K+S Aktiengesellschaft (SDF) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Welcome to the conference call of K+S regarding the publication of the annual report 2019 hosted by CEO, Dr. Burkhard Lohr; Thorsten Boeckers, CFO; and Dirk Neumann, Head of Investor Relations. [Operator Instructions] Please note on Page 24 of the presentation, you will find the disclaimer. I'm now handing over to Dr. Burkhard Lohr to begin. Please go ahead.

Yes. Thank you very much. Ladies and gentlemen, I would like to welcome you to our annual analyst conference here in Frankfurt and on the phone. And I remember pretty well back in 2008, '09, I had press conferences and analyst conferences at the same place during the financial crisis. And we have survived that period, and I'm sure we all will survive the corona issue as well. But of course, it keeps us busy, and we see that attendance rate is low due to that. But hopefully, everybody is now on the phone. Together with my colleague, Thorsten Boeckers, I'm pleased to explain our ad hoc announcement of yesterday. We will also explain the key developments and results of 2019, share our view on the market and, of course, on our outlook. And let's begin on Slide #2. At the beginning of December, we decided on our package of measures to reduce debt. Under the prevailing market conditions, it became increasingly clear that we would not be able to reduce our debt significantly from operations only. However, we need a solid financial basis to secure the future of our company. Waiting and hoping for better conditions was never an option for us. The package of measures includes both operating units and, of course, our holding. Further increases in efficiency and productivity are just as much the focus as the implementation of future-oriented solutions in the environmental area. Immediately after the decision on the package, we began examining the measures and the options available to us. As you can see from yesterday's ad hoc announcement, we aim to completely sell our operating unit Americas. The sale will be accompanied by a comprehensive realignment of K+S. There is a major restructuring on the organization as well as a new dimensioning of the SG&A functions with the aim of a strong reduction of costs. We will further advance our efforts to increase efficiency and productivity in our plans to reduce costs even further. Also, we are working intensively on intelligent future-oriented solutions to fulfill our environmental obligations with lower costs. In this way, we will ensure that all sites achieve a sustainable positive free cash flow. And how will the new K+S look like? A lean and performance-oriented supplier of fertilizers and high-earning specialties with a solid financial base. And now let's turn to Slide 3 and take a look at our operating unit Americas. Strong cash flows characterize this unit with sites close to our customers in North America and low-cost production in South America. It has strong brands with high emotional consumer loyalty. The Umbrella Girl of Morton Salt, in particular, has been a trademark in millions of American households for more than a century. The brand Windsor in Canada as well as Sal Lobos and Biosal in South America also possess a strong brand value in the corresponding regions. Ladies and gentlemen, this health platform is unique worldwide. All operations have been assessed and a full divestment of -- all options have been assessed, and a full divestment of the operating unit Americas has been identified as the most value-generating option at all. We have already started the sale process and have mandated investment banks to assist. The range of interested parties is already extensive. Following initial discussions with potential buyers, we are confident that we will be able to reach the signing before the end of this calendar year. Now we come to our operating unit Europe+ on Page 4. Ladies and gentlemen, our new Bethune plant in Canada is one of the most modern potash production facilities in the world. It is a very valuable asset and an integral part of the future of K+S. According to our review, the sale of shares is not planned. We intend to focus even more strongly on our core business in the operating unit Europe+, reduce the complexity of our group and sell noncore activities. As announced, we have implemented the first measures directly. Two examples of this are the sale of Baltic Train in the logistics sector and the waste management subsidiary in Switzerland at the end of 2019. The aim is to generate sustained positive free cash flows at all sites. For the Werra site, we will realize the environmental goals agreed with the FGG Weser more cost efficiently by means of more intelligent solutions. For example, we want to achieve and optimize product mix to improve the way we operate, resulting in less liquids residues. Another example, we are working together with external partners on various concepts for covering our tailings piles. The aim is to achieve a faster reduction of wastewater for the tailings piles at significantly lower costs. Over the last 8 years, we have had to shoulder a total amount of around EUR 1 billion in investments in environmental measures at our German sites. We will need a significant reduction in this area. Now please turn to Slide 5. Based on the numerous measures just described, we intend to reduce our debt by well over EUR 2 billion by the end of 2021. In terms of rating, we want to use this step to create the conditions for achieving a stable crossover rating. Crossover refers to the area marginally below investment grade, a solid financial position. With this new lean and performance-oriented company, we will become a premium provider in the fertilizer business, which will mainly also focus on the range of high-earning specialties and will continue to grow in this area. As a result of the reorganization or reorientation, we have a solid financial base and will become less dependent on the de-icing and, in future, with increasing shares of specialties also on the MOP business. The recent past confirms that this is the right path to take. I will now hand over to my colleague on the Board of Executive Directors, Thorsten Boeckers, who will present further details on the financial of 2019.

