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Edited Transcript of SDF.DE earnings conference call or presentation 15-Aug-19 8:00am GMT

Half Year 2019 K&S AG Earnings Call

Kassel Aug 17, 2019 (Thomson StreetEvents) -- Edited Transcript of K&S AG earnings conference call or presentation Thursday, August 15, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Burkhard Lohr

K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director

* Thorsten Boeckers

K+S Aktiengesellschaft - CFO & Member of Board of Executive Directors

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Conference Call Participants

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* Andreas Heine

MainFirst Bank AG, Research Division - MD

* Christian Faitz

Kepler Cheuvreux, Research Division - Equity Analyst

* Christopher Anthony Ryan

BofA Merrill Lynch, Research Division - Analyst

* Markus Mayer

Baader-Helvea Equity Research - Lead Analyst of Chemicals

* Michael Schäfer

Commerzbank AG, Research Division - Equity Analyst of Chemicals

* Patrick Rafaisz

UBS Investment Bank, Research Division - Director and Chemical Research Analyst

* Thomas P Wrigglesworth

Citigroup Inc, Research Division - Director and Chemicals and Basic Materials Analyst

* Thomas Swoboda

Societe Generale Cross Asset Research - Research Analyst

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Presentation

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Operator [1]

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Welcome to the K+ S conference call regarding the publication of the half yearly financial report H1 '19, hosted by Dr. Burkhard Lohr, CEO. (Operator Instructions) Please note, on Page 2 of the presentation you will find the disclaimer.

I'm now handing the call over to Dr. Burkhard Lohr to begin. Please go ahead.

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [2]

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Thank you. Good morning, ladies and gentlemen. Welcome to our Q2 conference call. Let's start right away on Slide 3 with the highlights of said quarter. Our EBITDA showed a nice improvement again, after plus 14% in Q1, we accelerated the momentum and achieved an increase of 24% in the second quarter over last year. The unchanged favorable pricing environment but also higher sales volumes in agriculture supported this success. The EBITDA of our operating units, Europe plus increased by 29%, while our EBITDA in Americas came out below last year's results, mainly on the back of higher logistics and maintenance costs.

Even more important is, in the current transformation phase of our strategy, that we again improved our cash flow. Compared to last year, our free cash flow increased by EUR 150 million to more than EUR 100 million in Q2. With this, we report the best second quarter free cash flow since 2011. In the first half of 2019, we didn't cash-in more than EUR 330 million.

Now please turn to Slide 4 to have a closer look at our deleveraging progress. At the end of June and calculated on the last 12-months base, our financial leverage came out at 4.4x, compared to 5.3x at the end of 2018. Adjusted for last year's weather-related outage days, this multiple would have only been at 3.7x. With these excellent results after the first half of 2019, we are well on track to achieving our deleveraging target.

Please have a look on Slide 5 to see the developments in the different customer segments. And let's start with agriculture. Mainly due to better pricing and higher volumes, revenues and EBITDA increased significantly. The EBITDA contribution from the Bethune was clearly positive and up against last year. However, the latest Chinese statement, to temporarily suspend MOP imports makes us a little bit more cautious on the outlook for short-term demand.

Our customer segment industry is generating sound and relative stable margins. Sales and EBITDA are fairly equally spread over the quarter. While sales were up, slightly higher costs for freight and maintenance had a negative impact on the quarterly EBITDA. Both revenues and profit increased in our consumer business. The more favorable pricing environment, especially for water-softening product helped us to compensate for slightly lower sales volumes. No surprise that based on a seasonally low quarter, our de-icing business in communities reported a negative EBITDA. However, based on the first half of this year, profitability is comparable with last year's achievements due to a jump-start at the beginning of the year. The biddings for the upcoming winter season started promising, especially in the Midwest and Canada.

