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K&S AG
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Welcome to the K+S Conference Call regarding the Publication of the Financial Report H1 2018 hosted by Dr. Burkhard Lohr, CEO. [Operator Instructions] Please note on Page 2 of the presentation, you will find the disclaimer.I am now handing the call over to Dr. Burkhard Lohr to begin. Please go ahead.
Thank you very much. Good morning, ladies and gentlemen, and welcome to today's Q2 conference call. During the next hour, we will not proceed as usual. After a very short overview of Q2, we will spend some time giving you the background on our guided EBITDA range for 2018, which we have already pre-released last week. After that, the team in Kassel will be happy to take your questions.Now let's start with the highlights on the second quarter on Slide 3. When we are talking about the second quarter 2018, the emphasis is that the market conditions remain supportive, and that is very important. On the back of higher volumes from Bethune, increasing potash prices and solid salt demand, our revenues and EBITDA rose compared to last year. Net profit is down, reflecting the Bethune-related depreciation and interest charges, which are now running through our P&L. EBITDA could have been even better, but topics to be discussed later also had a negative impact on profitability in Q2. However, we were able to increase our key financial figures compared to Q2 '17. Our adjusted free cash flow improved, and our financial leverage was down as a result of our very disciplined cash and cost management. For 2018, we now expect CapEx to be below EUR 600 million, and we are making good progress to deliver on our target to becoming free cash flow positive in 2019. And now let's get started with our outlook on 2018 on Slide 4. The already pre-released EBITDA range has not met market expectations. What happened? Some challenges are holding us back somewhat longer than expected. After discussing and assessing all findings over the course of last week, we came to the conclusion that we need to adjust our internal forecast for the year. While our formal wording on the outlook for 2018 expecting that full year EBITDA should be up significantly is still true, we also had to accept that the now-guided range with an EBITDA midpoint of EUR 700 million is clearly below latest consensus.So what are the findings we need to talk about? Please turn to Slide 5. First of all, let us talk about our new Bethune mine, which has come a long way, and I want to emphasize we are making very good progress. From now on, we have to get this mine to a stable production and continuous improvement of quality. We are going to increase production capacity and commencing secondary mining very soon. However, Bethune is still in a ramp-up mode, and what does that mean? Please turn to Slide 6. While K2O content is excellent, and that is very important, and our Canadian team is doing a great job, we still have to be aware that we are ramping up the first greenfield mine in Saskatchewan in 40 years. This also includes a learning process on production, processing and shipping. Product quality and availability is the most important task for us to ensure that we satisfy our customers. The hardness of our granulated product was a challenge until Q2. However, it is now fixed. Regarding the caking, we know precisely what to do and are already making progress. We expect top quality by the end of 2019 at the latest. However, there will be an impact on this year's Canadian production. When you are modeling our forecast, it might be helpful to indicate that we now expect our full year production in the range of 1.4 million to 1.5 million tonnes, granular and standard. Already in 2019, we intend to start secondary mining with the volume of 100,000 to 200,000 tonnes, making us confident to reach a total production of about 1.7 million to 1.9 million tonnes. Nevertheless, we confirm our formal given targets to achieve a positive EBITDA contribution in 2018 already and to reach EBIT breakeven in 2019. Bethune remains an excellent investment.However, Germany remains challenging and some issues take longer to be resolved. Please turn to Slide 7. Where do we spend at our German potash types? Shortage of staff, high illness rates and the lack of motivation are still issues at the Werra, which we need to -- which needs to be managed. After changing the management team, vacancies have been partly filled and illness rates have already been halved. We are now in the process to qualify the new colleagues and to fill the remaining open headcount until the end of 2018. This also includes moving experienced colleagues from Sigmundshall to our Werra site. Furthermore, machinery and equipment required extensive maintenance breaks, which led to downtimes in production. We have changed our maintenance schedule and started to replace outdate machinery. We expect 50% to be fixed by the end of this year and the remainder by the end of 2019. The Werra site Unterbreizbach is currently suffering from extraordinary low nutrient content as a result of crossing a field with lower quality. This will be resolved by the end of 2019. And finally, our site in Neuhof has lost about 50,000 tonnes of production in the second quarter on the back of lower roof stability. We have implemented additional safety measures and expect production to start to improve in the third quarter of 2018.However, our nutrient content in Germany is not improving. Please turn to Slide 8. In Germany, we are operating mature potash mines and the overall K2O content is diminishing. Compared to 2017, the annualized impact in '18 will be about 100,000 tonnes. However, this trend is not coming as a complete surprise, and we have talked about this several times. And together with our consultant McKinsey, which is very experienced in this field, we are currently evaluating countermeasures. This program called Operational