Thank you, Burkhard. Let us continue on Slide 6. We did our homework on important items that kept us busy in 2019. At our Bethune plant, we made significant progress by implementing cooling, screening and grinding equipment. Product quality has now reached the high level expected by our customers and ourselves. Burkhard and I were able to see the progress we made there with our own eyes a few weeks ago. We have also managed to get the wastewater-related issues in Germany under control. Despite another dry summer, we were able to avoid weather-related production downtimes. For the first time, we have set up an underground storage facility for saline wastewater at our Wintershall site. In addition to our ability to transport brine to off-site locations, this has increased our storage capacity to a total of 1 million cubic meters now. It enables us to successfully bridge dry phases and gives us stability in production. Against this background, we do not expect wastewater-related downtimes at our Werra plant going forward. In my opinion, the biggest success of 2019 was our cash generation. For the first time since 2013, we generated a positive free cash flow. At EUR 140 million, the value was clearly above expectations. With this, we have fulfilled our promise. We also made good progress in lifting synergies. We have already realized more than EUR 100 million in administration, procurement, logistics, production, sales and marketing. We are, therefore, well on track to exceed our synergy goal of more than EUR 150 million run rate by the end of 2020. And this will also help the new K+S. Looking back at market developments in 2019, starting on Slide 7. We were happy with the first half of the year. In the course of the second half, however, the general conditions for large parts of our business turned south. And let's look here at Slide 8 in more detail. In H1, some events caused minor disruptions on the potash markets, for example, floodings in the United States. However, these events would not have led to a severe instability. The main reason for market weakness from the second half of the year onwards was the import ban on MOP imposed by China. This has resulted in falling prices and lower demand in other important overseas markets, too. Almost all producers worldwide have responded to this by cutting back production. In the potash industry as a whole, production was reduced by about 4 million tonnes. We also contributed with production cuts in Canada and Germany of about 600,000 tonnes. Slide 9, please. At 12.7 million tonnes, sales of de-icing sold for the year as a whole were in the range of the so-called normal winter. While demand was above average in the first quarter of 2019, we lacked a good winter in Europe in the fourth quarter. This is the reason why we fell EUR 10 million short of our guidance of around EUR 650 million announced in November. Slide 11, please. Q4 results are mainly driven by the reduced potash production and the lower sales volumes in de-icing compared to Q4 2018. We also suffered from lower prices for MOP. On a full year basis, we achieved slight growth in revenues and earnings. At EUR 640 million, our EBITDA was 6% higher than in the previous year and therefore improved for the third year in a row. We will propose a dividend of EUR 0.15 per share to the AGM. This compares with EUR 0.25 a year ago. The payout ratio of 37% will be slightly below our target corridor of 40% to 50%. This reflects our cautious outlook for 2020 and will also contribute to our package of measures. Let me come back to the cash flow again on Slide 12. We are proud of our Bethune plant. However, investments there, together with the high environmental CapEx in Germany, led to negative free cash flows for K+S in the years '14 to '18. In 2019, this number improved by almost EUR 350 million compared to 2018. The main reasons for this very good development are our strong focus on cash across the group and an optimized working capital management. The good cash flow development also had a slightly positive effect on the leverage. We finished the year at 4.9x net debt to EBITDA compared to 5.3x year-over-year. The progress was even stronger during the year, however, also stalled by the development on the potash markets, in particular. That concludes my look at the financial development. Back to you, Burkhard.

