K+S Aktiengesellschaft
Q3 2021 Earnings Call Transcript

Published: 16 Nov 2021

Burkhard Lohr:

Yes, ladies and gentlemen, welcome to our Capital Markets Day today. And believe me, I'm very happy to have the possibility to meet you in person today. The last time that we met in person was on the 12th, March 12, 2020, so almost 2 years ago. It's really about time to have such meetings again. Together with my Board colleagues, Holger Riemensperger, our new COO, sitting over here; and Thorsten, whom you know, you have been knowing for years. I also welcome everybody following us via Teams and the webcast. Before I give you a short overview of our Q3 results, I would like to give you more details on our ad hoc announcement of October 26. After the EU Commission referred the antitrust clearance procedure to the federal cartel office in Germany, the revenue of the REKS transaction is still ongoing. We continue to expect that the release can be granted. It is even still possible that the transaction could take place this year, so in 2021, still. Nevertheless, the revenue might also take a little bit longer. And therefore, we published an outlook for EBITDA 2021, only including the operating business. We now expect an increased EBITDA of €630 million. This is compared to our previous guidance, excluding REKS, of €500 million to €600 million and the consensus figure of €603 million. The repeated guidance increase was possible, mainly because of further risen prices in the agriculture business segment. This guidance increase will even translate into a breakeven free cash flow after we still had expected in August, a negative figure of minus €180 million without the cash in from the REKS transaction. Besides the higher EBITDA figure, this improvement is coming from postponements in CapEx due to long lead times of needed materials. It is only a shift into the next year, not affecting our production processes. Now let's turn to Slide 4 to talk about the valuation of our potash assets. We had to recognize the full reversal of the impairment loss that we booked exactly 1 year ago, and this write-up results from significantly increased long-term potash price assumptions. You are all aware that the valuation of the potash and magnesium products' cash-generating unit is the subject of the examination of the full year 2019 and the half year 2020 financial statements by the DPR. As we published this morning, we received preliminary findings in this regard. Until this morning, we postponed the publication of this, not counteracting the ongoing proceedings. But due to the regular Q3 report, we were obliged to publish it today. Following our own comprehensive review and the involvement of external advisers, we consider the primary findings to be unfounded. And ladies and gentlemen, what are we talking about? We talk about evaluation of the business with a lifetime of more than 150 years. We talk about a dispute, which is based on discretionary decisions of the management and we, as a management, take such decisions every single day. And most importantly, there is no cash at risk. There's no equity at risk. With this write-up today, the discussion has no real economical relevance. That's very important to note. And now let's turn to Slide 5 to get a short overview of our Q3 results. Looking at the results of the continued operations, we achieved significantly higher revenues and EBITDA year-on-year. The higher MOP prices since the beginning of this year are rolling into our P&L step by step. In agriculture, the average selling price was significantly higher versus the level of last year's Q3 as well as compared to Q2 this year and reached €300 per tonne. We saw a strong demand in the agriculture customer segment. And together with product availability -- higher product availability, this led to additional sales volumes of 100,000 tonnes. With a total sales volume of 760,000 tonnes, production is running very well at all our sites. In the Industry+ customer segment, we saw an increased demand of chemical and pharmaceutical applications, following the COVID-19 impacts during last year's Q3. Together with a good early fill season for de-icing sold, we increased sales volumes by about 380,000 tonnes. Combined with strict cost discipline, we were able to more than compensate higher prices for freights and energy. So EBITDA of €121 million is 4x the Q3 2020 figure. Back then, EBITDA amounted to €25 million, after excluding the positive noncash one-off effects related to the preparation of the REKS transaction. As already described, we increased the value of our potash assets by another €1.42 billion in Q3, positively influencing our earnings per share. Adjusted free cash flow was impacted by a higher tied-up of funds in working capital. Accordingly, it amounted to minus €69 million. And finally, I would like to give you a sneak preview on 2022 on Slide 6. We consider an EBITDA of €1 billion in 2022 in reach. Here, too, the positive one-off effect of the REKS transaction is not included. We believe that the positive market environment will carry us well into the year 2022. And this will result in a significant base effect of prices in the agriculture customer segment. Nevertheless, we should not forget cost inflation, which is incorporated in that €1 billion. Higher gas prices will lead to higher energy costs, yet we are very well prepared here as well. We locked in prices for 2/3 of our gas consumption for the next 3 years before we experience the spike in gas prices. Inflation will also hit us on raw materials and personnel costs. We expect our free cash flow to be significantly positive in 2022. This will enable us to even further improve our balance sheet so that we will get even closer to an investment-grade rating. Last but not least, some organizational remarks. For starting the workshops, all participants with a green-colored dot on their name tags stay here with Holger and me. The other participants follow Thorsten to the room next door, please. The virtual participants, just stay in the current team session. The workshop will start at 2 a.m. -- p.m., of course. Sorry. We don't want to stay that long. A note on data privacy. Please note that the team session will be recorded, webcasted and be available as replay on our homepage afterwards. People asking a question from the room or the team session have to be aware that by turning on the camera and mics, they give consent to saving and replaying video and audio sequences. We wish you all an interesting day. We are looking very forward to it. And you are not having the opportunity to ask questions now, but you have plenty of times to ask questions also to the Q3 figures later in the workshops. Thank you very much, and see you then. Plus this other companies do new strategies quarterly, but this is not the case at K+S. The last one was in 2017, shaping 2030. The world has changed, but the megatrends are still intact. And we have been working. We worked with our management teams for a year on this new strategy. We looked into the mega trends. As I said, we looked into the markets, in the ag markets. And we believe that we are on the right track, and we want to share this with you today on the Capital Markets Day. And before I really talk about the core parts of our new strategy, let's share our view on the ag markets. Farmers are making good money with their business, and we believe that will continue to be the case in 2022. You see here on this page, on the left side, the development of some selected crop prices. And on the right side, the profitability of the farmers with some selected crop prices. And granted, it looks as if we have achieved a peak in 2021, but it's -- it will continue to be on a very sound basis. And at the same time, we see that the pipeline is really empty. The inventories are very low. Our inventories are lower those of the competitors, those of our customers. so that we will believe that we will have -- continue to have