Excellence has started with a site-by-site investigation. And today, we have already identified many opportunities to increase the efficiency across all sites. Current schedule implies an implementation starting in 2019, which should stabilize our current production in Germany on the back of a significantly increased efficiency showing a compensation of the effect as of 2020. Further details will be released on our Capital Markets Day in September.To give you some more insight in our production, please turn to Slide 9. In the past, when we talked about volumes, we were talking about the product sold to customers. Today, we want to give you a better feeling for our production base. In 2018, we expect the German production of about 6.4 million to 6.5 million tonnes. Bethune is likely to add about 1.4 million to 1.5 million tonnes of granular and standard products. Next year after the closure of Sigmundshall, with an annual production of about 600,000 tonnes, we scheduled a German production of about 6.1 million to 6.2 million tonnes. This number includes an improvement on the back of the above-discussed measures of about 300,000 tonnes to the German production. Bethune should add 1.7 million to 1.9 million tonnes, including about 100,000 to 200,000 tonnes of low-cost secondary mining and supporting our target to reach breakeven on an EBIT level. All in all, our Operational Excellence program is in favor of compensating the declining nutrient content in Germany after 2020.Let's turn to Slide 10 in the closure of Sigmundshall. Already at the end of last year, we provisioned the closure of Sigmundshall in the magnitude of EUR 40 million. However, since we have finalized the redundancy program and dismissals were announced, our productivity in Sigmundshall is far from normal business. We therefore expect in 2018 a negative EBITDA contribution of Sigmundshall in the magnitude of EUR 20 million. Some of you seem to wonder about the expectations of our average selling price in the potash and magnesium division for 2018. Please turn to Slide 11. For our Potash and Magnesium division, we expected this year's average selling price to be up slightly over 2017. While we agree on market expectations on the overall potash price development, we also have to take into consideration that our product and regional mix is reflecting the production starts of Bethune. Compared to our specialties, MLP is lower-priced and an increasing part of business with customers in China and Southeast Asia is also having an impact on our reported ASP. Finally, the weather is also having an impact on our current earnings. Please turn to Slide 12. This year's record summer in Germany is stretching our logistics, mainly at the Werra site. The good news is that so far, we have not been faced with any stencils related to the weather level with the water level of Werra. The KCF is full, up and running and reducing the salty water -- wastewater by 20%. Furthermore, our additional measures we implemented last year are also quite supportive.The entire team is doing a great job. On the other hand, inland shipping capacities are short and freight rates are increasing. All in all, the extreme weather situation is causing additional logistics costs, which we expect to impact this year's profitability by about EUR 20 million. Finally, it is still too early to get a feeling for the impact on farmers' yield and the implications for our business.What is our appraisal of the current situation? Please turn to Slide 13. First of all, we are pretty sure that the problems now have been discovered and addressed. However, we have to admit that our challenges are holding us back somewhat longer than previously expected. Nevertheless, the entire management team has started working on the list and the bottom-up findings of our Shaping 2030 program on efficiencies and cost effects will be supportive in reaching our targets.What are the moving parts of our EBITDA guidance for 2018? Please turn to Slide 14. This year's EBITDA will be burdened by the topics we have just discussed. However, we will also be supported by higher potash volumes and prices. Profit from Bethune are increasing, and EBITDA is scheduled to be positive in 2018. However, currencies, higher logistics costs and the discussed production issues remain challenging. As said earlier, in 2018, we do expect some costs related to our new Shaping 2030 strategy, which should turn into net savings already next year. For the full year 2018, we expect group EBITDA to significantly improve over last year's achievement in a range of EUR 660 million to EUR 740 million. Please note that this implies no outage days in 2018. As already mentioned, the adjusted free cash flow showed a strong development and should improve significantly year-over-year.Ladies and gentlemen, there are many balls in the air. Bethune is the first greenfield potash mine for 40 years, and the Sigmundshall closure mine at more than 100 years is also weighing on the organization. Furthermore, the Shaping 2030 related reorganization is the mining and requesting the utmost of all our colleagues. Please note that this is the first time ever that K+S is facing with such an intense cost cutting and efficiency program. Shaping 2030 will transform K+S into a new company, and rest assured that our target of becoming free cash flow positive in 2019 is the highest priority for the entire organization.As we will start road showing in Frankfurt and London tonight, there will be plenty of additional opportunities to intensify the discussion. Thank you for now. Operator, please open the line for the first question.
[Operator Instructions] The first question comes from the line of Markus Mayer calling from Baader-Helvea.
I have several questions. I will ask it one by one. Firstly, can you just remind us what would be potential costs for per outage day if now the [ floor ] or the summer remains as it is now in Germany? That's my first question.