And now let's move to Slide 6 and have a closer look at the wastewater situation. Ladies and gentlemen, I'm sure all of you remember the challenging weather conditions in 2018. Due to the drought in Germany, we had to stop production at our Werra plant which burdened our full year EBITDA by almost EUR 110 million. But we made sure to be better prepared in the future. We boosted our basin capacities for saline wastewater from 500,000 to 600,000 cubic meters. We increased our logistics capacity transporting the brine to old mine. And at the beginning of August, we received the approval for an additional temporary underground storage facility of up to 400,000 cubic meters on time and as promised. Thanks to that, we feel comfortable to state that even in case of an extended drought, there is now a high probability to have no weather-related standstills in 2019.

On Slide 7 I would like to give you an update on the current situation in Bethune. As already released some weeks ago, we will enter into the next phase to improve the quality of our Bethune products. After we have installed grinder pumps in July, we will prepare and install cooling, sieving and crushing equipment in September, which will be fully up and running in the fourth quarter. The longer maintenance period will have an impact on our full year production, which is now anticipated to be around 1.7 million tonnes. The expected quality improvements should show up in 2019 and can be recognized by our customers in 2020.

Now please turn to the next slide to talk about the full year guidance. First of all, we are narrowing our 2019 EBITDA guidance from a range of EUR 700 million to EUR 850 million to now EUR 730 million to EUR 830 million. This means a significant increase compared to 2018 and a small increase of our formerly guided midpoint by EUR 5 million. To reflect current spot rates, we changed our euro-dollar exchange rate assumption from $1.20 to $1.15. The positive effect from this should overcompensate the extended maintenance period in Bethune and our temporarily more cautious assessment due to the Chinese import stop. Furthermore, we increased our free cash flow expectation. We now expect an adjusted free cash flow of at least EUR 100 million when reaching the midpoint of our EBITDA guidance.

Ladies and gentlemen, this concludes my presentation, and we are now happy to take your questions. Operator, please open the line for the question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Andreas Heine from MainFirst.

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Andreas Heine, MainFirst Bank AG, Research Division - MD [2]

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Yes, two questions. So I'll ask them in a row. At first, I'd like to understand a little bit more the unit cost progression in the agriculture division? I was expecting this to come a little bit lower than the outcome was, maybe you can elucidate a little bit more on that, what has happened in the second quarter? And then update on what we should expect on a full year basis? And the last thing, I know it was said that and it should be slightly above EUR 200 per tonne, maybe you can provide and give an update? And there's one more, but I'll stop here with this one.

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Thorsten Boeckers, K+S Aktiengesellschaft - CFO & Member of Board of Executive Directors [3]

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Yes. Andreas, it's Thorsten. The guidance still sticks. So we've said that we're going to see a number this year about EUR 200. In the midterm, we want to go below the EUR 200. I wouldn't over evaluate the effect in the second quarter, what you see here is based on a (inaudible) volume number. We have produced more. So we have -- on production based number, the number looks much better. What we want to do in the future is, we don't have the number yet, but we want to give you a different number in future to really reflect what will production cost by tonne not affected by freight, et cetera, et cetera. So we are working on that. But I can confirm -- I can confirm that the goal of below EUR 200 still stands, but not for this year.

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Andreas Heine, MainFirst Bank AG, Research Division - MD [4]

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But there was nothing specific in the second quarter, could you explain...

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Thorsten Boeckers, K+S Aktiengesellschaft - CFO & Member of Board of Executive Directors [5]

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No.

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Andreas Heine, MainFirst Bank AG, Research Division - MD [6]

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Okay. Good. The second question is on cash flow. Indeed, a very pleasing outcome. Looking into the cash flow statement in detail. The progress was to quite high degree on these receivables and other short-term assets. That's very good that the net working capital management did improve that much, but how sustainable is it, if you look into 2020? I got the feeling that there is, obviously, good progress in the operating performance, but most of the free cash increase is more on the net working capital side rather than driven by the earnings.

