Welcome to the K+S conference call regarding the publication of the financial report Q1 2016, hosted by Dr. Burkhard Lohr, 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. If at any time you need assistance, please press star zero on your telephone keypad and you will be connected to an operator. I'm now handing the call over to Dr. Burkhard Lohr to begin. Please go ahead.
Thank you very much. Ladies and gentlemen, welcome to our Q1-16 conference call. As always, I'm joined here by our Head of Finance and Accounting, Jörg Bettenhausen, and our Head of IR, Thorsten Boeckers. As you may have seen, we have streamlined our reporting package. Deutsche Börse now allows for less formal quarterly reporting in Q1 and Q3. This gives us the opportunity to provide you with a package that is more designed to your needs. IR highly appreciate any feedback you may have on this. Let's have a look at the highlight of the quarter on slide two. Our two pillar strategy has shown again that it works. Despite a mild winter, our salt business contributed strongly to the Q1 results. In the potash business, our colleagues were busy managing the production by only having a limited deep well injection permit for the Werra site.
So far, the impact of temporary production outages was limited. We continue to expect that we will receive the long-term permit by summer this year. Our projects, namely Legacy and Salt 2020, are well on track, and also the cost discipline in the group remains high. We have just concluded the issuance of a Schuldschein with a total volume of EUR 600 million at very attractive interest rates. This underpins the trust of investors and strengthens our balance sheet to support the further strategic development of K+S. Despite potash prices in overseas markets continue to stabilize, we keep our 2016 outlook unchanged. Now please turn to slide three. We have guided for significantly lower operating results in 2016 just a few weeks ago, and the first three months confirmed our cautious view.
Lower average selling prices in potash and less sales volumes in both business units led to a 31% EBIT1 decline to EUR 218 million. Our business unit salt held up well despite the mild winter. We could achieve an overall small margin increase thanks to product mix effects, our ability to leverage on our strong brand, and due to cost savings. The strong decline in potash earnings is mainly due to significantly lower prices in Brazil.
Our core market in Europe remains robust. Also, our specialty business still contributes strongly. I mentioned earlier that the cost discipline remains high. A very good example is our potash business, which decreased its cost per ton from EUR 212 to EUR 201. The progress we made is due to our Fit for the Future measures. Also, lower energy costs and freight rates contributed to this effect. You know we calculate cost per ton like this.
We look at revenues minus EBIT over volume and adjust this for the Legacy OpEx. This number is even more impressive when we keep in mind that Q1-16 had about 13% lower sales volumes. Let's have a look at the progress of our Legacy Project on slide four. Legacy continues to make good progress. We have now invested around 90% of the CAD 4.1 billion budget. During the quarter, we focused on the production facilities. Also, first rail tracks were built to connect the site with Canadian Pacific's network to transport our potash to Vancouver. The construction of the port facility there is also well underway. The project remains on track for commissioning this summer and to produce the first ton of potash by the end of this year. Please turn to slide five.
We told you in our Q4-15 conference call a few weeks ago that we saw first tentative signs of improvement in the potash markets. This continues as prices in overseas markets for MOP have shown stability for a number of weeks now. It gives us confidence that we have seen the bottom. While the markets are still waiting for direction, especially from China, we have seen trading activity picking up slowly. We had volume-wise a slow start into the year, and this mainly affected our specialties. There was good buying activity from customers in Europe by the end of 2015. Moreover, the season started here about four weeks later than last year. Prices in our European core markets are robust. Also, prices for our specialties remain on a healthy level. Please turn to slide six.
While our salt business experienced a revenue and volume decline, we were able to improve our EBIT1 margin slightly from 19.5%-20.6% in the first quarter. Our salt unit provides stability despite a volatile winter business. Our ability to leverage our strong brands in the Americas contributed in the non-de-icing area. The de-icing business, on the other hand, was faced with the challenge of a mild winter on both sides of the Atlantic throughout the season. However, I want to stress again that we managed this pretty well and still delivered a decent Q1 EBIT with EUR 123 million. Our efforts regarding the Salt 2020 strategy, which aim for an EBIT of more than EUR 250 million under normal winter conditions, are well on track. Please turn to the outlook on slide seven. We have kept our assumptions unchanged compared to a few weeks ago.