Yes, thank you for the question. First of all, I would like to, again, mention that we have really improved the situation. If we would've had that summer 2 years ago, we would have had significant outage days already. So we have really seen significant progress. In the past, we have given you a number of roughly EUR 1 million a day, but would be slightly higher as the price is higher than we had in '16, for example, when we had the significant amount of outage days. But the rough number, slightly more than EUR 1 million, if we could move by some.
Okay. And then the second question on this -- is on this lower nutrition content at your German mines. This new effect in mining, could it give us a new kind of cash breakeven point for your German mines?
First of all, that is not a new effect. I think we have talked several times about the situation that we have set off old mines with the perfect deposit because we make all our specialties out of this as we have high margins with our product. That on the other hand, if we lose some production that has a significant impact across the -- in addition to that, we have high fixed cost. So it's not really new, and we also talked about the fact that year-by-year with the distance from the shaft to the phase is getting longer and longer. So it's something that one should have assumed in a way. But the cash cost per tonne is, of course, affected by that as well, but I cannot give you a precise number. But again, 100,000 tonnes in a year based on the volume of 6.5 million tonnes doesn't have such a significant effect. Most importantly is we see the opportunity with our operational excellence project with a lot of measures to stop this development from 2020 on. So the production numbers that we give you for next year should be a base, which is good for at least the next couple of years.
And then the third question is, with this quality issues in Bethune but also in Germany, could you quantify the EBITDA impact so far? And what do you expect for the full year? And how long do you also expect to remain this into 2019?
Yes. First of all, the quality issues are only Canadian topic. We have no quality issues in Germany, top quality that we produce. The only issue is that we are not producing currently the amount that we are -- that we have expected at the beginning of the year. But talking about the quality in Bethune, which we have taken a very important first step, we have developed a binder, which gives our granular product the hardness which is expected by the customers. So tick in the box, that is done, and we are improving the caking situation month-by-month. As I said, the final step will be done at the end of last year with this cooling facility, but this is already taking into account with the numbers that we have given you. So this year, 1.4 million to 1.5 million, and next year, 1.7 million to 1.9 million tonnes is reflecting the development of this quality issues. In Germany, the situation as we have described in -- at the Werra and in Neuhof, it's also totally reflected in the numbers that we have given you for the production. And in 2019, we will have solved the last of these mentioned issues.
Okay. Then I had a question on this. So we should expect then after 2019, that a ramp-up of Bethune is running as expected. Is this a fair assumption?
That is a fair assumption because only that what I described is hindering us from being on the expected ramp-up curve. So once we have overcome the situation that is improving month-by-month and will be completely done by the end of next year, we are back on the ramp-up phase.
The next question comes from the line of Christian Faitz calling from Kepler.
A couple of detailed questions. First of all...
Mr. Faitz, can you -- the line is not very good. Can you speak up a little bit?
Do you hear me now?
A bit better, yes. Better. Thank you.
So a couple of questions, please. Can you please elucidate the roof stability issues you have faced in Neuhof? And what are your geologists saying about any future potential problems? And then second question...
Can we do one by one, please?
Okay, sure. Yes.
Thank you. Yes, the roof is -- we are -- ran into a geology. We knew that this would be a problem, but we did not expect that we would lose so much volume. The second quarter was affected with 50,000 tonnes, and we now have adjusted our blasting and tailing technology to diminish this effect. So we are expecting to be back on normal production in Neuhof in the fourth quarter. So far, our geological forecast, I'm not showing any further areas like this, but again, of course, we are not foreseeing the whole area, which is in front of us. But again, we have found solutions with adjusting the normal way of drilling and blasting and saving to come back to normal in Q4 starting in Q3 already.
Okay. And then the second question, and there will be a third one. You mentioned the lack of motivation on Slide 7, that is plugging your workforce at the Werra site. What have you done to resolve these issues other than moving workforce from Sigmundshall down to the Werra sites?
Yes. First of all, we have not moved people from Sigmundshall to the Werra yet because we will produce until the end of this year. But we are very happy that we had -- could convince more than 100 colleagues to change -- to move in January from Sigmundshall to several other German mines. So that will finally solve our open-issue situation. And most importantly, they are qualified. So mining is not -- there are not so many miners available in Germany anymore, but it will help a lot. We had a big program, motivation program. The first and most important step, I believe, is that they understand employees, that this site has a bright future. But maybe you remember that mentioned cases, the demonstration against the behavior of our authorities, which did not hand over our environmental approvals in 2016. That was a very big event. And they really asked themselves, do we have a future in this site. And I think we have done a lot of event, town halls, Q&As to get this confidence back. And a good indicator is always illness rate. We know that it is a mix of different effects, and motivation is one effect, which impacts the illness rate. And we have half this rate, and we have seen even further improvement in July. So I'm very confident that this will be history from next year on. Definitely.