Thank you, Thorsten. Ladies and gentlemen, we now come to our current market assessment and outlook. Please turn to Slide 14. Some industry observers have assumed that there could be a significant increase in potash capacity over the coming years, creating an excess supply in the market. However, a closer look at the facts makes it clear that there is a large gap between plan and reality. What do we mean with that? Over the past 15 years, some 160 potash projects have been announced worldwide. Currently, we see a high probability of just 6 of these projects being implemented by 2025, and only 2 projects are currently being ramped up. One of them is our Bethune plant in Canada. Slide 15, please. On the demand side, and this is confirmed by all market observers, the long-term trends remain intact and assume an annual increase in global potash demand. The drivers for this continue to be global population growth and the need for an optimal supply of nutrients to soils in order to increase agricultural yields while the amount of arable land is declining at the same time. We, therefore, see a rather balanced relationship between supply and demand in the medium term and do not expect an oversupply on the world market. Rather, we assume that global capacity will level off at the long-term average over the next few years, especially as capacity is repeatedly leaving the market due to premature plant closures and uncontrollable water inflows. Both we have seen in the past. Now please turn to Page 16. The general conditions for the current year 2020 underline a long-term assessment of demand. In the case of cereals, for example, demand is increasing and prices remain at an attractive level. This is likely to lead to an increase in acreage under cultivation in North America and Brazil. In addition, the agricultural sector is currently in good financial shape. All these are positive factors that should also favor demand for fertilizers in the short term. And of this, Slide 17. The market weakness for potassium chloride that has been observed since the second half of 2019 is currently being felt primarily on overseas market but less so on our home European market. Here, the price level is providing to be significantly more stable. The same applies to fertilizer specialties such as potassium sulfate, which is more expensive. There, we see a significantly more stable price trend compared with MOP overseas. Both our broad regional base and our strong market position in the case of fertilizer specialties are our plus points in the current market situation and should help us to manage this difficult phase. This brings us to our forecast for 2020 on Slide 18. The forecast is complicated because of numerous uncertainties. There is still a lack of orientation on overseas potash markets, especially because the important contract in China is still pending. In addition, the effect on the coronavirus cannot be predicted. However, from today's perspective, we assume that MOP prices will bottom out with the start of the fertilizer season in the northern hemisphere in spring. This would translate into an average price slightly below the Q4 2019 level reflected in the midpoint. In the second half of 2020, we expect prices to stabilize on a significantly higher level. In the upper case, we expect average prices for the customer segment agriculture on the level of Q4 2019. In view of the green winter, we expect a below average de-icing salt business in the first quarter of the year, both here in Europe and in North America. This will then also be reflected in below-average early fills business in the second and third quarter. Against this backdrop, we expect our operating earnings EBITDA for 2020 to be in the range of EUR 500 million to EUR 620 million. Ladies and gentlemen, let me finish and summarize the most important points on Slide 19. The package of measures will reduce our debt by well over EUR 2 billion by the end of 2021. This will create a solid financial basis that will secure the future viability of our company. The new K+S will then be lean, performance-oriented and a supplier of fertilizers and high-earning specialties. This realignment will create the basis for global growth, for example, in Africa and China and for the further expansion of our high-earning specialties business. I'm thinking here of the topic of fertigation or solutions for pharma products and industrial applications. The final slide shows the DAX 50 ESG index, and we are proud member of this, and that shows and underpins that our ambitions in sustainability with all our ambitious sustainability targets are paying off. Thank you very much for your attention, especially because it was a bit more extensive today than usually. We're now looking forward to your questions

Christian Faitz, Kepler Cheuvreux.

Two questions as a start, please.

One by one, please.

One by one. Okay. Let me think which one I'm -- okay. So can you kind of bring home to us what led you to the decision not to partially sell or IPO the Americas unit rather now doing a full sale and keep Bethune on a 100% control? What has led to that change in thinking?

That's a very good one. So we -- first of all, we have a history of huge investments. We have -- you know that the OU Americas, more or less, has been the result of acquisitions in 2006 and 2009. We have heavily invested in Bethune. We also were forced to invest EUR 1 billion in environmentals in Germany with a focus at the Werra. And with the environment that we have seen in the last couple of years, we are seeing that the returns will not be able to cover this investment in terms of coming back to a solid financial basis from pure operations. And we have created first ideas late last year, and we have further worked on that and, of course, have tested the markets for such an asset. And we have realized that a clear cut would have following positives: first of all, the highest proceeds; secondly, it increases significantly the probability of such a transaction; thirdly, it gives us the opportunity to completely start from scratch and design the company that I've just described, leaner with less assets, but assets which all come back into the free cash flow-positive area, which, of course, requires a reorganization. And it gives us the opportunity to stick to Bethune, which will become one of the best assets in this industry. And then we have taken the decision. And yesterday, the Supervisory Board has covered this decision.

And as a follow-up, you talked about cash flow. Can you talk about the cash flow situation for Americas? For their business unit, how can we think about cash flow?

We have an annual CapEx there of about EUR 100 million, a bit more, a bit less sometimes, right? And so you can say that a good EUR 100 million of free cash flow is generated in the unit.

Oliver Schwarz, Warburg Research.

Going one at a time. Can you fill me in about the reduction and the long-term mining provisions of about 10% in 2019 versus 2018, please?

What I've indicated in my speech that we have created a lot of ideas to, of course, fulfill our obligations but with a little bit more intelligent, was the reason for this already because we have changed our concept, which is also agreed from the authorities. And that has a big lever because we are talking about a huge coverage measure, and we are talking about many years. So this is the new technical concept behind how to cover our heaps in Germany. But there is more potential to come.

Okay. And secondly, can you fill me in about your thinking about, firstly, how to reach more than EUR 2 billion reduction in net debt, given the current market situation and your closest peers, Compass, now trading well below 10x EBITDA? And connected to that, how will you come up with the assumption of a stable crossover rating as a consequence of this net debt reduction? The math behind that would be helpful.

First of all, we are talking about the whole package of measures. Of course, the biggest measure is selling the OU Americas. And this whole package will -- has the potential to deliver significantly more than EUR 2 billion by the end of next year. And we also believe that the current situation will not hinder us in doing that transaction because we are talking to strategic investors, to PEs. They are -- they shouldn't have, even in the current situation, no problems in securing the financing for such a transaction. So we are very, very optimistic that this is going to happen. And again, it's not only OU Americas. It's a whole list of measures, and that, in total, will deliver that -- these proceeds. And if you take our net financial debt and deduct this, you will see -- you end up in a crossover rating, crossover situation.