Although we are seeing a stabilization of overseas potash prices, we stick to our outlook for 2016. Soft commodity prices remain low and will, together with continued strong competition, lead to significantly lower average selling prices compared to last year. The fact that we are still working on the limited permits for deep well injection makes us especially cautious. We continue to expect the long-term permit for summer this year. The Q1 impact was very small. However, we are now approaching spring, which is usually drier than winter times, and thus further outages at the Werra plant cannot be excluded. Our salt business is faced with higher inventories left in the system after a mild winter season, and production is being adjusted accordingly. We are doing our utmost to further improve profitability of the business. However, lower de-icing sales volumes for the upcoming season cannot be ruled out.
All in all, we stick to our qualitative guidance of significantly lower operating results for the full year 2016. Allow me a few words on the midterm perspective we are seeing for the group before we open the line for questions. Please turn to slide eight. We still believe that the current turmoil in the potash market is not sustainable and that midterm fundamentals remain intact. Our Legacy projects will give our earnings a boost. In addition, the progress we are making with Salt 2020 and the ongoing cost discipline makes us confident that our EBITDA goal of EUR 1.6 billion by 2020 remains realistic. We are working hard on the various items of our management agenda, which will bring K+S back into cash. Ladies and gentlemen, thank you for your patience. We are now ready to answer any questions.
Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. If you change your mind and wish to withdraw your question, please press star one again. You will be advised when to ask your question. The first question comes from the line of Lutz Grüten from Commerzbank. Please go ahead.
Hi there. Thanks for taking my three questions. The first one is on potash. The excellent unit cost per ton of EUR 201 per ton, would you consider that as sustainable, at least for the second and third quarter, as long as Legacy is not starting producing? The second question on potash is-
Can we do it as usual, one by one?
Sure. Yeah, sorry.
Thank you very much. Yeah, first of all, we are very happy about the outcome of the first quarter in terms of cost per ton. I mentioned that this was an effect of Fit for the Future, of course, lower energy and freight costs as well. The development over the following quarters will, of course, be affected by the volume, and that, again, is affected by the development on our Werra site. I cannot give you guidance for that, but we should not expect to remain that number on the current low level.
The guidance you have given earlier regarding the Werra issue and the environmental outages is that you set a low double-digit million EUR amount might be the effect for the full year. Is this right?
That is still our view on that. Yeah.
Okay. Second question on the Canadian fires. I know that your part is far away from the fires, any impact on the infrastructure you needed on that issue?
I expected this question for this call. That's why I called our project manager, Will Lamp, yesterday. There's no effect, not currently and not expected.
Okay. Finally, on the salt, on the non-de-icing salt, here the average selling price of EUR 121.5 is nicely up. Would you consider that as sustainable given the improved product mix, was there a one-off impact in Q1?
Yeah, the strong price development in the non-de-icing sector is more or less a sustainable development. Of course, there might be smaller hiccups we see a nice and very strong development that should not turn into another direction.
Okay. Thank you very much.
You're welcome.
The next question comes from the line of Joachim Bernecker from HSBC. Please go ahead.
Yes. Hi, good morning, and thank you for taking my questions. The first would be, I guess, on Brazil. Could you give a bit more color on the markets that you're seeing on Brazil and the types of sales that you made to Brazil? Did you reduce any sales volumes to Brazil in the first quarter because of very low prices there?