Okay, okay. Then last question, continuing with motivation, McKinsey. Why do you have to bring in McKinsey? Are there any steps in Operational Excellence in mining that they are any better versus your own in-house mining knowhow? I mean, I'm fully aware that consultants are often used as an excuse, but why not optimize the mature mines itself?
Yes, that's a very good and valid question. But it's not only the knowledge, it is the process as well. So if you really want to undertake what we are doing now, we questioned everything we are doing, every single step we are doing in operations, and that's we are doing on all our mines. We need to have somebody who is managing this. Also, we are not always talking about the big measures, which deliver hundreds of millions. Sometimes, it's small ideas and somebody who's advised almost all mining companies worldwide brings a lot of good ideas and best practices into the company. And it is not only in identifying it, but in changing the processes, changing the steps in production and in the mining, and that is a big program ahead of us. And I think without experienced advisers, that would have been by far more difficult, maybe impossible to do such a big move that we are doing currently.
The next question comes from the line of Thomas Swoboda calling from Society General.
I have a couple as well. Starting with the potash unit costs. In Q1, you hit EUR 190 per tonne, I think. Your target was below EUR 200 for 2018. I perfectly understand you have given that up for this year, given the unexpected headwinds. My question is, is this target given up for the longer term? Or is there any chance you can achieve this unit cost again? How about specifically in 2019, please?
Yes, Thomas, it's Thorsten here. Results, given now, 2019 is beyond guidance, but I think the target for the cost per tonne is especially given up for this year, for 2018, because we have lower volumes, we have extra costs in order to resolve that, some of that will spill over into 2019. But for the longer term, we certainly haven't given up our target of cost per tonne going below EUR 200.
All right, perfect. So just for the record, 2019, you probably will still be above?
Again, we don't want to guide on 2019 now. Let's first see the year 2018 and then what will spill over into 2019 or not.
Right. A little bit more specifically, on Sigmundshall, I mean from previous discussions, I remember that you were commenting the Sigmundshall is rather breakeven or slightly negative EBITDA. Now we have this EUR 20 million of costs for obvious reasons, and we will lose the volumes from Sigmundshall from 2019 onward, if I remember correctly. How should we read the impact from Sigmundshall beyond 2018? Will you lose some EBITDA now? Or how should we see that?
Yes. First of all, we have already taken the decision to close Sigmundshall earlier as originally planned. Originally, we thought we would run that mine until 2020, and now we have seen the negative development due to the fact that we are the deepest running operating mine worldwide and efficiency went down quicker at Bethune. So we have taken the decision last year to have the last shift on the 31st of December. We have indicated, if I remember correctly, already in our Q1 call that we are running into a situation that there is a slight negative impact on profitability and cash flow level. So once the mine is -- and now we expect EUR 20 million EBITDA negative. So once the mine is closed, it's done because we have provisioned everything that we have to do after 2018, that is mostly closing the mine, flooding the mine, et cetera. So there is no running operational impact anymore from '19 on.
Right, perfect. And last question, I promise. Coming back to McKinsey, I mean, I can understand your motivation getting a consultant. But if I look at your Others line, it looks like you're having quite significant costs there as well. So it's not just that we see the disappointment in potash, but the Others line is more negative than we expected it to be. So how big will be this burden from getting, again, consultants in the company again? Should we be going for EUR 70 million negative for 2018 in perpetual? Or is the run rate of EUR 50 million something you would like to go back to?
First of all, I think I need to put that into perspective. That is not a reaction on the current situation. We have always -- part of our new strategy, Shaping 2030, is our synergy program, and we have promised you to save more than EUR 150 million by the end of 2020. And we have identified 5 different areas. One is SG&A, we are quite advanced here. And the other one -- another one and the biggest one is Operational Excellence. So we have started that early this year already. And we have some others we want to elaborate on that on the Capital Markets Day. And we are quite advanced here. And we have engaged an adviser for SG&A, and we are happy that we've done that. We have engaged an adviser for Operational Excellence as well, but we are not talking the numbers you just mentioned. We are talking about, I think it's roughly EUR 10 million this year, and we will -- so we will have a negative impact of cost this year, but we will have a positive impact of savings already next year. So again, that is not a reaction, that is part of our strategy. Transition phase, yes.
The next question comes from the line of Thomas Wrigglesworth calling from Citi.
First question, the -- if I look at the second half run rate for Bethune versus the guidance of 1.7 million to 1.9 million tonnes for 2019, based on my rough calculations, the run rate of the second half of Bethune to achieve the guidance for 2018 would actually have to be above the guidance for 2019. Is there some kind of maintenance schedule that's put in place for 2019? Or is it just conservatism as to why the '19 number is -- looks so low relative to a reasonable estimate of the run rate from the exit of 2018?