If I deduct, let's say, these EUR 3.1 billion by the, let's say, EUR 2 billion plus, I end up with -- in the range of, give or take, EUR 1 billion. If I take a crossover rating net debt-to-EBITDA of perhaps 3.5x, I'll end up with prospective EBITDA of -- in the ballpark of EUR 300 million, a bit lower than I would have expected for 2021. Can you confirm that, that is your thinking? Or am I missing something here?

We didn't say that we would end up at the lowest range of a crossover situation. So EUR 300 million is for sure too low.

Yes. But taking investment-grade rating 3x, I would end up at around about EUR 340 million, which is not that far off from the EUR 300 million.

I'm afraid we are now mixing net financial debt and net debt. Yes. So if you're looking at -- and we have the difference between the 2 numbers of roughly EUR 900 million, our long-term provisions. So if you only look at net financial debt, the number, of course, is another one.

So just to clarify, the basis of your calculation is net financial debt plus pension provisions plus the long-term provisions for the mining obligation. Is that correct?

That is a definition of net debt. Correct.

Next question comes from Michael Schäfer, Commerzbank.

First one would be on the cost-cutting side you elaborated on. Maybe give us an idea on, let's say, your order of magnitude you are targeting, the timing, associated costs. And what makes you confident to, at least, according to my calculation, to bridge the EUR 100 million negative free cash flow, which you would end up with based on the current situation with, let's say, OU Europe/Bethune? So how can you bridge this gap over the time in order to make it free cash flow breakeven more or even positive? This would be my first question.

First of all, we save a significant demand on interest payments on deleverage. Secondly, I'm not in the position now to give you a precise number about our reorganization, which will more or less take place in the SG&A area. But to give you a flavor, K+S without OU Americas, here, we are talking about SG&A cost of roughly EUR 180 million, and we are talking about a significant change, so there is potential.

And maybe on the back of -- I mean, you're looking into the CapEx side of things. You posted something like EUR 500 million last year CapEx, and then guiding for the whole group, a significant recovery in 2020. Since we are ahead of the splitting, we take the base of OU Europe, which was something of EUR 400 million CapEx last year. So maybe can you paint a picture on how should we think about CapEx evolution on the back of all the environmental measures you still have in front of you over the next 2 or 3 years? So what's the kind of CapEx base we should expect for OU Europe in the years to come would be my second question. And I have a third one later on, if I can.

So Michael, let me start with this year. We expect for this year a significant increase in the CapEx year-over-year, which has to do with the culmination of the tailings piles expansions. If you then cut out for the next year, it's about EUR 100 million of CapEx more or less for the OU Americas. And Burkhard described that we are also working on bringing down the CapEx for environmental investments significantly. We will see a significant drop from these levels in CapEx. And I mean we always said in the past that we need sustainable CapEx of about EUR 400 million to EUR 450 million. This included the OU Americas. So this gives you ballpark a feeling of where the CapEx could go.

Okay. And my third and last one would be on the -- in your guidance, you assume basically that the ag ASP is recovering second half, starting already Q2, bottoming in Q1. So what makes you confidence in the lack of Chinese contracts, which is a bellwether contract, as you know, that we see the price recovery which you have baked into your guidance, basically, indeed, in the second half?

Yes. And it's not only us for -- first of all, who's expecting that. That's a common understanding in the market, and that was the case back in 2016 as well. In a way, we have faced a very similar situation. And we know -- we all know that we -- then went into a rally for 18 months, which bring us to $350 in Brazil. We are not -- we have not assumed such a scenario in our models and our forecast. But it's very, very probable that once we have the new contract, we will see a turnaround situation. And one thing makes us confident that the parties at least talk. We heard about discussions between the Canadians and the Chinese. And before that, there were obviously some video conferences with Belarus and the Canadians. So at least there is some movement. Does not mean that there will be, in a couple of days, a new contract, but the process is starting. And we shouldn't forget India. India is in a much more solid situation, and they have a need to sign soon.

The next question comes from Thomas Swoboda, Societe Generale.

Yes. One question on the remaining salt activities. What has led you to keep the European salt within the group? Wouldn't -- in what you have explained, wouldn't -- have it been more logical to build a big package to carve out the whole salt operation and sell it at a premium price? So what have led you keeping the European salt unit, please?

The salt business is a local business, and the European entities almost have no direct business to Americas and vice versa. That would have been a second transaction, first reason. Second reason, we are making money there. Yes, we are looking into the de-icing salt in Europe. For sure, we have to look into it critically. Of course, that is not the first warm winter here in Europe. And you could assume that this is more or less the new normal, and we might take actions on that. But we have a whole range of products, high earnings, high-return products into the chemical industry, into the pharmaceutical industry. We have -- we are about to establish a nice brand, SALDORO. I hope you all have some of that product at home, with very promising successes in terms of being a strong competitor to Bad Reichenhaller. So as this would not have been part of the Americas transaction anyway, the look into the European salt business is part of the rest of the measures. And here, the focus is de-icing.