It was a bit difficult to understand, but I guess I got your question and give you the answer. If that was not precisely what you wanted to know, please ask again. Yeah, Brazil is definitely the weakest market currently, and we are very happy that we have the stabilizing European business, in both terms, in volume terms and in price terms. In Brazil, I guess you followed that we were even below $230, $220 per ton. We have seen, as I mentioned in my speech, bottoming the price. It came back. The last week, there were some transactions, again, with a lower price. It is a bit volatile, but we believe, and our sales people who are the closest in the market, believe that we have seen the bottom in that market. What that means for the further development, will we see a strong pickup?
Volumes are great in Brazil in the first quarter and have been in April as well. The demand obviously is not the problem. It's the mechanism of pricing, I would like to call it, and every player in the market is having an eye on that and is doing the utmost to support a healthy price. We should see a recovery.
Okay. Did you sell any less volumes, or did you cut any shipments to Brazil in the first quarter because of low prices there?
We are a bit more cautious, of course, with sales in these area with the lowest prices. We also have the limited production, as you know. We, of course, serve the European market first. It's a mix of different reasons why we were a bit behind volume-wise overseas.
Okay. With regards to the European market, the quoted prices in Europe seem to be extremely high compared to the rest of the world. Do you see any first cracks in the European prices converging lower with the rest of the world?
Yeah. We have always said that the European market is less volatile. When prices overseas go up, it doesn't follow one by one, and it's the same in the other direction. Luckily for us, because it's our home market, the price that you can see is, of course, a mix out of different products. I would say we cannot 100% decouple of what's going on in overseas, but the development is robust, and we expect it to remain robust.
Okay. With regards to the salt disposal issue on the potash side, from all the issues that you're facing at the moment, could we expect that you would have to spend some more CapEx or some significant more CapEx to find a way to reach proper disposal procedures for the salt or water?
We have always disclosed the number of another EUR 400 million for the so-called four-phase plan, which is not one by one exactly what was agreed on, but we are not seeing significant additional CapEx for changes on that plan.
Okay.
With the EUR 400 million, you are still on a safe side. As I hope you remember that we're talking about a very long time for spending this money. It's annually a number only double-digit million.
Okay. I guess the last question to ask would be on the salt business. De-icing salt volumes were very, very low, it seemed that the price barely moved compared to the first quarter 2015. With all the excess inventory, with the warm winter in the past two quarters, that seems a bit counterintuitive. Could you give more color or more kind of detail on how demand is disappearing, but prices are staying the same?
Yeah, you're correct. The prices in the first quarter were on the good and high level that we have agreed in the late summer 2015 for that last winter season. There were not many prices renegotiated due to the situation. That's why we had this solid pricing. What the pricing will look like in the next season remains to be seen. We expect lower volumes, not necessarily lower prices. That, of course, depends on the discipline of the bidders in the individual bids.
Right. Generally, wouldn't you expect lower demand would translate into sometimes lower prices?
It sounds logical, but it doesn't have to be this way because we are talking about hundreds of different bids, and it depends on the discipline of the bidders. I wouldn't dare to give you a guidance here.
Very good. Thank you very much.
You're welcome.
The next question comes from the line of Jeremy Redenius from Bernstein. Please go ahead.
Yeah. Hi, it's Jeremy Redenius from Bernstein. Thanks for taking two questions. Firstly, I'm just asking about the lower cost in potash in a slightly different way. I'm just, again, wondering about the sustainability. Instead of talking about them in terms of unit cost per ton, could you talk about them a little bit more in absolute terms? For example, in absolute terms, in EUR, would personnel costs be down year-over-year? Same with energy, freight, et cetera.
Yeah, Jeremy, it's Thorsten. You know that we tend not to break the single cost items down. I think you have really touched the cost lines that contributed most, except for the Fit for the Future affected cost lines, which are across all lines, actually. We have seen a good decline in Q1 year-over-year in both freight and energy. Again, we're not going to lay out complete numbers.
Isn't, like, lower maintenance or deferred maintenance an aspect of it as well?
No, this was not an effect.