Yes, I'm not 100% sure if I got your question, but we indicated for this year 1.4 million to 1.5 million tonnes, and we will add a number between 300,000 and 400,000 tonnes for next year in Bethune, having into mind, taking into account that we still have not fully solved our caking issues, but we will have by the end of next year. So that has an impact. And not in the possibility to produce, but in the supply chain. So caking means delay in unloading, and that means that we cannot fully produce the volumes that we could produce. And we will have overcome the situation by the end of 2019, so that's why we are going back to the original ramp-up curve by 2020.
Okay. So you're currently building significant inventories of unprocessed.
No, no, no, we are not building significant inventory. That is small, but very effective and clever additions to our mine. So a grinder pump is something which reduces the volume of the crystals, and that is a very small additional facility. And the cooling facility is the same. We're talking about small, but clever additions.
Okay. Because if I look at the first half -- if I double what your first half production is, that leaves me around 600,000 tonnes below the low end of your 2018 guidance, of which you say 100,000 of that 600,000 is Huludao. So 500,000 incremental tonnes look like they have to come from Bethune in the second half. And I if assume that Bethune did, again, which would kind of imply that if Bethune's run rate currently was 500,000 tonnes, I get 1.5 million tonnes for 2018, right, as per your guidance. But that would imply that the run rate -- the annualized run rate for 2019, yes, is around 2 million tonnes, which is below the 2019 production rate. That's my rough maths. So I just -- it just looks like, Bethune, you're quite conservative on your 1.7 million to 1.9 million given that you're implying the second half of '18 will be at around 2 million tonnes. So hence...
Yes, I think a little bit of conservatism is advised in the current situation, but again, we are still in the ramp-up and we might have the one or the other maintenance stop. And the grinder pump and the cooling facility, they are not big facilities. We are talking about big CapEx, but we need to install them and there has an effect as well.
Okay. Second question, if I may. Could you provide a little bit more detail around the improvements you're expecting in Germany to add the 300,000 tonnes in 2019?
Yes, that is the whole bunch of measures that I have mentioned. So we will not have the impact in Neuhof, for example, that we have seen in the second quarter. We are talking about 50,000 tonnes here. We have lost in the Werra 100,000 tonnes in the first quarter, the same amount in the second quarter, and we are not expecting that to get down to 0 impact in Q3 and Q4. So roughly, we lose 400,000, 450,000 tonnes this year. And by solving our HR issues, I'm 100% sure that this will be solved by the end of this year, solving good part of our machinery issues at the Werra and also having the K2O content not with the same impact in 2018. And having solved Neuhof, we are very confident to have 300,000 additional tonnes available compared to 2017.
The next question comes from the line of Chetan Udeshi calling from JPMorgan.
Maybe first, just a clarification. Can you give us what was the actual production from Bethune in first half this year? And the second question related to that is if I take your full year guidance, it still implies second half EBITDA to be up slightly versus first half. And I'm -- when I go back and look for the past, usually, the second half EBITDA is down more than 20% versus first half. So why -- what is going to drive such a better seasonality for you in second half of this year versus first half? But anyway, historically, it's been more of a reduction.
Yes, let's start with the first question. We have produced slightly more than 700,000 tonnes in the first half of this year in Bethune, both products, standard and granular. And more important, we have shipped this to our customers. And now we have reached quality, which is fine for them. But again, we have to improve the situation to have a perfect supply chain running -- up and running.
Yes. And with regard to what do we expect for the remainder of the year, I mean what you need to see is that Burkhard talked in the beginning, for example, about increasing MOP prices. It is not only MOP, these are also the specialty prices, which are going up. So the realization of these prices comes always in with a time lag. So this is what we will see in our accounts more in the second half of the year than in the first half and especially more than in the second half of last year. And when you look back into the last winter, we have seen a decent winter in most of our de-icing regions and we also expect higher volumes year-over-year and also better pricing in our salt business, and this is, from my point of view, the most of these drivers.
Can I follow up one question on just the quality issue that you mentioned on Bethune? I mean, given the quality issue, how are you selling it to your customers? So is there some sort of a price mechanism to sell the volumes? Or are you doing something to improve the quality before you ship for customers to accept it at the market pricing? And maybe just the second question is, I mean to some extent, it seems that there is some sort of execution issues here because there is -- sometimes the German mine, sometimes there is quality issues. So is there something you guys are doing about in terms of just maybe improving the operational execution within the company at different levels?