If I can risk a follow-up question, and I think that's probably for the CFO. In terms of free cash flow generation in 2019, the receivables and others line saw a spectacular improvement. Question is are there any one-offs included? Is this fully sustainable? Could you just give us some background?

So I would like to stress the -- not only the receivables line but the entire cash focus of the group. That's what I covered in my speech as well, right? So we are also talking about timing of cash outflows when it comes to tax payments. So there's really -- what we have achieved over the last 2 years in the group is people think of cash flow, whatever they do, and no longer just of revenues and earnings. And this is one effect, for example. There are no one-offs, to answer this. But we had a strong focus also, again, in the fourth quarter to get the money in from the customers. So our people, our controllers, our salespeople worked together in really reminding people we want to pay you now. And we think there is more potential. We haven't touched the potential fully yet. So from that point of view, I wouldn't say that this will revert in 2020. We see further potential in order to get the -- to optimize the working capital. Not only receivables, that's just one thing. We could also be, process-wise, become better there. But we are also now looking at better inventory management and also at -- on the DPO side. So our procurement is very, very much focused on finding the right balance between getting discounts [ is going to ] and the right payment terms. So I think we are not yet at the end.

The next question comes from Oliver Schwarz, Warburg Research.

I'm sorry I have so many questions. So I'll try for another round. Can you -- Mr. Boeckers, can you please elaborate about the impact of the temporary production shutdown at your potash facilities on the working capital progression? How much that was affected by the not so favorable situation? That would be my first one.

Let me answer this. I mean with a look into the balance sheet, I think I can answer this because when you see -- we made progress in the -- on the receivables side, right? Where we saw an increase in the line was in inventories, and this was because we couldn't produce, we couldn't sell. And so inventories increased from EUR 700 million to about EUR 790 million, and this was mainly because of the distortion in the market.

I'm still -- I'm sorry for that, but I'm still trying to wrap my head around your guidance in regards of achieving a stable crossover rating. Using pension provisions of around about EUR 200 million, mining provisions growing about EUR 900 million and prospective net debt of around about EUR 1 billion, I come up with a number of, give or take, EUR 2.1 billion. Let's say, a BBB rating, which require you to achieve EUR 700 million in EBITDA based on that numbers, so a bit less for crossover rating. But that's still substantially more than is to be expected from the operations come this year as you are guiding below last year's level. So that would imply a steep increase in earnings of the European plus operations come 2021, especially as cash flow might be burdened by cash costs for the upcoming restructuring measures, which might or might not burden already 2020 or 2021 cash flow. Could you falsify or -- my thinking or whether that is correct?

I'll try to verify it. And there's no need to excuse for questions. Let me start with what we said. We -- you're so focused on the EUR 2 billion, right? We said significantly more. We have -- the entire package of measures covers more than 30 single initiatives where we expect to generate cash from. And some of them are also focused, like Burkhard said, especially the coverage of the tailings piles, are focused on reducing the debt obligation. So you should keep this into consideration as well. And we have an addressable spend in administrative costs, a loan of EUR 180 million, so just to give you a flavor of what is addressable. And when we talk about this solid crossover rating, I mean, it depends on the definition, right? When we look at our -- just the net financial debt number, leaving aside all provisioning, we need to achieve a number of about 3x in order to achieve what we call a solid crossover. And when you take the S&P definition, this starts already with 4.5x. And with the measures, we are pretty sure that we achieve this number. Not going into too much detail though.

Christian Faitz, it's your turn again.

Just one question, please. On Bethune, you said the quality is up to speed now. Is that -- my view is always the proof is in the pudding in the summer, in the hot and humid summer in Saskatchewan. So would you believe that during the summer period, you will also not have any caking issues?

Yes. Yes. And we saw the product in Brazil, where we have summer now. And not only when it came into Brazil but when it was sitting for 6 weeks in the warehouses, and it was still perfect. And I saw the faces of our customers, they are now happy. So that is granular. And the standard product is more or less the main product, which is supported by our [ PQ&T ] initiatives, so cooling and sieving. And this is finished and is ramped up, and it's on a very good path. So there's a good reason to believe that this is history. And it's not only wishful thinking. It is proven. It's -- our customers have given us respective feedback, and this will not change over summer in Bethune.

Okay. There are -- there is one question from -- 2 questions from Michael Schäfer, Commerzbank.

First one, coming back to the salt business. You've indicated rather weak 8 million to 9 million de-icing salt volumes in 2020 on the back of the warm and/or green winter, how you called it. So last season, on the back of strong demand, you enjoyed in some regions high-single-digit, low-double-digit type of price increases. So going through the season and primarily looking into the next season on the huge inventory levels probably sitting around there, is there a major risk basically from your perspective that we see a reversion of those prices back to the year, last year or even beforehand? And how does this basically, from your point of view, impact the disposal process? This would be my first question. And I'll ask the second one later on.