a sound environment for the potash business and for potash price developments. And after we have, together, very often discussed the balance between supply and demand, the risk of overcapacities, and we have seen over the last couple of years that the utilization rate of capacities was increasing continuously. And if you look into that projection, I rather believe in the upside scenario. And we need to have new capacities to make sure that the industry is able to serve the market. And we are fully modeled in every announced new capacity, including BHP, for example, with the first volumes in 2027. I personally see that as a very optimistic assumption with only 50% design of a project. We will rather see the first ones in the 30s instead of 2027, but it's modeled in here as they have announced it. And we will see we are moving towards a very balanced situation. So in a nutshell, we are in the right spot in the potash business in the fertilizer business, and we want to enlarge our footprint, and that is the main purpose of our new strategy. And this is our mission statement, and we are very proud about that because the employees say that's perfect. That is exactly what we are doing and where we should move to. And this is our -- if you wish, our qualitative ambition. You might have heard that on the AGM. We enrich life for generations. Unfortunately, enrich doesn't have the double meaning that the German word has. In German, we say has 2 meanings. It's mining on the one hand and supporting on the other hand. And what does that mean for us? Of course, we ensure nutrition, health and safety as we have done in the past. And we started with our strategy shaping 2030. To get the customer more in the focus of our activities, we implemented the customer segment at that time. And with this strategy, we continue to get even closer to the customers. We see ourselves as pioneer in environmentally friendly and sustainable mining. And that is not only due to the current discussion about sustainability everywhere. We have started investing lots of money in clear water, in CO2 footprint reduction. We come back to that later. That is really part of our DNA. And we do that also to us to secure the license to operate. And that is really a totally new element of our strategy. We are going to make good money with the -- with our extraordinary infrastructure that we have developed. You will see later on what we mean with that. And finally, we act as a partner with our communities, and we want to continue doing this. And when we -- so I have defined the qualitative ambition and with which business do we want to achieve that ambition. Now we are talking about the core business. What is the core business of the new K+S? Our core business is when it comes to products, potash and magnesium, and we want to develop K+S to a global supplier of plant nutritions and services in the agriculture sector. The second part of the core business are new business activities all around our extraordinary infrastructure. And the framework for these core businesses is our climate strategy. And you see that I'm not talking about salt anymore on this page. Salt is no longer core business to us, and I come back later to that and explain you why and what that means to our Salt business. That's a business -- busy slide, but it's a core slide. It's very important to understand this one, because I'm talking about the 3 key elements of our strategy, both in a framework -- all 3 in the framework of our climate strategy, which will be a big part in the next workshop, but I'll talk a little bit about that here in this workshop. And the next framework are our sustainability goals. And here, we also define our financial targets, the financial ambitions. So the quantitative ambitions. The first key element is optimizing the existing, and Holger will, in his part, explain more precisely what we mean with it. But let's talk about one thing. Of course, Bethune is the born growth initiative in our existing business. We want to ramp up Bethune up to 4 million tonnes. The second key element is grow the core business, and we talk about in minutes what that means. And the third is new business areas. And as I mentioned earlier, all around ideas how to better use our existing infrastructure. And the numbers here are describing the management attention. So we want to invest 70% of our time in optimizing the existing. Because here, we have the opportunity to raise profitability options quicker than in the other areas. And 20% in grow the core, and 10% in new business areas. Of course, we are aware that at the end of the day, it will not be 70, 20, 10, but it should be pretty clear for everybody externally and internally where we have to invest most time, and that is clearly optimizing the existing. And when it comes to financial targets, I need to explain why we have chosen a cycle. In Shaping 2030, we have targeted a number for 2030. From today's perspective, it was a mistake to pick just 1 year, because we all know how volatile potash pricing is. And the potash price cycles usually take 3 to 5 years. So if we look into a cycle of 5 years, we definitely have at least 1 cycle. And in that such a cycle, we want to create values. So ROCE, bigger than WACC. That might sound not too ambitious, but it is very ambitious. Please look into the numbers of our competitors. This is a very capital-intense industry. And achieving a ROCE bigger than a WACC is an ambitious target, and we want to achieve that in 1 cycle. The first cycle begins with 2021. So we are talking about the time between 2021 and 2024, including 4. And in the same cycle, we want to achieve an EBITDA margin of more than 20%. And then the last financial target incorporates the message, 2020 was the last year for K+S with a negative free cash flow. Because I have already told you, 2021, we have -- we will have a breakeven number; 2022, a significantly positive number; and from 2023 onwards, we will be able -- with all our initiatives, we'll be able to have a positive free cash flow even at the lower end of the cycle. Now you might ask yourself, "What is the lower end?" That is an environment comparable with what we have seen in 2020. So now I'll elaborate a little bit more about the 3 key elements. First, optimize the existing. And the first box shows you again our target to be free cash flow positive by 2023, even with a low potash price. And that -- it means not only K+S as a group, but also every single site should be able to achieve that. And when we talk about the big potash sites, we have to differentiate between commodity business and specialty business. So Bethune and Ciech are clearly commodity sites. And we want to run these sites according to the strategic principle of cost leadership. That means we want to achieve decreasing cost per tonne year-by-year. We are following a different approach with our specialty sites, Werra and Neuhof. We want to optimize the portfolio and at the same time, reduce our environmental footprint. As you all know, all these water discussions are around the specialties, less around the commodities. In the Salt business, the focus is operational improvements at all sites. And in addition, we want to promote digitalization in automation. Not that we are here at 0. We have done a lot, but we want to do more in this sense and not only on our sites, also in all other elements of our value chain. We have a lot of ideas here. And I guess, Holger will present the one or the other later on. The frame work for the 3 -- third key element, grow the core, starts with the target. Again, we want to develop K+S to a global supplier of plant nutrients and services in the agriculture sector. And here, you might find some elements that you have seen already in Shaping 2017, we call it that time, Enlarge the Specialty Footprint. Precisely, we talk about biostimulants, water-soluble products and many, many more. Fertigation is a very interesting segment. And here, again, we