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Thorsten Boeckers, K+S Aktiengesellschaft - CFO & Member of Board of Executive Directors [7]

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Yes. I would say -- it's earnings as well. So I mean, the EBITDA, I'm looking at the half year year-over-year. So what I can confirm is there are no extraordinaries in this number. We had an earnings improvement also also Bethune contributed to this. When you look at the receivable side, I mean, what we are now realizing the cash flows from the good potash business in the fourth quarter '18, with strong American salt business in the first quarter of '19, these numbers come in. And besides that, yes, a couple of things. I mean, if you look -- if you recall we talked about a more active working capital management. We look better at receivables right now. So there is a strong interaction between our finance department and our sales department to see how we can realize our receivables. We have -- we also look better into what is coming in the rest of the months. So we believe we have a more accurate forecast. That's why we get to say, we want to realize that (inaudible) this year. On the payable side as well, we don't see that in the numbers that much, but there is a strong focus from procurement on managing price, cash discounts, payment terms. So we always told you, we want to manage it more actively and better. We have now taken a step down. I wouldn't expect that we do such a step every year, but we do, of course, our utmost that we can at least keep this level.

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Andreas Heine, MainFirst Bank AG, Research Division - MD [8]

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So maybe repeating what you said in my words, so you're saying, what you see in the net working capital trend in this year is more normal than what we have seen last year. So that if you go to 2020 then there should not be a big distortion from that side?

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Thorsten Boeckers, K+S Aktiengesellschaft - CFO & Member of Board of Executive Directors [9]

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Yes. That's a good summary.

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Operator [10]

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The next question comes from the line of Christian Faitz from Kepler Cheuvreux.

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Christian Faitz, Kepler Cheuvreux, Research Division - Equity Analyst [11]

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I have one question and then I'll go back in line. Can you share with us your production plans for Bethune in 2020 already, when basically all the measures should be in place, which you are taking now?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [12]

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Yes. Thank you for the question. First of all, we have to deliver 2019 and we feel quite fine with the 1.7 million tonne. And we have achieved exactly half of that in the first half. And we should do more in the second half. But the maintenance break that we have elaborated on, that's why we see the same volume in the second half of this year. We will see a higher volume in 2020. But it's too early to give a precise number because that is mostly driven now out of secondary mining. And here, we are still learning and have to look into the outcome of how it runs, secondary mining, harvesting in this year. And then by the end of the year, we will be able to give you a more precise outlook for next year. But again, of course, there will be a step up.

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Operator [13]

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The next question comes from the line of Thomas Swoboda from Societe Generale.

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Thomas Swoboda, Societe Generale Cross Asset Research - Research Analyst [14]

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I actually do have three questions. I will take them one by one. First question is on your cautiousness regarding China, I think this is understandable. However, my question is, you're cautious in 2019, isn't this a reason to be cautious in 2020 as well? How do you think this will pan out, please?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [15]

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No. I think this is a temporary situation. And I remember that some of my colleague are already very optimistic for 2020. You know that they are disclosing their numbers before us, that's why I heard them saying that. And I'm in line with them because we have seen the situation earlier. I think the last time it was 4 years ago when we had too high volumes in China harbours for several reasons. Then there was a stop of imports for 2 or 3, at max 4 months, and we expect to see the same this time. The market is prepared for that. And it will have an impact on this year. That's why we are a bit more cautious for this year. And this might have an impact on the new price, which is difficult to say, what that means, that will have an impact on 2020. But I'm not -- but in total, I'm optimistic for 2020. And even with this hiccup in China, we expect [worldwide] demand on the level of last year and last year was a good year. So we shouldn't forget that we are discussing on a very high level.

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Thomas Swoboda, Societe Generale Cross Asset Research - Research Analyst [16]

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Are we -- if I may follow up, are we talking of your expectation on the contract price to be down year-over-year in 2020, is this the conclusion?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [17]

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That would be guessing. In the beginning of this year, people expected there might be pressure on the price negotiations. Then in April, May, we have seen some positive tenders in this area. So people thought the price could even go up. Now this import tax is, of course, a negative circumstance for this negotiation. But it could change more. And I'm not expecting to have a new contract soon in China. That situation is different in India, we should see a new contract in the next couple of weeks.