Yes. Of course. After such a season, we will have, by far, more pressure in the bids, and that will lead to lower prices. We have already incorporated parts of that or incorporated that in our guidance. And also, we expect the lower prebid of early fills activities. But that's the business we have been running through for years. Will it be double digits? I don't know. We know that some areas are more stable. And Canada was, again, not as weak as other areas. It remains to be seen.

Okay. So my second question is on the historical purchase prices of the assets you're just about to sell. If my memory is correct, the Lat Am and North American business, in total, purchase price have been around EUR 1.6 billion in -- over the past years, basically. So maybe you can remind us what the kind of book value is you're currently seeing on with OU Americas just to help us understand what the tax implications may be from a disposal.

So the EUR 1.6 billion only covers one part, that is Morton and Windsor. There was another EUR 385-or-something million for SPL at the time, today K+S Chile. And I think as this can be seen in the -- in our accounts, we are talking about EUR 23.5 per share book value for the Americas. Is that correct?

Yes.

And that is only the book value. And you will understand that we are not giving any indication of what we expect as a purchase price.

Well, I hoped for, but I fully understand.

By the way, that's an important hint. When we talk about significantly more than EUR 2 billion proceeds, that is already net after tax.

There is one more question from Oliver Schwarz.

Unfortunately more than one, but will the America plus business -- sorry, the Americas business, will that be recognized as discontinued business following your statement of the planned sale of the business? Hence, will we see a restatement of the just-published annual report in the not-too-distant future?

I see our Head of Treasury trying to give me signals. Do you want to answer the question directly?

Yes. This is okay? Yes, okay. We -- most probably, we will not show it as discontinued operation as of Q1. It will be in the course of the year depending on the decisions which have to be taken, okay? I hope you got it.

Okay. Okay. Secondly, could you confirm that the restructuring measures won't start in full force until the divestment has been completed because you're likely to need the administrative stuff that currently covers the needs of the Americas business?

Another good question. We will start with the design immediately. What do I mean with the designs? The approach will be the following. We look into our remaining sites. We look -- we take a cautious assumption about the market environment, for example, potash price. And then we define what the -- what -- how high could SG&A be and what are -- what is the load that they can cover and carry? And that is now the -- will be the budget for the new SG&A dimensioning. It will be very lean. And with execution, first of all, we have to talk about -- with our social partners, et cetera. So that will be in parallel in a way with the execution of the sale of OU Americas.

And completely unrelated to this topic, can you quickly elaborate on profitability or, let's say, price movements in your, what was until last year, the European salt business or esco? Because of the very warm winter we just had, I could assume that prices, especially for de-icing salt, might be under severe pressure. And inventory levels at customers, especially municipalities in Europe, might be more or less at a record level.

Like in our potash business, the prices for de-icing in Europe are significantly more stable than in the Americas. So in good -- after good winters, we are not gaining double-digit amount, and we are not losing double-digit in bad winter. Obviously, the municipalities are giving that product a value, and that is not that dependent whether the volumes are big or low or the inventories are high or low. So we have a quite stable situation here. So the factor who drives our earnings is more or less the volume.

Okay. There are questions now from the webcast system. Please note that we will not read out similar questions again. One question is from Markus Schmitt, ODDO BIF (sic) [ BHF ]. In terms of your planned sale of the salt activities, could you please comment on the feasibility to complete the sale by year-end 2020 in light of the difficult markets and potentially constrained funding access for an acquirer of the salt activities this belongs to? How many potential acquirers are on your shortlist? And does the list include strategic and financial investors?

I hope for your understanding that I cannot be too precise here. That's a running transaction, and it would be to our disadvantage if I would become too precise here. But I can say so much that after the press release in December, we have seen significant interests in a number of interested parties, and some are very impressive. And we have not even started with marketing. And if I -- if we look into the list, there's no question that they are able to finance such a transaction. So that makes us so confident that even in times like that, we will be able to sign before the end of this year.

Still from Markus Schmitt. Has S&P indicated to K+S that without the sale of the salt activities, you would be downgraded to B+ amid the assumed decline of EBITDA in 2020? And this -- is this eventually the reason for the change of your divestment plan, which foresaw a sale of a minority share so far?

That is a clear no. We are, of course, in continuous exchange with S&P, and they appreciate the step we are doing because this underpins our commitment to deleveraging. But this was not the trigger for our decision, no.

In terms of valuation, I look at Compass Minerals, which trades currently at a forward EV/EBITDA multiple of 7.5x. The company has a materially higher profitability than the Americas unit. So when the 7.5x multiple would be applied to your salt activities, I'd arrive at the cash-in of about EUR 1.7 billion. Where do you take the comfort from to collect?