are not at 0. We have done a lot but we want to have a by far bigger footprint. And we want to be the company where the farmers think about when they think about this kind of products, the K+S should be the preferred supplier. And here, for another important element, we want to deliver value-added services and digital services to our end customers, to the farmer. And with this achievement, we can come closer to the end customers, to the farmer. And all that delivers tremendous growth opportunities, but we have made pretty clear, for those who love to do M&A activities, that is not what we are going to do for the time being. We want to grow mainly organically to ensure that our balance sheet keeps in a healthy situation or comes in an even more healthy situation. And finally, the third key element, new business areas. And here, we have the perfect example, the joint venture with REKS. That, at one hand, allows us to be more professional in a business that we are already doing, underground waste disposal and underground waste recovery. But on the other hand, there are tremendous opportunities when it comes about tailing pile coverage. And by next page, we'll show the opportunities and the potential that I'm talking about. And -- but there are much more ideas to further use our infrastructure and make good money with it. These ideas are circling around decarbonization. I'm talking about CCS, CCU, storage of renewable energies and things like that. That obviously is a long-term view on additional businesses. That's why we only invest 10% of the management focus into that. But don't get me wrong. We are not doing this sequentially. We do all 3 key elements at the same time, but with different management focuses. And here, we see tremendous potential to grow again. So that's why I'm so excited about that. But here, we want to grow with partners. Partnership is the key word here, and REKS also is a good example. We are talking about a 50-50 partnership. And I'm sure after we have the approval from the authorities, this will be a success story. And why do I believe this? Because we have this tremendous potential. We have different tailings piles in Germany. And altogether, deliver a potential of 300 million tonnes of material to accept from customers. And per tonne, today, we achieve sales earnings of 35 tonnes -- €35 per tonne revenue, €35 per tonne, that's the price today. And in some areas, it's even higher. In Bavaria, for example, it's close to €100 per tonne. And as the areas are getting shorter and shorter, there is potential in the future for significantly rising prices. Yes, this is a long-term business. And if you divide the number by the years, you will end up -- still end up in a very nice additional earnings stream, starting pretty soon. And when we talk the 300 million tonnes, we talk about 40x the pyramid volumes. So it's really amazing. Now I've talked to you what we are going to do. Now it's time to talk about the Salt business and why the Salt business is not core anymore. You know all are aware about the disposal of our Americas Salt business, which was a very, very successful transaction. And we are very proud on the outcome. But on the other hand, that means we are not a global player in salt anymore, mainly focused on Europe. And the European business is showing tremendous competition. Still a high dependency on de-icing. And global warming will, at least in Europe, deliver less white winters in the future. The last one was a nice one. My gut tells me this one will be a nice one as well. But you have to be realistic and assuming that the de-icing business will be under pressure. And we only have limited financial and management capabilities. And we have a lot of good ideas in the Ag business, which delivers tremendous additional income streams. So this, altogether, led to the situation that we decided, Salt is no longer core for us. But what does it mean? First of all, it does not mean that we are milking a cash cow from now on. We will make sure that the business is in a proper situation. But the focus will be operational and technical improvements like portfolio optimization, cost reduction and efficiency measures. Major strategic considerations are no longer in the focus of the management. And that also means that we are not going to develop at the Ashburton project in Western Australia by our own. So we have to think about alternatives, maybe finding a partner, maybe even selling it after we have achieved the environmental approvals. And that is one example, which does not fit any longer to our strategy, and we have to find answers for that. So let's -- give me the opportunity to talk a little bit about our climate strategy. It will be a long part in the next block, the next workshop, but only 2 or 3 slides. And I want to start with the development of the history. In Germany, the CO2 footprint over all industries has reduced by 40% between 1990 and 2020. At the same time, K+S has reduced its footprint by 80%. Granted, partially, we have closed sites, but we had also taken some measures to change from coal to gas to increase efficiency and others. So that was already a big step towards the climate change targets. We believe that we can do another 10% until 2030 by our own. Therefore, we will fund a K+S climate protection fund from next year on, and we are going to invest 2% of our EBITDA into that fund every single year. And we are going to use that fund to achieve the minus 10% until 2030. And we have spent a lot of time in investigating, is it possible for K+S to be CO2 neutral at all by 2050? That was at a time where it was the German target to be at 0 at 2050. And the answer is yes. It's technically possible. And if you ask me, could be 45 possible as well? I think so, too. We are still working on that, but should be possible, but, the big but. And that is true for the entire German European world industry. We need to have the political support to find us an environment by then with green energy with appropriate volume and to an affordable price. That is a prerequisite to achieve that. And talking about sustainability. You know that we have implemented or defined sustainability goals already back in 2017 with our Shaping 2030 strategy. And we have redefined these targets. And by the way, these goals are linked to the compensation of the Board of Executive Directors and of the top management level. But even without this link, we would really take it very, very serious to achieve these targets. And you can find in our reports, where we are standing, where we are going and what are the targets. Now we have changed a little bit. Energy and climate goals are now more prominent in this pie. That's all I wanted to let you know about this. But 1 last page is my last page before I hand over to Holger. I think that's a very important message as well, with the permanent storage underground of our production waters. And we believe that there will be an approval pretty soon. We, for the first time, for the first time, have a sustainable situation or solution to store our production waters. We don't have to invest in something like Over Visa Pipeline and North Sea pipeline, which besides a lot of costs would have caused another big trouble. We have a solution close to the site. We have a timely replacement of our deep-well injection. As you know, deep-well injection runs off by the end of this year. And we have further improvement of the water quality of the Werra and the visa. That's a real game changer for our German potash activities, especially for the site, the Werra. And we are, again, very optimistic. So today, we are not having the approvals in hand, but we are very optimistic that this is going to happen soon. So that was my last slide, my last message. I now hand over to Holger. And as I have explained, the framework of the new strategy, he's being more precise and showing a lot of interesting strategic initiatives. Holger.
Holger Riemensperger:

Thank you, Burkhard. Welcome from my side. This is my first Capital Markets Day with K+S, as you know. And I'm very proud and happy that I can not only talk you through the way -- okay. Sorry. This is not good. So hopefully, this is better? So not only talk you through the way we want to execute our strategy. What I also want to talk about is why we believe that K+S has a role to play in overcoming some of the most challenging situations humanity is dealing with. And more precisely, I'm talking about food security and climate change. So connecting to the slide that Burkhard already talked about, I want to get a bit more precise. So executing a strategy, the way I would explain it, it's like building a house. And when you're building a house, quite often, you start thinking about the new living room with a nice fireplace or even you think about the balcony on the South side with a nice view to the mountain or the sea. The reality is different. So the most important thing when you start building a house, a new house, is to make sure that the house stands on a robust foundation. And this robust foundation, I would describe, is our optimizing the existing. When you look to K+S from the outside even, you would recognize 4 key elements that we need to focus on. And the first and most obvious, of course, is the ramp-up of our Bethune operations. The ramp-up of the Bethune operations creates, by far, the biggest upside potential, the biggest lever we have to improve profitability. The next one I would mention is the Werra. So Werra is not only our largest site by volume, but also by profit contribution today. So it is of utmost importance for K+S. But on the other hand, you also know that we are facing a lot of headwinds, specifically at that site with regards to environmental issues or, well, measures. And that we had to invest a lot in the past and still have to invest, but I will get back to that a little later. The other one is covered under operational excellence. In this project, we are focusing mainly around efficiency measures. So I'm not a big believer, to be honest, in cost measures because cost measures are pretty short term. So what we really look for is to make each and every site. And does the group storm-proof for times and potash prices turns out again, even if they hit low price levels, as Burkhard already mentioned. And all that, of course, and very important, we mentioned before, to reduce our ecological footprint, but we'll be focused mainly around energy and CO2. Let me take you to the living room, so to speak, so you can see that the fireplace. Let me give a short view on our specialty strategy. So looking to our core business, which is agriculture and the way we interpret it ourselves. We do not consider K+S as the potash commodity pure-play. Already today, a significant portion of our business is in more specialty products. And that creates a situation, where we already have today, a very strong sales and marketing arm deep into agriculture, which is one of the differentiating factors of K+S compared to peers in the market. So this organization provides us an important starting point to get deeper into specialty products. And let's take a few from the balcony. So albeit, I have to say, and that's in the nature of it, this is the biggest part and the least concrete part of our strategy. However, our unique infrastructure, our deep, I would even say world-class know-how in mining, in process technology, but also in agriculture provides us tremendous upside potential. And I'm not only talking about REKS that was already explained by Burkhard. But there's a lot of other things like circle economy, what I mean with that, I'm coming to it and of course, digitalization and automization, which is key going forward. I want to pick one thing because it was very recently widely in the press, and I will get back later to that. But just to give you a sneak preview, magnesium was in the press a lot, as you know, even the threat that key economies in Germany or Europe may come to a standstill because of that. And frankly speaking, when I look to it, I had a smile on my face, to be honest, because I was wondering why nobody talks about K+S? We are sitting on some of the largest magnesium research resources in Germany and in Europe. Coming back to it later. Talking a little bit about Bethune. So where are we at? Or yes, basically, where are we at? So currently, the operations is running very smoothly. It's at about 2 million capacity today, high-quality product and ramping up towards 4 million tonnes. Before I get a little more into detail how fast and when we will reach certain milestones, let me say a little bit something about what means ramping up the solution mine. So ramping up a solution mine is different than ramping up the conventional mine. It's very different, actually. In the conventional mine, when you increase capacity, you open room by room. By the way, it takes you further and further away from the shaft. And I think we can say we know because we operate in conventional mines. And getting further away from shaft increases your cost. And once you have reached the capacity of your shaft, which is the limiting factor, you have to build a new shaft. And we all know looking to the industry what that means in this long-lasting project, it's high investments, it's early cash out and only later returns. And we also know that it is a very complex project, and the chance of delays is almost usual. So you would say it happens. Solution mining and ramping up solution mining is -- if you ask me, it's almost completely different. So ramping up capacity in a solution mine mainly depends on the concentration of your valuable salts in the brine, so the brine input into evaporation, which is one step, and that's important. So when you mature your caverns, so it means when the site is maturing, the concentration of the valuable components and the brine are increasing. So you have a natural increase of your brine concentration and thus, a natural increase of your capacity, simple as that. So this is, of course, way less investment incentive if you compare. And there are technical boundaries how you can do that and how fast you can ramp up. But keep that in mind because the second important thing here talking about Bethune is that we have 2 steps of concentrating the valuable components. And one is evaporation and the other one is cooling, cooling parts. So in there in between, and sorry, allow me to get a little more technical at this stage because I believe you can only understand our strategy if I get a little bit under the skin of it. So we need to reach an optimum. And again, this is only possible once you mature. But over time, you reach that optimum. And so again, another factor why your cost decrease over time when the site matures. So that brings me to another, I would say, point that