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Thomas Swoboda, Societe Generale Cross Asset Research - Research Analyst [18]

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That's fair enough. My second question is for the CEO -- CFO, probably. Regarding your guidance on financial results, if I look at the run rate in H1 and what you guide for the full year that would mean that our financial expenses will worsen very significantly in H2. What is the driver for this, please?

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Thorsten Boeckers, K+S Aktiengesellschaft - CFO & Member of Board of Executive Directors [19]

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The guidance we have given is for $1.20, right? And we -- I mean, we always have a clear -- like we have also seen in the second quarter, we have a positive contribution from the FX, which comes in -- as it has to do with in-house financing, and we do see a little benefit. So I wouldn't exclude, frankly, that this will also be seen in the second half of this year. So maybe the $1.20 is a little bit too high, so -- why I was -- why it took time for me to answer was to realize that though, I think we are a bit too negative on the guidance for the financial results.

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Thomas Swoboda, Societe Generale Cross Asset Research - Research Analyst [20]

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Okay. The third question is on the statements you made, Mr. Lohr, in the facts recently. If I understand correctly, you said the target to lower the sodium chloride level in the Werra River by 2021, which was agreed a while ago is not feasible. So my question is, what does it mean for K+ S, especially production-wise and financially? Is there a cost to that -- attached to that if you don't manage to lower the salt concentration as agreed?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [21]

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No. It's added in the long story. But I'll try to keep it as short as possible here on this call. As you know, the deep-well injection will end by the end of 2021. And by chance today, the Environmental Ministerial Conference of Werra and Weser had a meeting today, and -- here in Kassel by the way, and they will decide on what is the measure after 2021 to discharge our production waters. So far, we have discussed about the pipeline. But I don't expect that the pipeline will be the measure which they decide on. By the way, we would have talked about EUR 300 million of additional CapEx or investments. The decision will most probably be on discharging the waters, not temporarily as we do it now but continuously in the underground or in the old mines in the Werra area, which means it's the best solution for the environment and it's the best solution economically. We don't have to transport the water, et cetera. And we -- I have clarified that we are fine and that he confirmed the targets for 2008 (sic) [2028] when it comes to chloride content in the Werra. But I'm also open to the discussion, we have to talk about how do we get there until 2028. And that is everything I meant in this interview that I want to have an open discussion with the current targets. And are we able to meet them by 2022 already. And not more and not less, it's part of this interview. And that does not necessarily and directly transfer in operational cost or whatever you would like to read out of this.

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Operator [22]

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The next question comes from the line of Tom Wrigglesworth from Citi.

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Thomas P Wrigglesworth, Citigroup Inc, Research Division - Director and Chemicals and Basic Materials Analyst [23]

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I'll tell my questions in order. First question is, if you had the quality that you aim to achieve at Bethune today, how much higher would you think the realized price would be from Bethune? Are we talking like $5 a tonne? Or is it more like a $20-plus tonne improvement from -- as the quality rises?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [24]

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No. The price is not the issue. We are achieving market prices with our Bethune product. Of course, from time to time, we are compensating additional logistic costs to our customers. The problem is the production volume. If we would have the targeted quality already, we might have up to (inaudible) tonnes more in 2019, and that's what we are aiming for.

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Thomas P Wrigglesworth, Citigroup Inc, Research Division - Director and Chemicals and Basic Materials Analyst [25]

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Second question on the German assets. Could you just refresh us on the roof stability at Neuhof? When you're expecting that to -- if you could remind me when that's going to return to normal together with K20, which I think was going through a low-grade zone transition zone? If you can give us an update on when you expect those 2 assets to kind of return to normal levels of production?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [26]

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Yes, let's start with our bright spot (inaudible), with this slightly weak K20 content. We will still work in this area until the end of this year. And then we can expect and we know that because we have done some geological research, so we can then expect higher K20 content again for 2020.