Yes. Let's start with the second question, the Operational Excellence program, and we will give you a flavor of what we are doing, that the real big one comes to the perfect moment. Again, that was triggered by shaping, but it is time-wise perfect. So we really make it efficiency program of all our sites to get hands on these issues that we are reporting here. Second -- the first question, we are selling our Bethune volumes on market prices. So now as we have the perfect hardness of the granular product, we both -- sell both products, granular and standard, on the current market price. From time to time, we give some -- we recover some extraordinary handling costs, which might occur with the caking situation, but that's all. Does that answer your question? Okay, perfect.
The next question comes from the line of Charlie Webb calling from Morgan Stanley.
Just a couple from me. So first off, just on the volumes, you've guided the production volumes being fairly stable, I guess, 2018, 2019. Sales volumes obviously below that for this year, guiding I think 7.4 million to 7.8 million tonnes. How should we think about sales volumes in 2019? Do you still need to replenish your inventories, and therefore, something similar in terms of a proportion of sales volumes versus production volumes? That would be helpful. Maybe start there.
Yes, thank you for that question. First of all, when we talk about the production volumes, you are right, we are more or less, in '19, on the same level that we are in '18, but it has another quality. We reduce the volumes from Sigmundshall 600,000 tonnes. We indicated that we are losing money currently for that production, and we increased the volume from Bethune. And importantly, there is already some volumes from the secondary mining that we will incorporate this year with very nice low-cost production. And due to the current situation, we have to increase our inventory situation in the company. That's why we are expecting lower sales volume than production volumes in '18. That is not market-driven, you know that the markets are bullish currently. And next year, we should -- the sales volumes should be on the level of the production volumes.
Okay, understood. And then just on SOP volumes, given the nutrient issues you guys are flagging around nutrient content in the German mines. Can you remind us what the SOP volumes were -- or SOP and specialty volumes were in 2017? And now your expectation's kind of the '18 and moving forward given the lower nutrient content you're getting out of the mines.
So in 2017, our SOP volumes were about 700,000 tonnes. Also, keeping in mind that we have in the first quarter about 20 outage days, 25 outage days, which also affected maybe Hattorf, which is mainly producing SOP. So we will -- the case or the nutrient content, if this is why you're talking about nutrients, is not only affecting KCl, it's also affecting Kieserite, and Kieserite is what we need for the production of SOP. So it will also slightly impact our SOP volumes. And yes, of course, this also has a value effect because the price of SOP is, of course, significantly higher than that of MOP. But we don't have the space right now of the 100,000 in MOP and in SOP.
Would it be fair to suggest that SOP volumes will be down year-on-year or even adjusting for that 25 outage days or something similar?
To be cautious, I would say something on the level of 2017.
Okay. And then moving forward to that nutrient problem or availability of the nutrients in those German sites. Is that a kind of continual degradation process, as in that ability to produce more specialty and SOP grades becomes increasingly difficult because of availability? Is that something we should, as a mix effect, continue to expect to see in 2019 and 2020, that kind of negative mix effect? Or is it once we've got through this year, that is the run rate going forward?
It should not have an impact on the mix. It only has an impact on the total volume. So if we want to produce the -- if we don't stop that development and we are going to do that, but then we have to source more rock salt to get the same amount of product out of it and process more rock salt, and that is the problem. It's related with higher costs or the diminishing productions. And we have a lot of ideas how to change things to stop this development, but that is -- you should not expect this before 2020. And this does not really impact our product mix.
Okay, understood. And then just lastly, one last question. Just can you remind us of the kind of -- obviously, you've given Bethune production guidance for this year and next. When do you -- I mean, I presume 2020, you'd expect to get to the 2 million tonnes you kind of originally targeted. But what -- is there a new time frame to peak production? And also what is peak production for Bethune? Has that changed at all? Or is it still somewhere around -- I think it's around 3 million tonnes? Maybe you can just update as of the latest.
Yes, as I said earlier that we will be back on our original ramp-up curve by 2020. There is -- the whole capacity is still 2.86 million tonnes, and we will achieve that. We will achieve that by 2023, as originally planned.
The next question comes from the line of Patrick Rafaisz calling from UBS.
As the first question, can I please follow up on the last one, which was heard for the potash production bridge? So it was a very helpful chart you provided for 2019. But thinking beyond 2019, can you confirm the -- that around 2 million tonnes or 2.1 million or so just mentioned before? And can we also add in the lost nutrients content for the 2020 bridge for total potash production?
Yes, please don't force me to give you numbers for '20, '21, '22 and '23. I gave you one number for '23, 2.86 million tonnes. And as we will have overcome the last quality issue by the end of next year, I think the development from 2020 to '23 will be quite linear. So you can make up your calculation. I didn't get the second part of your question, sorry for that.
No, that was just -- relates to the nutrients content, which you specify as minus 0.1 million tonnes in the 2019 bridge. Should we add 0.1 million to 2020 here as well?
No, no, you should not add, but we do not need to reduce the 2020 numbers by another 100,000. That is the target.
