant day.