was probably misunderstood over the last weeks and months. So some may argue that solution mining is more energy intensive, and thus, it is also more CO2 intense. And you know what? This is true. This is true today. But it completely ignores the fact that technology advances every day. And we are in concrete projects to increase energy efficiency, and thus, our specific CO2 footprint. And even if you allow me a look into further future, I would say we all know there is discussions not only about CCS. There's also a discussion about CCU. So the utilization of CO2 later on as a raw material for base chemistry, for instance. And you know what? This looks like a business opportunity going forward. Where are we at? So this is a complicated, and this is a technical slide. But let me tell you what I want to show here. So again, our Bethune operations at the moment is at 2 million tonnes. And if you think about that we're ramping up at the pace in a moment of about 100,000 tonnes per year within our midterm cycle, we expect to reach 2.3 million by 2024. But what this slide also tells you is that we are really and seriously up on our way towards 4 million tonnes. And it shows you that we have already reached certain levels. So I will not go exactly in the cell level definition things. But just for those with no engineering background, FEL 3 is basically what you would say is a budget-grade readiness of a project, so before its preparation and so on, so for. So -- but you see that even in the next stage, and this is as the graph shows beyond the 3 million capacity, we do have first parts at budget grade. And we continue to develop. And hopefully, in a year from now, I can show you where we will be by the next step. So now the big question will be probably when do you reach 4 million tonnes? Here, my answer will maybe not exactly satisfy you. But the way we look to this comes from a different angle. So other than in the conventional mining project where I'm building a shaft and I have to say, "Okay, I'm going to finish the shaft by X and then we're going to start up and capacity comes in and so on and so forth." That's not the way we look to that. So we do not look to a certain capacity at a given point in time because solution mining is a more linear ramp up, as I explained to you. So what we do is we adjust the pace of our ramp-up, one, and that's an important one, of course, to the market situation so prices and demand. But for me, personally speaking, more important, also our ability to invest from a cash perspective because we only want to invest in a healthy way, and this is how we adjust. Now again, I said that's not going to satisfy you completely. But I would say if you think of the next couple of years, there's a fair chance that we continue to ramp up at 100,000. But keep in mind, it's in our hands to accelerate in times when we believe that the market needs more potash at a good price and when we have the cash available to do so. Where will all these bring us? And this is something that I can say with great confidence. So I'm focusing a little bit at the left end of the graph. So all in, you should expect that our Bethune operations will be in the first quintile of the industry with regards to cost competitiveness when it's ramped up to its full potential. And this is where we go to. Moving on to Zielitz. Within K+S, Zielitz is a little bit the sister of Bethune and as Burkhard said, we consider them both commodity. But if you have a sister or brother, you may agree that sometimes sisters could be pretty different. And these 2 sisters are different. And one of the most important differences is, of course, Zielitz is a conventional mining operation. And as I said, a maturing conventional mining operation carries the problem that you continue to move away from the shaft, increasing costs and so on and so forth. So it's obvious that we will focus because we have to focus on continuous efficiency improvements and cash cost reduction for the site. Yet that's not satisfying for us. So on the midterm, our plans or mid- and long term to be more precise, we are planning to escape the site from the, what I would say, more unhealthy, competitive, highly competitive commodity potash market into more specialty products. And the first that comes to mind, of course, is the 99 grade of potash, which is used for industrial applications as well as for food or pharma. So this is one of the directions we're going to take. There's a little more coming later. But there's one other thing that I want to mention here as well. You may know that we have also magnesium and sulfate resources at our Zielitz site. So there is an opportunity to move the Zielitz site also into that direction yet strategy is choice. And we have decided to not confuse the site at this stage, at this point in time with additional complexity because we see that the most important thing is one, to improve efficiency continuously and then take the next logical step into the products like 99 grade. But never forget the opportunity of moving there is a real one. The Werra side. As I mentioned before, the Werra today is not only our largest site by volume, but also by profit contribution. So it is incredibly important to K+S. On the other hand, the mentioned headwinds are prevailing. We are on a good way. We have done a lot of things. We have probably the peak of investments behind us, but we are not ready. So the point was, how do we make sure that the site is viable going forward? So we have turned every stone, believe me. And we came up with a new concept, a total new concept. I would also call it a transformation of the site. And this transformation centers around increase of extraction rate, reduction of processed water, reduction of solid residues, energy consumption, cost reduction and so reducing CO2 footprint. If we would only focus on technical measures, improving efficiency and all kinds of stuff that comes in mind first place, I can tell you we would not be able to achieve. So what does it mean? It means we are taking the new perspective from the market side from the outside in. We are targeting with the site a complete renewal of its production portfolio. We go towards what we would say close to raw material end products. That means less processing. And that means less energy input. It means less CO2 footprint. And actually, it means less water consumption and, and, and. So we can only do that because -- and I can only repeat myself here because K+S is a little different to many of our peers in the market, having the strong sales and marketing organization into agriculture, which has the ability to develop the new markets we need for this new portfolio. And I'd love to throw one. Green potash is one. There is more to come. Neuhof. So our Neuhof side is a serious industrial operation. On the other hand, if you compare to market