Okay, understood. And the second question on -- is on the Operational Excellence countermeasures you talked about. We saw in the 2018 EBITDA forecast bridge the impact from one-offs. Should we model any material costs associated with these additional measures in the 2020 bridge -- or 2019, sorry?
Give us a chance to talk a little bit more intense and more material about that on the Capital Markets Day. And this is not so far away, it will be at the beginning of September. But I think we have already indicated that we will see all of the whole synergy project, the positive net effect in '19. So the savings will be higher than the costs that we have to take -- that we have to, yes, except for achieving that savings.
Okay, good. And the last question is on salt. Obviously, seasonally not an important quarter. But can you give us an update how price negotiations went here so far? And can you quantify the logistics costs you're assuming for 2018? You did become a bit more cautious, right, saying that EBITDA 2018 will be flat now versus 2017.
So we are quite far with our bidding -- in the bidding season. We have -- in Canada, we are already done. And we are -- only at the East Coast, we have 50% of our bids done. In all the other areas, we are between 70% and 90%. So we have quite a good indication where the price is tending to, and we are seeing a slight decrease at the East Coast. But in all other areas, including the Europe, very nice increases of prices. So that gives us hope for the next season, which as you know will have its biggest impact in the first quarter. But with this price base and with this -- with the low inventories if our customers decides too at East Coast, we are quite optimistic. But freight cost is still an issue. They rocketed in the first quarter. We have not seen the calming down of the situation in the second quarter. We now expect that they stay on that level, and we have started as we have indicated in the Q1 call, transferring these costs to our customers via higher prices. That is the process, which has a significant delay, of course, between occurring of the costs and then agreeing and achieving the higher prices. So that's why we see here a significant negative impact on the salt business. But that, I believe, is not only a K+S issue, that is true for all our peers as well.
The next question comes from the line of Neil Tyler calling from Redburn.
Two for me, please, both relating to, I suppose, price mix effect. Apologies if I missed this in your earlier answers, but with regards to the lower ore grade you've encountered, could you help me understand or help us understand at what point that became apparent and how you at this point have confidence that, that is not going to recur over the remainder of the year or over -- particularly '19 and '20? That's the first question. That second one relates to the Bethune output...
Maybe do one by one. That was not really a question related to our average selling price, but again the -- I understood that you were asking about the decreasing K2O content in our German mines.
Yes.
It is something that we have, of course, not talked about in every single call because that is an ongoing situation. And -- but if this comes together with all the other issues that's carefully mentioned earlier, then, of course, it is not relevant than in the past. So that is something every mine in the world is facing. Where are the shafts? Of course, in the best area of the deposit. And the more you move away from the past -- from the shafts, you -- the probability is high that you come into areas with lower K2O context, and that is the case with K+S as well in Germany. It's completely different in the solution mine, that's why we are not talking about such a situation in Bethune, for example. And we have, in the past, not given you a number, but this time, as we said, that is a special situation. We want to be more transparent and normal. That's why we have indicated we are seeing 100,000 tonnes. At the same time, we have started this Operational Excellence program, and we have not only identified opportunities to save significant costs in operations, but also to work against this development. And that's why we believe we can stop that by the end of next year. Does that give you a flavor?
Yes, that does. So this -- I mean, this has been happening in the past, but on this particular occasion. The incidence is just greater.
Yes -- no, not greater. Together with all the others, it has a higher relevance.
I see. Okay, thank you. So moving on to Bethune in that case, the -- I don't know if you'd be able to, but can you help us sort of break out the -- and perhaps in a euro-per-tonne quantity, the price mix effect of the product that you are selling out of Bethune? And how that impacted the average selling price in the business?
We have tried to give you an indication for that on the Slide 11 that shows the change in our regional mix and in our mix between MOP and specialties between -- the step-up, I would say, between '17 and '18, I'm not able now and here to give you exactly an exact euro number per tonne. Maybe, therefore, you should come back to IR.
The next question comes from the line of Andreas Heine calling from MainFirst.
I basically would like to ask 2. Starting with the first one, looking on your Slide 9, you give the breakup what you -- we can expect from the potash production in Germany in 2019, I think the Sigmundshall mine is minus 600,000 tonnes is all K2O, so not affecting the specialties so that should not change the mix. Then looking on the increase in the case you have this...
May I answer that directly?
Yes.
Yes, thank you very much. No, that is both. That is MOP and specialties, a 50/50 split, roughly.
Okay. Then coming to the KCF, it was said in former calls that the KCF plant in the first place solves the wastewater issue, but it does not contribute to the earnings. So it's fair to assume that this 100-kilotons from the KCF plant are basically neutral if it comes to the profitability from '18 to '19 with this?