And with Neuhof, we have a solution. We have temporarily given up this area where we had this roof stability problems and working in another area. The set-up is done. And by August, we are back to normal production -- almost normal production in Neuhof. But we hope that we can go back maybe with the new technology in the old area because it has nice K2O content.

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Operator [27]

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The next question comes from the line of Patrick Rafaisz from UBS.

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Patrick Rafaisz, UBS Investment Bank, Research Division - Director and Chemical Research Analyst [28]

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I have three quick questions, please. The first one is on agriculture, where volumes were up, but the specialty fertilizer volumes were down. Is that related to Sigmundshall or was there any other effect we should know about?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [29]

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Yes. It's related to Sigmundshall.

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Patrick Rafaisz, UBS Investment Bank, Research Division - Director and Chemical Research Analyst [30]

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Okay. That's easy. And then on cash flow and your cash taxes in the first half of the year and also Q2 lower than the P&L tax. Is that just a temporary issue as happens often, and we should expect an increase in cash taxes in the second half? Or is there a one-off that we should be aware about of?

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Thorsten Boeckers, K+S Aktiengesellschaft - CFO & Member of Board of Executive Directors [31]

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Yes. Normally second half cash flow -- sorry, I'll start again. Normally, the second half cash taxes are higher than in the first half. But I would expect a cash tax number, which is well below last year, which was about EUR 100 million, because we had last year tax audit when we paid in the first half -- we had to pay back taxes. So I would expect a number lower than last year. But it went up in the second half.

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Patrick Rafaisz, UBS Investment Bank, Research Division - Director and Chemical Research Analyst [32]

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Okay. And the third one is on the commercial segment. I understand the mix effect that impacted earnings. And you also mentioned higher maintenance and logistics costs, is that something you can quantify? And is that something that would continue in the second half? Because the -- you sounded quite upbeat about the pricing outlook into the upcoming season. So you think we can still see higher EBITDA here versus last year? Or are these costs just too high, and we will see a flat or slightly lower EBITDA for the year?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [33]

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So when we talk about maintenance costs, they occur in Q2 and Q3. As you know, these are more or less a little bit weaker -- seemingly weaker quarters. So they have an impact. But that is done then in Q4. And we expect in total an increase in EBITDA.

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Operator [34]

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The next question comes from the line of Michael Schäfer from Commerzbank.

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Michael Schäfer, Commerzbank AG, Research Division - Equity Analyst of Chemicals [35]

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Three questions from my side as well. First one, starting with communities de-icing. So you mentioned that you have seen rather promising negotiation periods over the past couple of weeks. So I wonder whether you can quantify or help us a bit with what we should expect basically in terms of pricing. One of your competitors indicated something like 8% increase in de-icing ASPs heading into the new season? And maybe related to this one, your competitors also talked about extra logistics costs due to flooding in Midwest area, so anything you are experiencing as well as a headwind from this one? This would be my first question.

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [36]

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Yes. Thank you. When we talk about the outcome of the bidding processes, I think we need to talk about the different areas because the starting point is completely different. And let's start with the strongest area where we had 2 beautiful winters in a row in the Midwest. We have really seen -- now comparing season-to-season, we have really seen double-digit price increases, which is very promising, when the volumes come in the next season, we will be very happy about this. Canada is slightly up, only a low single-digit number. We were positively surprised the U.S. East Coast, the feeling was not that good, but the prices are still stable. And even in Europe, the prices are slightly up. So in total, it's a good starting point for the next season.

And to the freight cost that is true, especially in North America after we had higher freight costs in last year already. For different reasons, this year, it's -- the river system is a problem which we use heavily for our salt transportation, that has been impacted as well, a negative impact on us.

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Michael Schäfer, Commerzbank AG, Research Division - Equity Analyst of Chemicals [37]

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Can you quantify the level, what does this mean basically in terms of extra logistics costs you are facing?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [38]

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We're talking for the full year about a low double-digit number. And half of that is already in our numbers.