I'm not commenting on price discussion or the asset for the reasons I just gave you.

This question comes from Ralf Kugelstadt from RK Research & Consulting. Could K+S be considered a takeover target given its distribution strength and market share in Europe on the one hand and the medium-term option to replace German production with Canadian, Russian or Belarusian?

You cannot -- you can never rule out a takeover situation, especially not in times like that and especially not with the share price, I expect. And that gives me the opportunity to comment on not every takeover situation is a takeover situation where the Board would say no. Back in 2015, that was a clear breakup situation. There's no -- they are not dancing around it anymore, the former [ PCS ] guys. And here, we had to say no, but there could be some situations where it may -- where it is logic. But one part of that question I have to refer, there's no possibility to compensate German production with Canadian production because the Canadian production is purely MOP. The Belarus production is purely MOP. They have started now with very small amounts to enter into the specialty business, but that is no compensation. You would take hundreds of thousands of specialty products out of the market. And if this is clever, I don't know.

Michael Schäfer, do you have another question?

Yes. Maybe a follow-up and you may comment on, so we'll see. Yes. On the disposal process, there were some quotes today on the wires, on Bloomberg, Reuters, from a -- balance sheet press conference this morning where you elaborated there are also, let's say, industrialized salt companies potentially among the interested parties. So would you -- I wonder whether you can shed some light on how you would see the cargo authorities' view on things whether the industrial players may acquire? Because on the way I understood the North American market, basically, you said there's already a highly consolidated market. So any kind of interest from there, I would be surprised. So maybe you can shed some light on this one, how you see this.

The only thing we said this morning is the same that we said earlier here. We are seeing a group of strategic investors and a group of PE investors and others. And that's all I can say unfortunately. Sorry.

There is another question from Oliver Schwarz.

Sorry for that. It's just so interesting. The fate of the Chinese salt operations and the planned project for Australia, can you quickly fill us in on that? To my understanding, China is part of the Americas, so that should leave the group, if I'm not mistaken. But what about the planned project in Australia?

Members of our OU Americas team have driven that project so far, but it was still open when it becomes operations whether who would lead this project. So it's not part of the transaction. We continue to develop that project, and we still have the capacities to do so. And we are on a very good path.

And just a quick one. Can you elaborate on the tax rate for the Americas business?

Now I'd look at our Head of Accounting again.

I hear 21%, 22%.

So basically, the tax rate for the remaining group once the Americas are deconsolidated or, let's say, shown as a business to be discontinued by, let's say, mid of year, would go up beyond the 30% that you currently gave in the guidance for the group, including Americas. Would that be a fair assessment?

At least it sounds logic, yes.

We have a question from Joel Jackson, BMO. You assumed 700,000 tonnes of potash SOP demand growth for K+S in a year in which demand is expected to grow to 2 million to 2.5 million tonnes. Yet EuroChem has more volume. URALKALI build 1 million tonne of inventory, and your global peers also had lower volume in 2019 they want to regain. Why should K+S received 30% of incremental 2020 demand?

Yes. We compare 2 years where 1 year is really extraordinary. And we, for the first time, have taken a share in capacity reduction, which was taking our size into account, quite high one. And we believe that the market conditions now this year, unfortunately, do not deliver a good price, but it will deliver a higher demand. And we have a clear idea where to place the volumes. That's why we are not seeing any reasons to reduce that target.

Again, from Joel Jackson, BMO. When will you start to sell product from Bethune into the U.S.? And how will the product be distributed? So how does selling the Americas unit impact your ease to sell potash in North America?

I'll start with the second part of the question. This transaction has no impact at all on how to distribute our volumes into the Americas. Now as we are fine with our product quality in Bethune, the time to ship into Americas might not be so distant, and how to do that remains to be seen.

Again, Joel Jackson. What are the EBITDA dissynergies from selling the OU Americas unit, so higher cost base for the remaining assets?

In terms of administration, the Americas unit is relatively independent. So we have our accounting, controlling tax guys over there. So there are not -- I would say there are no tax synergy -- sorry, there are no dissynergies we should expect from this transaction and if there are, negligible.

Again, Joel Jackson. What would agriculture segment costs look like versus 2019 if you hit your midpoint more than 7 million tonnes volume guidance in the agriculture segment and if you -- volumes were flat with 2019? So 2 scenarios: one, at more than 7 million tonnes cost per tonne; and one at the same level in 2019.

Yes. So 2019 cost per tonne were, of course, affected by the production cuts, right, this 600,000 tonnes, of course, with a high leverage -- operating leverage. If we adjust for this, the level was at about EUR 210, and we are ramping up production. We are ramping our synergy program, so bringing costs down. On the other hand, we face general cost inflation. And also with the investments into the tailings piles expansions we have associated costs with the CapEx, I would say, at this point in time, we should see a cost per tonne, so revenues minus EBITDA over volumes, at the same level of the adjusted 2019 numbers, so about EUR 210 per tonne.