Okay. Secondly, just observing that potash prices in Europe, your realized potash prices in Europe are up quarter-over-quarter and also year-over-year, despite some of the benchmarks being down in Europe.
Could you talk about how you achieved that, please?
Yeah. Again, we always said Europe is a very stable market, but it is more or less a product mix effect. We are not 100% decoupled from the development in overseas markets. We have seen a product-wise slight effect. As we have product change, and that is not the same quarter-over-quarter every year. This year, for example, we had a later application season starting. That means directly an effect in our product mix. Slight effect on the prices if you look product by product, but due to the mix, we see this nice development that the European prices are even slightly up quarter-over-quarter.
Were SOP or specialties volumes still good in Q1? Because I remember you saying they were abnormally good in Q4.
SOP in Europe, when we still talk about Europe, was good in Q1 in both ways, volume and price. We had lower volumes in overseas. SOP also is affected by our Werra site, which means we have increased slightly our stocks because we have to be a bit more cautious not knowing what's going to happen when it is getting drier.
You'll still have SOP to sell during the summer?
To be able to sell SOP in summer even when we are short in production.
Great. Okay, very good. Thank you very much.
You're welcome.
The next question comes from the line of Sophie Jourdier from Liberum. Please go ahead.
Good morning, thank you. The first question I've got is just around customer inventory levels. If you could give us an idea of how you see those in both the salt and potash business versus, I guess, this time last year or some sort of normal quarterly level. That's the first question.
Okay. Yeah. That's a bit of guessing because there's no statistics besides the U.S., which is not yet our market. No statistics about inventory levels. The two business units showed two different developments. Of course, the salt business, the season ended with high inventories in the customer stocks and in our stocks. We will reduce over the summer the production a bit to not produce overcapacity for the next season. Inventories in both sides of the Atlantics are on a quite high level. That's why we guided we might see a lower volume. Again, that does not necessarily affect the prices. In potash, we haven't seen high inventories for quite a while because there is the tendency to keep the stocks low because of the high volatility of the prices. There's one reason for that. We're not expecting to have too much in the system.
Thank you. The second question, just a number question, really. Could you just remind me how you expect your Depreciation and Amortization to evolve during this year, and if possible into next. I'm thinking particularly as Legacy starts operations. Thanks.
Yeah, Sophie, I think we can here stick to the number we have given out in the Q4 conference call. We saw in 2015 D&A of EUR 275 million for the group. We said that we expect this number to increase by EUR 25 million-EUR 30 million for 2016. We see at the end of this year, the Legacy D&A starting to materialize, which is only for a couple of weeks, so it's not the total D&A yet, but this will, of course, be then in full effect for next year. We will see a significant increase in D&A in 2017 because of the Legacy Project mainly.
Could you help us quantify that in any way?
Well, I think we said last time that the Legacy D&A for this year, for about one month, represents about EUR 10 million-EUR 15 million, and if you take this for a full year.
Great. Thank you very much.
The next question comes from the line of Christian Faitz from Kepler Cheuvreux. Please go ahead.
Yes, sir. Good morning, gentlemen. Two questions, if I may. First question would be, with the overly wet conditions in Europe dominating the first quarter, do you see a catch-up potential during Q2? Actually related to Q2, is there any negative influence from a cold April, which, for example, the plant protection companies are complaining about? Maybe you can elucidate a bit and then I'll ask my second question later.
Thank you for the question. We should expect to kind of catch up in the following quarters, unfortunately, we have a limiting factor to participate here. When we see a drier second quarter, this means lower production. It remains to be seen what this means for K+S, generally we should see that, we don't expect that the weather conditions in April have a significant impact on our business.
Okay. Great. Thanks. The second question actually related to Sophie's question earlier. In salt, can you give us an idea how the inventory situation at your customers is for de-icing salt? In that respect, is Q3 going to be a low quarter in terms of early stocking into the next season?