average world standards sites, you would say this is a relatively speaking small operation for potash production. Yet we believe this is a big advantage because it covers still the full cycle of potash production from exploration to the final product. And it is an industrial scale lab almost, I would say, a nice pilot that we can use and we'll use to develop new technologies, which enable us to become more efficient and less -- or reduce our ecological footprint as well. So what I'm talking about here is specifically the increase of extraction rate. And what it means is just to give you an image of it. So this is about AI, machine learning, precision exploration, which brings you more valuable components starting with the crude sold. It is about separation of the valuable components from the byproducts below ground in the mine. So you not even bring up the byproduct, so to speak, up and put energy in. So we come with a higher purity into the factory. We reduce energy consumption, and we reduce at the same time also our CO2 footprint at that site. And talking about innovation, I want to introduce to you a new concept that we're implementing as we speak. So we have decided to go away from, say, developing specific new technologies on each and every site. So we are bundling our efforts, and we are creating centers of excellence. And the centers of excellence are selected in a way or nominated, site nominated are selected in the way we say what are the site specific from a technical, from a geological and from a know-how perspective where does it make most sense to start with? So I already talked about Neuhof and what we are planning there. If you are looking to Zielitz, autonomous mining is one of the key elements going forward. So they will take care for the group-wide strategic projects on that. And Zielitz will also look into new business areas, mainly around renewable energy, CO2, but also hydrogen. I'm coming back on that specifically a little later. Bethune is our largest energy consumer and is our largest CO2 emitter. And that logic follows that those guys will focus around process automation, enegery efficiency and CO2 footprint reduction. And again, here is a nice thing that other than in Germany, in Canada, there is an open discussion and a transparent discussion about using and applying CCS, it happens and about using and applying CCO, it happens as well. And we are actually in discussions about projects in that direction. So last not least even there's another cross. I want to mention Werra. So we have decided because of the transformation that this site is facing to not load the guys additionally with group-wide innovation project. That would not make sense, and it would go against our logic of being focused on specific issues for each site. That brings me to growing the core. And . Come with me to deliver and take a seat and have a seat at the fireplace. Let me talk a little bit about our specialty strategy. Growing the core for us means a commitment to help farmers around the world to deliver on the expectation to feed a growing world population with less arable land, water scarcity, climate or weather challenges and the continuous erosion of soil fertility. All this has to come at the same time with high yields and high efficiency but less fertilizer, less pesticide and less crop protection. Now how can K&S contribute to squaring the circle? Let me get one step back. If people think about agriculture, many still have a romantic picture in mind with the farmer sitting on a tractor, driving through the blooming sunflower fields. Nice picture but not reality. So agriculture today, modern agriculture, is already an increasingly high-tech industry, and it's taking place. Many farmers today already use big data, laptops, automation, sensory technology on the field to deal with the challenges mentioned. So let me talk a little bit about on the left side portfolio expansion and how we want to go forward here. And again, I want to make a step back to not get too technical and describe it in a little different words. If you understand that the nutrient need does not only depend on the species of the crop but also on the nutrient composition of the soil and if you understand that the nutrient competition in the soil can rise significantly even on 1 acre of land, then you probably start to understand that modern agriculture is not craftsmanship but real science. The way I look to this, I see me smiling a bit, but the way I look at this is that the plant is no different to a human, honestly. Macronutrients, such as nitrogen, phosphate, potassium, is the food or the french fries for the plant. But you will probably agree that only eating french fries is not a healthy diet. So if you do not eat that fruits or if you not use dietary supplements to compensate, you would not be in the best healthy shape. And it's the same for plants, but there's no difference. So it's not about only the micronutrients. It's also the micronutrients at play. So plants can only grow healthy, delivering a healthy nutritional profile if they receive the combination of macro and micronutrients. And micronutrients, just to mention a few, like iron, manganese, zinc and so on. However, the healthy diet does also not prevent you completely from getting sick. So some of you may use products like for immune or omega-3 fatty acids for mental health. These products are not essential, but they are stimulating processes in your metabolism to support the conversion of macro and micronutrients and, therefore, support your health. And again, it's the same for plants. And I said stimulate for various word and these biostimulants at play here. So if you combine macro and micronutrients with biostimulants and if you ensure a fertile healthy soil, in that logic, the plant doesn't get sick. It grows strong and healthy. And you would reduce the need for pesticides and for crop protection. And this explains you why the big players in crop protection and pesticides are engaging also in biostimulants. However, K&S has the advantage that we do not just look to the single effect of the biostimulants because, as I said, they are actually supporting only the conversion of the macro and micronutrients. So you need to combine to get the best effects, and we can do that. Yet all of this serves less value if you are not able to apply the right cocktail precisely at the right spot on an acre of land and if you are not able to adjust that cocktail over the entire crop cycle. Or in other words, just throwing cheap fertilizer widely on the field does not serve the needs of modern agriculture. So what is required to make these cocktails applicable for smart and precision farming is more or just particle size and shape to be able to either bring it with to the spot or with other means in the dry form to the right spot. And I already said that we are working