Yes, that's true. Of course, we said it's not neutral because -- yes, let me start the following. We said and we have calculated the KCF the way that we -- with the additional volumes we gained, we are able to cover the operational costs. So it's a 0 gain, if you wish me, we do good for the environment, and we save costs with having an opportunity to reduce the salty waters by 1.5 million cubic meters. And on the other hand, we gained some additional product, and that is -- ends up in a 0 game. But as we are ramping up the case -- KCF this year, we have not a whole quantity available that we are expecting and completely up and running status, which will be the case next year with roughly 200,000 tonnes. And the additional 100,000 tonnes is the ramp-up of this KCF, if you wish. So with only 100,000 tonnes this year, we have a slight negative impact. And next year, it will be 0.
Okay, understood. But the main achievement then, if it comes to the bridge, it is taking out to EUR 20 million of Sigmundshall, it is the improvement by 200 kilotons in the German mine, 100 you will lose within lower K2O content and then 300 you get this year additional improvement measures you will take from this year to next year. Is that the right reading? So that effectively a little bit from KCF, but other than that, it's 200 kilotons based on decent profitability, what you should add in next year.
Yes, that's the right way to read it.
Yes, yes. And on top of that, you have potentially 400, 500 kilotons more what you have to build up in inventory this year to be able to deliver in the high seasons in Q1 next year.
Right, right. And that's both in Germany and in Canada.
Okay. The very last one on SOP. So having in mind what you said in Sigmundshall and having the lower K2O content in mind, what will be then the future SOP capacity you have, let's say, mid-terms? So after 2020 when all these measures are in place, I have in mind that your capacity is 800 kilotons, you produced 700 last year as much probably this year, but what will be mid-term your SOP capacity?
Yes, our target should be coming back to the 800,000 tonnes.
Okay. Despite Sigmundshall being off?
[indiscernible]
Sigmundshall, Andreas, produced MOP and Kieserite, but the Kieserite from Sigmundshall was not used for the SOP production. We sold it straight into the Kieserite industry.
The next question comes from the line of Philipp Currle calling for DZ Bank.
Yes, this is Philipp calling from DZ Bank. I have 3 questions, if I may. First one, you don't give a guidance for the cash unit cost beyond 2018. But for 2018, you forecast cash unit cost of EUR 205 to EUR 210 per tonne. So midpoint would be EUR 207, which is EUR 7 below the 2017 level of EUR 214. With the increased contribution of Bethune, do the cash unit costs decrease faster than we will see in 2017/'18 period? That's my first one.
Yes, first of all, the additional volumes from Bethune in '18 compared to '17 is higher than '19 to '18. But there is an additional effect, positive effect with the secondary mining, which is very low-cost production. So it's difficult to precisely figure out what the effect from Bethune in 2019 is. Of course, we have an idea about that, but please give us the time until we guide the whole set of numbers for 2019. But you should expect the positive development.
Okay. And the second question is on Neuhof again. You said that you lost 50,000 tonnes in Q2 due to the roof stability problem. When you expect to resolve this problem in Q4, does that mean that you will lose the similar volume in Q3 as in Q2?
No, it should be less, and that is all modeled into the numbers that we have given you for 2018 and Q4 should not be affected.
Okay, okay. And the last question, it's more a common question. What expectations do you have regarding the contract negotiations with Chinese and Indian potash fertilizer customers? And will K+S play a stronger role in these negotiations as a result of the start-up of Bethune?
Yes, I think we are still a couple of years away from stronger role of K+S in that game. Maybe when we are fully ramped up in Bethune and again even with the upper end of the production guidance for Bethune that we give you, there's another a million tonnes to come until 2023. So but the core of your question, what is the outcome, I think it's well known that we are talking about a range of between $40 and $70 per tonne, and there was a short rumor that Canpotex had already agreed on $40. I didn't believe that in the next payday, they said they were not sure. Obviously, part of this negotiations is the rumor. But it's impossible to predict an outcome. So it's very probable that it will be in the range, but no idea will it be rough closer to $40 or closer to $70. So I was -- somebody told me that this was the last question. I would like to thank you all for being on the call. I'm aware that the situation is not that easy. I think -- we hope that we help the situation with the higher transparency that we have given you -- is there another question still?[ Foreign Language ]
There was another one, it just disappeared. So maybe you can see if they're still on the line?
Okay, it's not the case, sorry for that, but this gentleman will have the opportunity later on. So it was an intense call. I really enjoyed the questions because it helps us to make the situation transparent. You see us here sitting and being still optimistic for the time to come, and we are looking forward to seeing you very soon in Frankfurt and in London. Thank you, bye-bye.
Thank you. That will conclude today's conference. Thank you for your participation, and have a pleasant day.