I can only give you, as I said earlier, a qualitative impact that we are facing high inventories. That means lower volumes early stocking in the third quarter. It will affect us definitely.
Okay. For example, the inventories which were or are at the municipalities are not being bought back, they're staying with the municipalities for the time being.
No. They keep it, and they could keep it for more than only one season. We don't hope so, but that could happen.
Okay, great. Thank you.
Yeah, you're welcome.
The next question comes from the line of Paul Walsh from Morgan Stanley. Please go ahead.
Yeah. Good morning, guys. Thanks very much for taking my questions. I'll just give them one by one. I'm afraid the focus is on P&P as well. Pricing, if I look at European granular prices, they've clearly come down by somewhere in the order of magnitude of EUR 50, EUR 40 a ton over recent weeks. Are you saying that you can maintain ASP in Europe in Q2 versus Q1, i.e., the premium that goes up because of mix, or are you going to feel some impact from the weaker trajectory we've seen more recently in European MOP prices? That's my first question, please.
Yeah. The thing is about where do you look at? When you recall K+S' European business, we do the biggest chunk of our business in a couple of core markets where we serve more than 1,000 customers. It's a rather segmented market with small order lots, where we have seen prices being relatively stable. When you look at the overall European price, and especially in coastal regions, there we have indeed seen a decline in pricing, which is explainable with always having in there competition, be it from Russia and sometimes also from Americans.
Sorry, does that mean you expect ASP in Europe to be down in Q2 versus Q1 or not? Sorry.
Well, as Dr. Lohr said earlier, Europe cannot be coupled from the overall price development, but it will relatively be more robust than, for example, the Brazilian market. Of course, we cannot exclude that we will also see this year.
Please don't force us into a guidance here.
No, sorry. I didn't mean to do that.
One thing we want to serve in summer this year.
No, absolutely. I didn't mean to do that. It was just to understand sort of how much of your production was sort of linked to maybe some of that pricing data versus how much is more resilient. You've made that clear.
Okay.
In terms of the volume developments, the flow rates we can see in the Werra are pretty low at the moment. I'm just curious as to when you feel that might knock into further production curtailments until you secure the permits in the summer.
Yeah. As we speak, we have the effect already. We are working short at the Werra because the water flow is too low. There's no rain for the next couple of days expected here. We knew that May would deliver other weather patterns than the first quarter. We are still in line with our expectations. When we receive our longer-lasting permit by summer, we should be fine with what we have expected for this year.
Okay, fine. Are you able to give us a sense for how much production is currently offline?
In terms of volume or capacity?
Well, I think you made an announcement at the beginning of April for a few days about which sites were impacted and so on. Of course, you can't be expected to do that every time you have to reduce output, but I just wondered if.
No impact on volumes.
You said no impact on volumes in Q1. I'm just wondering what the volume impact could be in Q2.
Yeah, Paul, it is very tough to break that down quarter by quarter because we do not know really for how long this situation will last. It is currently pretty dry. Offstream are two of the three sites which belong to the Werra plant in Hattorf and in Breitscheid. The three plants of the Werra site stand for 45% of our total production capacity year-round. Which means when only two of these sites are currently not in operation, it is of course tough to calculate what does it mean for just a couple of days when we do not even know how many days the situation will last.
Okay.
You also have to take into account that this is production. It does not necessarily mean that this translates one by one into sales volume because we have, for caution reasons, increased our stocks a little bit.
Okay. That's very clear. Sorry, one last question, if I can. Just thinking about the overall pricing and volume developments as we move through the rest of this year, it feels with Europe edging down a bit, overseas stabilizing, but sequentially flat from my data at the moment. Volumes, I guess later start to the European season, but are we looking at a scenario where volume declines will be more or less similar in Q2 to Q1 in terms of year-on-year?
No, we guided that we expect lower volumes than last year. Again, I am talking about the full year 2016.
Yeah.