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Michael Schäfer, Commerzbank AG, Research Division - Equity Analyst of Chemicals [39]

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Okay. Second question would be, coming back to Bethune and what you've done there in terms of accelerating, taking an extended one big maintenance period on top of what you already planned. So what does this due to your mix effect basically heading into 2020, also with the other measures you mentioned in the fourth quarter? So how should we think about granular mix heading into 2020 in comparison to 2019 in Bethune??

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [40]

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That's a good question. And at the same time, it's difficult to answer because the mix is not only driven by production capabilities. And we believe we have, from next year on, all capabilities to do a granular favorable mix, but also driven by market conditions. For example, we have now -- as we still can deliver into China, we have increased our standard volume in Bethune to deliver as much standard into China as possible. And that will have an impact on the full year standard granular mix. And the next year could look completely different. I would say it's too early to give you a number for the 2020 product mix.

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Michael Schäfer, Commerzbank AG, Research Division - Equity Analyst of Chemicals [41]

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Okay. So leave it there -- the third question is a follow-up on your working capital outlook heading into the second half. So last year, typically, you -- obviously you reported a net working capital drain in the second half. So last year we had something like EUR 230 million outflows in the second half '18 due to the buildup of production and inventory ahead of the season in Northern Hemisphere. So I wonder, how should we think about the working capital flows in the second half 2019, that -- given that you're still ramping up production? So any kind of indication, what you expect in there after a very strong contribution in the first half?

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Thorsten Boeckers, K+S Aktiengesellschaft - CFO & Member of Board of Executive Directors [42]

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Yes. I can only repeat that we do see, of course, an increase in working capital because of the winter season, so we're building up inventories for that. We are building up inventories on the (inaudible) side. So we would expect an increase from both of that. On the other hand, we still need to optimize where we can. And after the -- (inaudible) you is a very concrete number what we are expecting. We also see a ramp-up in the CapEx. So when we think about cash flow, don't forget that our CapEx is back-end loaded. And that's the best answer I can give you for now.

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Operator [43]

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Your next question comes from the line of Markus Mayer from Baader-Helvea.

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Markus Mayer, Baader-Helvea Equity Research - Lead Analyst of Chemicals [44]

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Two questions from my side. Firstly, again, coming back to this logistic costs. If you would strip out this flooding effect on the logistic cost in the year, would you already see that the inflationary conflicts are coming down because that was highlighted by several other companies for the year? That would be my first question.

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [45]

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It's rather flat without this extraordinary effect.

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Markus Mayer, Baader-Helvea Equity Research - Lead Analyst of Chemicals [46]

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Okay. Okay. And the second question is then on currencies. If you would take the current ratio, the run rate going into 2020. Could you remind us what would be the positive effect on EBITDA from this currency effect next year?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [47]

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So we are still in 2019 Markus. On the full year, we have now in our focus basically $1.15 instead of $1.20 as we've said. And even if the dollar goes to $1.10, we wouldn't expect a significant contribution from that because we know that most of our FX is hedged. And because of the higher FX rates last year (inaudible) we hedged at higher rates. So there is clearly -- there is not another positive effect really to expect if the dollar goes to $1.10, for example.

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Operator [48]

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The next question comes from the line of [David Simmons] from [JP Morgan].

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Unidentified Analyst, [49]

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So firstly, to come back to the specialty volumes in agriculture. You mentioned that Sigmundshall had an effect but the Q2 volumes were down more than you might expect versus the Q1 volumes. So just on that, were there any other smaller effects that were in that? Or was there maybe some inventory leftover from Sigmundshall to sell in the first quarter?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [50]

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No. When you look into the single quarters, there are many effects. First of all, for years, we have been sitting on very low inventories. And as Thorsten already indicated, we have produced more in the second quarter than we have sold. But it's partially part of our strategy to slightly creep up our inventories. And of course, if the ship hits the harbor on the 30th of June or on the 1st of July, that is not much different for us in total. But it differs, of course, the view in Q2 and in Q3. And it happened with 2 ships, by the way, this quarter. So definitely it was not market-driven.