Next question comes from Stephanie Vincent from JPMorgan. Can you please review your covenant headroom under your EUR 800 million facility? And does the debt-to-EBITDA covenant step down at any point? Does the covenant apply if there are no drawings under the facility? And are there any drawings under the syndicated credit line at year-end?

So the covenants refer -- just to make that clear to some parts of our financial instruments, the RCF, in particular, and -- well, we are using also the commercial paper markets, which means as long as we can use this as a good financing instrument, we would not touch the credit line. So it depends a little bit on the market development also, thereby, how much this credit line will be drawn by the end of the year. That's a question I can give to this. And we do everything to make sure that we will fulfill our contractual agreements we have with our banks.

But currently, it's totally undrawn.

Next question comes from Lisa De Neve from Morgan Stanley. Could you please give us an update on what you are seeing in the potash environment, including spring demand in Europe and North America? And what you believe will be the drivers that support the price recovery in the second half of 2020? How much of the recovery will be pending on the potential signing of the Chinese contract?

In Europe, we have a total normal development, a normal flow, normal volumes, and as I stressed earlier, more stable pricing. And we are very happy, for example, about the SOP price premium. It is growing and growing because it's very stable. And maybe the current situation even helps here because we know that China has started exporting SOP last year. Remains to be seen in the current situation how much really we'll be able -- how much they will be able to export. So Europe is normal. North America, we are still not really active in this area. That's why I'm shy to give here an expert opinion on that.

How much of restructuring costs do you expect for 2020 and 2021 for reorganizing K+S?

That's too early to give you an answer on that.

Okay. We have another question in the room. Michael Schäfer.

In fact, 2 questions. On sticking to restructuring, do you also consider to close mines in Germany? I mean, we have seen Sigmundshall closing prematurely basically, so we can think of Neuhof being the potentially next one. So any kind of additional cost savings on top of HQ overhead function type of cost-cutting we should expect? This will be my first question.

Yes. Thank you for that question because it gives me the opportunity to elaborate a little bit about the situation in our -- on our German mines. I think sometimes a view from outside in is a little bit too negative due to the -- yes, we have higher costs in other areas, but we also -- and you, sitting here, you all know that we have significantly higher earnings as well because a good portion -- a very good portion of our production here is specialties. And we have no earnings problems with our mines. We have a problem that we use big parts of our earnings for environmental CapEx. And there's a peak in 2020, which will -- numbers will reduce significantly after that because the heaps expansion will be done more or less, and that is a big driver for that. And that is more or less focused on the Werra. So the other German mines are already free cash flow positive even on a stressed potash price. And that's important to know.

Second one would be on your intended sales mix. Last year, I think you shipped to China, also a decent volume to India. So maybe you can elaborate on what the plannings are for 2020 on the regional mix, potentially out of -- also with the extra volumes now coming from Bethune, at least according to your volume uptick projection you presented for 2020? Any hint here on the mix effect would be great.

Yes. The mix should look pretty much like last year. Of course, you have to adjust the standstills that we had or the production cuts that we have taken. But there's no reason that the mix will look differently. The additional volumes from Bethune will go into Brazil, maybe a small portion into Americas, in the U.S. and also in India, China and Southeast Asia.

One question from Alexander Jones from Bank of America. What is the higher CapEx you guided for, for 2024? And you spent EUR 50 million less CapEx than you guided for in 2019. Is there a deferral into 2020?

So the lower number in '19 is almost driven by cost discipline. The only small portions will run into 2020. And the driver for the higher number in 2020 is clearly the 3 heap expansions at the same time in Zielitz, Wintershall and Hattorf.

Okay. So the final question is from Oliver Schwarz.

Really just one, I promise. As you stated that you want to go more into specialties and with the expansion of Bethune basically diluting your mix as it is only SOP, would you consider or are you actively mulling the introduction of a Mannheim process at Bethune to supply SOP also from the Canadian mine?

Yes. Here, we are not ruling out anything that is possible. But what is -- what are the focus areas? One focus for sure is fertigation. That is an incredibly growing market, especially in situations of higher -- more seasons with drought. And that gives the farmers multiple opportunities to save water, to save the input for fertilizers, what we need with fully water-soluble products. We have already a product range, but that will be enlarged. But again, there are so many possibilities to add business in Bethune, and one of them could be the example you just raised.

Okay. So I will hand over to Burkhard Lohr to have the conclusion of this conference.

Yes. Thank you very much for those who are here in the Commerzbank Tower and for those, of course, who are on the line. This is a very special situation for us. But we are -- the whole Board is convinced and the Supervisory Board as well that this is the right path for the company. And that we -- when we meet next year here again, we can also talk about a transaction which -- that was successfully done. But we will keep you informed and wish you all the best. Now as we are finished, the sun starts shining. Hopefully, this is a good sign. Thank you very much. Goodbye.