Impacted by the Werra, the expectation for the worldwide demand is very strong and promising, only slightly below last year. Without our Werra issue, we would not expect lower volumes in total.
Okay. That's clear.
Yeah.
Okay. That's helpful, guys. Thank you very much.
You're welcome.
The next question comes from the line of Peter MacKay from Exane BNP Paribas. Please go ahead.
Hi. Yes. Morning, everybody. I've got three or four questions. Apologies, I'll try and whiz through them. Going back to Jeremy's question about the European average potash price. I'm still a little bit stumped here. You say that you can't decouple from what's going on in global prices, but suggest that the first quarter number effectively did. The comments that you've been making suggest that the mix was weaker in Q1 than it was in Q4 when you had, as Jeremy pointed out, some exceptionally high sales of specialty. Again, I just want to press you on mix effects and if you can just talk about some of the product areas in P&P that explain that have buoyed up the average selling price in P&P, please.
Hey, Peter. When you look at the European average selling price, it was more or less stable year-over-year in the quarter. We were able still on the specialty side to get in favorable SOP prices in Europe. We have seen our Korn-Kali product to be very stable. Volume-wise, we had a favorable mix towards SOP, and this was the positive mix effect we were talking about in the first quarter. This was unfortunately, offset by the MOP price development, and this is what we sell, as I said earlier, but mostly into coastal regions where the competition is higher than it is in our core market.
Okay, perfect. That sounds like the big decline that you had in specialty fertilizers at the group level, that was almost entirely the overseas markets.
Yes.
Is that fair? Yeah. Okay. Next question, just to touch on SOP, can you make any comments what you're seeing in the SOP markets? We've obviously seen some slightly more cautious commentary from some of your competitors in the SOP market just very recently. Are you seeing any change in trend at all?
I wouldn't call it a change in trend. Again, it's true for SOP as well, what we said earlier for other products, of course, we feel that there is a bit of a trouble in the potash market generally. We see lower volumes overseas, but a strong demand in Europe. Prices are still on a high level, especially the premiums are even a bit higher than they were due to the low MOP prices. I wouldn't call it a change in a trend of the SOP business.
Are you seeing any narrowing of that premium, Till? You're absolutely right. We've seen it's been going up in a straight line. I'm just wondering if you're seeing any stabilization of that at the moment, i.e., SOP pricing starting to come down.
If you only look at the premium in Heliga, it did not come down.
No. Okay.
It's still very stable.
I've got two questions on salt, if I can, please.
Of course.
It sounds as if your message around pricing has changed a little bit about in salt. Last time, at the fourth quarter, you were talking about the inventory situation in de-icing leading to a tendency towards lower pricing in the non-de-icing business. Now you sound a lot more optimistic, both about potentially about de-icing prices in the next contract round, but particularly about non-de-icing salt prices. Has something changed that makes you feel a little bit more comfortable that things are sustainable there, please?
Not really. It's always difficult to give a general answer because it's a very local business. For example, the non-de-icing salt prices in North America are more impacted by the de-icing business than is the case in Europe. As we have seen a very strong development in the non-de-icing business, we believe that this is a sustainable development. There might be a weaker quarter, again, this is in a mining business, not really something we should overestimate. Of course, what happens in the de-icing business, we really don't know, and we don't want to be too bearish because volumes will go down. There will be more competition, but that does not necessarily mean that we will see a strong decline in pricing. Too meant to be seen.
Okay, thank you. Just last question is actually on salt costs. If I look at cost per ton in the salt business, there's hardly any increase year-over-year, despite a big mix away from de-icing towards industrial. Can you talk about some of the cost items within the salt business, please?