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Unidentified Analyst, [51]

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Okay. Understood. Just on the plans post 2020 for the Werra River, secondly, obviously, options are being discussed. Can you give maybe a range of the potential CapEx and OpEx impacts from whatever the solution is? I mean, are you expecting an increase in OpEx versus the deep-well injection solution? And whether there will be much CapEx associated with, if you did the basin store for example?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [52]

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First of all, we are talking about the time after 2021. So the first year with the new solution is 2022. And we start with a small solution. The volumes that we so far have injected were -- the same amount will run out of the KKF into the old mines. Why is this? Because the KKF saline waters have the magnesium chloride content that we need to avoid any sinking of the surface. And so therefore, we do not have to spend a lot of CapEx. If we then later on, and then we are talking about the late '20s, increase the saline water that we are going to discharge in the old mining areas at the Werra, there might occur some additional CapEx. But it's too early to give numbers.

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Unidentified Analyst, [53]

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Okay. That makes sense. And then lastly for me. This might be one that you can't answer particularly specifically. But you mentioned that there may be some price impact in China by the delay of imports. So if you assume lower prices in China, less of a working capital tailwind last year -- next year. I mean, potentially slightly higher CapEx next year, just given that you're below your guidance so far this year. Do you think you can increase your free cash flow year-on-year in 2020? And are there -- I mean, I'm not really expecting an answer to that, but are there bridge items that you -- that I've missed out that you expect to boost your free cash flow next year?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [54]

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Yes. First of all, we have not indicated that the CapEx goes up in 2020. So we are expecting a level -- CapEx level on the level that we will see this year as well. Secondly, if there might be a lower price in China, that is only one of many indicators. And don't forget, we will have higher volume available. And especially volume of Bethune -- from Bethune secondary mining with a very low cost base. So hence, 2020 is the year where we want to deliver a big portion of our synergies. Remember that we had a target of 150 against in 2021. So there will be a good portion and a positive impact. So in total, without guiding 2020 now, there is a good reason to believe in a further positive free cash flow development.

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Operator [55]

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The next question comes from the line of Chris Ryan from Bank of America.

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Christopher Anthony Ryan, BofA Merrill Lynch, Research Division - Analyst [56]

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Just to try to delve into the working capital, one more. On your receivables outstanding, is there any target that you have for like a day's receivable outstanding that you look to get to?

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Thorsten Boeckers, K+S Aktiengesellschaft - CFO & Member of Board of Executive Directors [57]

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Frankly, neither on the DSO nor the DPO side, we look into hard targets. Of course, we measure that internally. Let me answer it on the payable side, for example if we would give procurement a target to go down to DPO number of x, we would ignore that the debt lever to improve this number is to negotiate the best price. The second is to go for cash discounts. And then to think about how can we negotiate payment terms. And so when we talk about working capital management, we are measuring those KPIs but we have not identified hard targets. And yes, that's the way we do it internally.

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Christopher Anthony Ryan, BofA Merrill Lynch, Research Division - Analyst [58]

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Got it. Sorry, I just had two questions on salt. On customer inventories, especially in the U.S., are there any hard numbers that you're able to give? And how they compare currently versus last year?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [59]

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No. So far, we are not planning to give inventories by customer segments.

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Christopher Anthony Ryan, BofA Merrill Lynch, Research Division - Analyst [60]

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Got it. And then in the de-icing salt business, how much of your volumes are shipped versus ground transportation -- I'm sorry, how much are shifted via the river versus ground transportation?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [61]

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I'm sorry, I cannot give you the number by heart, but we will make sure that Investor Relations will be able to answer that question on the phone later on.

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Christopher Anthony Ryan, BofA Merrill Lynch, Research Division - Analyst [62]

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Sure. And if I could just follow-up quickly on that. On the ground transportation, how have you seen costs throughout the year? And what's the extra trajectory from Q2?

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Thorsten Boeckers, K+S Aktiengesellschaft - CFO & Member of Board of Executive Directors [63]

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We will get into that and give you the answer later.

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Operator [64]

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We have a further question from the line of Andreas Heine from MainFirst.

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Andreas Heine, MainFirst Bank AG, Research Division - MD [65]

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Maybe coming to the region Americas. If I review the guidance, you said that this is flat year-on-year, but the indication you've given on the price side looks a little better. As far as I know, the Americas basically reflects to high degrees the de-icing business in Americas. Of course, there are other things as well, but they didn't move that much from one year to the other. Could you elucidate and put in context the guidance for Americas for this year based on what you said about the pricing of de-icing in the inventories?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [66]

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Yes. Of course, there is good reason to believe that with the higher prices, we have nice a contribution, but we know that the bigger part of the season is the first quarter. So we only expect some weather in December. Of course, if we see weather in November, we take it, but this is not part of our forecast. And so the impact is higher in the first quarter 2020. On the other hand, we have already elaborated on extraordinary cost rates for maintenance and normal inflation. That's why we see the total outcome for this year as guided.

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Operator [67]

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We have a further question from the line of Christian Faitz from Kepler Cheuvreux.

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Christian Faitz, Kepler Cheuvreux, Research Division - Equity Analyst [68]

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Just quickly on Brazil. Can you tell us what your sales people are telling you about demand in -- going into the season there?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [69]

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Yes. Thanks for the question. Because here we talk about the market we run from one record to the other. We have seen so much improvement in demand from Brazil, and we will see a year with higher demand again this year. In the way they might -- it looks like they are winners of the tariff fights, which are ongoing between U.S. and China. And that's why everybody who's delivering into Brazil is very happy about the situation. What we also see is, of course, as you know, we are not present with standard product in the U.S. The U.S. was very weak due to the extraordinary weather situation. And of course, some volumes, which usually run into the U.S. markets were relocated into Brazil. That's why we have seen some pressure on pricing, but that is -- we are talking about $5, $10, nothing which really frightens us. But the demand -- the underlying demand is strong. And we are seeing that for the future as well.

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Operator [70]

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We have a further question from the line of [David Simmons] from [JP Morgan].

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Unidentified Analyst, [71]

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Yes. Sorry, just following up on that last question. Do you have any sense of your share in the Brazilian market versus some of the North American players? So I'm thinking Nutrien. And the reason I ask is, you've obviously maintained your outlook for volumes for this year for the full market, whereas Nutrien decreased their outlook for volumes. So just curious on what the sort of difference you're seeing there is?

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [72]

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Yes. We are growing with the market in Brazil. That means we are keeping our share. And we wouldn't have been able to deliver from Germany more volumes into Brazil. But as you know with Bethune Brazil is the market for our granular product. And as we ramp up, we grow with the market and keep our market share.

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Unidentified Analyst, [73]

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Yes. It was more a question of whether you're even gaining share.

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [74]

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Currently not.

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Operator [75]

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This was the last question for today. So I will now hand back to Dr. Burkhard Lohr for the conclusion of the call. Please go ahead.

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Burkhard Lohr, K+S Aktiengesellschaft - Chairman of the Board of Executive Directors, CEO & Personnel Director [76]

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Yes, thank you, everybody for joining us today in the call. We were very happy to report these good numbers, especially free cash flow. And we told you last year already that '19 will be the year with the first positive free cash flow. And with the new guidance more than EUR 100 million, we even -- will reduce, in total, our net financial debt slightly. And we'll now be on the road and see the one or the other of you, and we are happy to discuss further. And thanks for your time, and all the best. Bye-bye

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Operator [77]

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Thank you. That will conclude today's conference. Thank you for your participation, and have a pleasant day.