Sure. That's even more difficult because we are talking in potash about six German sites and if you include the Canadian site. We talk about a very high number of sites in our potash business with very different cost per ton items. If you, for example, take Chile, we have a single-digit EUR cost per ton, and we have, of course, completely different cost per ton here in our German sites. It's really difficult to elaborate on that, especially on such a call. The numbers are quite stable. They are not as volatile as, for example, our potash numbers. The potash business is more energy intensive, especially gas, and that the energy bill in the salt business is by far lower. Only a qualitative answer, but it's difficult to be more precise on that in that call.
No, entirely understand. Basically, we shouldn't think that there's anything unusual going on within salt over and above the Salt 2020 program?
Absolutely not.
Thank you.
Welcome.
The next question comes from the line of Thomas Wrigglesworth from Citi. Please go ahead.
Good morning. It's actually Andrew Benson, but Tom's on the line as well. A couple of questions. I may just have completely missed this, but with the Legacy Project, are there any one-off startup costs this year and possibly next year that are definable? For example, BASF is indicating around EUR 200 million of startup costs which won't recur that will adversely impact EBIT this year.
Yeah. The OpEx, it's not only startup costs. We have running OpEx costs, including the startups of EUR 110 million-EUR 120 million for 2016. You have the total cost bill for Legacy for this year.
All right. How much of those would be ongoing, and how much would be off-spec material that you have to get rid? Or did you get off-spec material, potash? I don't know. That is effectively a recurring OpEx, which will then be offset by sales volumes.
Yes. We stop guiding OpEx costs from 2017 on, because then it's not a project any longer, it's a site.
Yeah
with sales and costs. We expect, and I'm happy to confirm that already, a break-even, on an EBITDA level for 2017. Of course, that is due to the development of the market price. It's clear that we are not talking about the OpEx number only for 2017.
Okay. Can you provide a little bit more color on the river basin issues that you have talked about and your salt reduction master plans and all of those. You are hoping for a long-term, if you like, discharge approval. Apart from the water levels, what is the challenge? Are there any long-term constraints on underground? Just provide a little bit more color so I can understand what is going on there and what the constraints are for the business in the long term.
Yeah. Currently we have two permits to handle our residues, production salt water residues. We can put a special quantity directly into the Werra, and we have the so-called deep well injection. We press it into the underground. We have currently not the permit that we expected until 2021 to use this methodology to press it into the underground. We only have a short-term and limited permission, which forces us to reduce production if there is not enough water flow in the Werra to use the other method to get rid of this salt water. When we look at this long-term, because we will overcome this year, we will get the permit until 2021, and we have agreed with the politics on a way to handle this in the future without the deep well injection.
That would then be the last permit that we need, and therefore, we would have to invest another EUR 400 million. That is a package out of a pipeline covering our stockpiles, et cetera. We are talking about quite long time for investing that money. That means we only have small portions out of the EUR 400 million affecting our CapEx.
I see. If it started raining like mad today and within a very short period of time, there were no further constraints. What do you estimate that so far this year is the level of lost production?
Yeah. We only gave the indication that if we receive the long-term permit in summer this year, that is what we expect, and that is what is indicated. We would lose, EBIT wise, lower double-digit amount. We cannot be more precise on that. That really depends on weather, et cetera, and what is the best way to drive our sites at the Werra. Please understand that we only give this indication.
Okay. If I can understand what that is, you're saying that the worst case, based on the scenarios you believe are highly likely, is less than 100,000 tons of lost production.
No, I didn't use the word worst case. I said if we receive the permit in summer this year, we would lose a small double-digit EBIT amount.
Right.
Yeah. Okay?
Okay. Brilliant, thank you very much.
You're welcome.
The next question comes from the line of Oliver Schwarz from Warburg Research. Please go ahead.
Yeah. Good morning, gentlemen. Thank you for taking my questions. Firstly, just for confirmation, have there been any orders in Q1 that you were not able to fulfill due to the production problems at your Werra site, or have you been able to handle that via inventory levels?
We were able to fulfill every obligation. By the way, I think I mentioned that earlier, we have increased our inventory a little bit to be able to do that in the future as well.
Okay, perfect. To my calculations, you spent CAD 17 million in OpEx for Legacy in Q1. Would I be correct to assume that the CAD 110 million to CAD 120 million of startup costs and OpEx in Legacy would be rather back-end loaded than front-end loaded?
Yes. It's back-end loaded because commissioning starts in summer this year. That is linked to higher OpEx numbers.
Right. Now to something a bit more complex, I have to admit. Coming back to what you said about mix effects, volumes effects in the potash part of your business. In the presentation, you stated that there were pre-buying effects in specialties. That's page five of the presentation. Pre-buying effects of specialties in Europe in December. However, you stated that the price decline, especially in the overseas market, was mainly a function of lower, if I get you correctly, at least, was a function of a lower percentage of specialties going into the overseas market, while Europe was more or less on a steady level. Which implies to me, given pre-buying in December and good business or let's say average business in Q1, that farmers are applying more specialties or more SOP specialties to their produce. Is that so? If so, why?
Yeah. You have also take into account that the total volume was down.
Basically, you sold lower specialties in Europe as well, but because.
No, in the mix, the portion of SOP is higher than it was in the first quarter of 2015.
Yeah, but overall.
It does not mean that the total number went up.
Yeah. Correct. Basically, just to be plain here, what's the amount of specialties you have been selling to the customers in Q1 year-on-year? Was that basically a flat number, or has there been declines or increases? After the pre-buying in December. If we just look at talking absolute numbers.
Sorry, volume specialties in Europe?
Yep.
There was a decline in the first quarter.
Okay. Got you. Okay, thanks. That's very helpful. A last one, FX effects. If you mind talking me through the FX effects you're expecting in 2016, because last, page seven on the presentation, FX effects are expected to be slightly positive based on your assumption of a 1.10 exchange rate of the US dollar to the euro. How much would that change if we would assume a more, let's say from today's point of view, a more negative environment, like 1.15 euros per dollar?
Okay. We started giving you these numbers on our capital markets day. I'm happy to update you here. Of course, it changes quarter by quarter, not dramatically because we have our instruments in place.
If we would see a 1.10, that would have a positive effect against 2016 of roughly EUR 20 million.
Right.
1.15 would mean there's only very small positive number.
Okay. Thank you.
Nothing but single digits.
Yeah, very clear. Thank you very much.
Welcome.
The next question comes from the line of Markus Mayer from Baader Bank. Please go ahead.
Good morning. Only two questions remaining. One on the salt business for chemical applications. Here, the demand seems to be quite good in Q1. Is this sustainable in the development, or is it just a kind of a shift effect? Secondly, do you also see that credit risks at Latin American farmers have an impact on your business here as well? Are there also risk mapping you're doing there for your customers? That's all from my side.
Markus, it's Thorsten here on the chemical salt collection. We have said that, and you know that in all of the segments, despite we are now showing four sub-segments or even five sub-segments instead of only four, we still have a bunch of different applications we are serving. We have seen a good development, as we said, in the chemicals business in the first quarter in the salt. Therewith, if we do not see a significant change in GDP growth, be it in the U.S. or be it in Europe, there should be no significant change to expect in that area.
Okay.
On the last question on credit risk, it's just that now we're speaking, we have a general policy to insure all our receivables, and this is also the case for sales to Latin America, and especially in the potash business. We have more than 95% of our sales are insured against any credit risk.
Okay. Perfect. Thanks.
Thank you. We have no further questions coming through. I will hand back to Dr. Lohr for the conclusion of the call. Please go ahead.
Yeah, thank you. Thank you for joining us today and for your interesting questions. Obviously, we are in a transition year in many respects. I hope you could realize again that we are well-positioned and financially equipped to handle this. We are looking forward to talk to you soon, maybe to one or the other of you, even following our AGM tomorrow. Thank you and goodbye.
Thank you. That will conclude today's conference. Thank you for your participation and have a pleasant day.