on exactly this. And just mentioned back the Neuhof side, we are working there as well on the improvement of the particle size, shape and . So this is not something that is far out. This happens as we speak. Moving on to digitalization. How will digitalization help K+S to execute the strategy? Digitalization for K+S, it's more than just online sales and marketing platforms like we have in Spain already getting close to our customers. And we are rolling out as we speak exactly the sales and marketing platform into other selected countries and markets. So what we want to achieve is to be able to provide the required level of scientific consultancy to farmers. And that was a big struggle in the past over whole entire crop cycle. Now digitalization will provide the means for us to get direct to the customer and direct communication and support them throughout the cycle. So now of course, you should not expect K+S to come up. It's a full-fledged cloud-based solution for farmers. But what you can expect from us is that we will find the right partners to enable us to make this happen. The last circle, logistics access. So why do we even think about this? Let me ask you another question. What would Amazon be without DHL or another logistic partner? Not much. So the key is also in the last mile. So the question for us is how can we make sure that our special cocktails arrive at the farm? And again, here, we'll work -- here we will work with selected partners that can provide us this last-mile service. And together with our agricultural know-how and digital services, we can bring this to fruition. And another big advantage of being physically present on the site on a farm is that it will open us total new business opportunities. Speaking about circular economy more precisely, we would be able to take nutrients from areas where there is excess of those nutrients. Specifically, you find that at places where you have animal farming. So just think about the West, North of Germany, the Netherlands or Denmark, where you have big problems around this. So farmers even need to pay today to get rid of organic waste streams, manure, for instance. So what if we can take this, convert these waste products back into nutrients and bring it to the places where they are needed? So that's a real thing. So the technology is there. And we believe that through this holistic concept, we can make this happen. And again, I just want to say, this is not dreams. This is reality. We have talks around exactly those type of stuff. Now maybe you ask yourself, hey, if K+S is moving into organic fertilizers, is that not in competition with the core business? And my answer is no, it's not because of some different things. Number one, in the organic waste streams, the main nutrients you find are nitrogen and phosphate, only to a lesser degree is potash. What you don't find there, which is practically not possible to recover, is the micro or trace element and the word trace, I think, explains why. So this is technically not possible today. So the answer is there's no way to completely walk away from mineral fertilizers and specifically not if you see the transformation of the agriculture towards precision and smart farming when you need to place a specific cocktail at the specific spot on an acre of land. So this is why I believe it is not possible. One other thing, and then I'm moving to my last slide. No, not actually, but almost. Another important thing, soil fertility, soil health. If you combine the nutrients with biostimulants in a different way, you also can support soil health and therefore, soil fertility. It accelerates unification and enables the soil to absorb more CO2. Nice, it helps climate change. But more so, more carbon in the soil means even a higher fertility. So what else can you wish? This graph is a little faster. So it just should show you why we have chosen the mentioned products and services and where are we going. So this explains a little bit the attractiveness, but also what we consider is not just looking into attractiveness. It's like looking to dreams. So we also need to have the capabilities to make this happen, and that's what described under precision K+S and strength. And again, focus, focus, focus. It is important. So we have also selected the regions where we want to focus the implementation of our specialty strategy. And of course, first in mind is Europe. This is our home market, but not only our home market. It's also the market and the region where all these topics are highest on the agenda. And the logic, of course, of Brazil, it is not only our largest export market. This is also the global agri powerhouse. And with a little less resource allocation, but still, we are implementing this strategy in China, India, the Middle East, , Sub-Sahara Africa. And let me just say this is already happening as we speak. In China, we have implemented the specialty portfolio strategy. In India, we have implemented actually down to the farm to the small holder logistic access. In Africa, we have developed together with a partner the digital means to support and consult customers. So we are bringing all this together. And I just want to say, again, no dreams. This is real stuff. But maybe a few dreams, strategy, a lot of dreams as well. Let's take a last look from the balcony. And please keep in mind that this view is further out into the future. And as I mentioned, it is our least concrete part. However, some of these ideas might be far out. Some are concrete, some in reach, some in preparation and even in execution. And I don't want to mention again REKS, but it is a clear example of how we use our unmet assets. And also, there's a role for K+S in the transformation of the German and European economy towards the use of renewable energy as we have available land, and we are a large energy producer and consumer. And we have to know-how to deal with it. And provided the legal and regulatory frameworks, we have the asset base to enable safe CO2 storage as a transitional technology until CCU is real. And frankly speaking, when you can do this for CO2, you can do this for hydrogen as well. And not forget my favorite one. We hold the largest magnesia reserves close by. And then I want to share with you at least one crazy thing. Thinking about agriculture underground might sound crazy. In a world of reducing our land, it might sound less crazy. An underground or city farming, what's the difference? I can't find hardly any -- it's underground. You have stable, good climate, atmospheric conditions that provide the opportunity of multi-harvests per year and close conditions that reduce the need of pesticides and plant protection, the same like in any other indoor farming concept. And let me close my presentation with the words of my kids. They said, "Daddy, that sounds cool." Thank you very much.
Burkhard Lohr:

Now we start the Q&A session. Some remarks before we open the Q&A session. And we are only standing that far away. We like each other, but if we would stand here, you know what happens. So that's the explanation for this.
A - Unidentified Company Representative:

Yes.
Unidentified Analyst:

So I would have 2 questions. One would be, if you could, for me, just elaborate a bit further how or why actually the brine concentration is increasing over time. And the other one is...
Burkhard Lohr:

One by one, please. If we allow it -- allow you 2 questions, we cannot stop the next one with 5 questions.
Holger Riemensperger:

I have to take it back a little bit to your chemistry classes. So if you increase the surface, so when you start opening a cover, so you actually -- in the end, you increase the surface. The more you have surface actually, the more you are able to increase the concentration. But that's not the only one. It's also about secondary mining. So there's different technologies that further increase that. And then I stop it. There's also another element, which has to do with the temperature. So if you take a glass of water and put spoon by spoon, salt and in one moment, it crystallizes. If you heat it up, it also about this energy optimum that I was talking about. So that is the 3 basic elements why it is increasing over time by maturing.
Burkhard Lohr:

Second? I didn't mean that you are not only allowed one.
Unidentified Analyst:

And maybe the second one would be just to -- that I get you right, you said that actually you think -- you do not believe that in the future maybe that micronutrients where we put on to specific acres by analyzing what is in the soil and then really giving the additional amounts of whatever, magnesium or so, which is needed just for this specific acre or...
Holger Riemensperger:

No, I said I do actually believe that this is the only way forward. So because of the variation you have in the soil on the field, you need to be actually -- that's the meaning of precision farming more or less.
Unidentified Analyst:

As you look more into specialty, I was wondering if you could just outline how you see that market developing, growing? What kind of size do you see it? What kind of growth rates? And what kind of market share do you think you can take?
Holger Riemensperger:

Well, those markets grow in different pace because they are in different stages. But all in, I would say, if you take the micronutrients, the better understanding of it, it's not a complete new market. It is an existing one. But it's growing way over the average of 2%, which you would expect for the macronutrients. If you look into more advancing in that sense, technically scientific advances like biostimulants, you're talking double-digit growth. We are talking about markets that are actually already 1 billion worth worldwide. So it's not small markets. So if you would have 100% share, that would be super nice. But that's probably not real. But we actually believe that we can take a significant share. Allow me to not put an exact number because we are starting. The one thing is important, it is a very fragmented market. It is a market that is dominated today by start-ups. And I would expect that this market is consolidating. And albeit we said, and I'm standing fully behind that, that we are not aiming for large acquisitions. But we do not rule out that we are looking into, say, adding technology and know-how by smaller acquisitions at this stage just to accelerate the specialty strategy.
Unidentified Analyst:

Just talking a little bit about Bethune mine. Could you share us again, and you talked about how the ramp-up of production, how that will feed into potash prices? On the other side, your ability to then invest in the cash? And maybe just remind us what the current CapEx would be to actually get to 4 million tonnes.
Holger Riemensperger:

This is a simple one. Okay. Again, what I'm saying is I'm not trying to run away from the question. The way we look to it is we have a base CapEx that we are spending every year. And that base CapEx is not really changing going forward. So that delivers the 100,000 tonnes per year ramp-up. So what I'm saying is that if prices are high and if there is demand, with money, we can accelerate within technical boundary. So this is not free choice. But within technical boundaries, we can accelerate ramp. Now the one -- and I had an earlier a little chat about this. The question, of course, is everybody makes the same mistake. You wait until the market is up, and then you start your investments. And when you are ready, the market is , okay? So anti-cyclic investment. Frankly, we really understand this, and we want to do that. But forgive us when I say we have not been at the other piece, the critical one to have the cash available to do so. So for me, the complete logic is now we are facing a situation with better prices. We are facing a situation where the company has reduced , and we are in a better cash position than we have been in the recent years. So there is a logic that we will try to accelerate the ramp-up.
Unidentified Company Representative:

Yes. They're talking well. Austria has, of course, done it already. But here in the Netherlands, they're talking about the potentially, sorry, stricter lockdown for 2 weeks. And with that, , we always had our lockdown usually wasn't as bad as in other countries.
Burkhard Lohr:

Obviously, we have solved it. But I would like to add something. I think it's important to know that we have achieved an important point when it comes to the CapEx burden for further ramp-up of Bethune. Ramp-up is capable to earn its own CapEx requirements. So we have positive free cash flows. And that means year-by-year, yes, there is a CapEx requirement, but they -- that does not burden the rest of the cash ability.
Holger Riemensperger:

Yes. I mean the key investment, of course, is the evaporation, which is nothing else than the shaft of the solution mine.
Unidentified Analyst:

Two, please. Just a follow-up on Lisa's question around Bethune ramp-up. What would be the sort of threshold at which you'd accelerate that? Because you outlined a pretty positive, in your view, potash price environment. But the Bethune ramp-up is just over 100,000 tonnes a year at least for the next 3 years. So what would make you given that environment actually move faster than that?
Holger Riemensperger:

Actually, that's the question. Again, the way we have to look to this is the total cash available and with the total investment need we have. And I mentioned a line out there is at least 4 important projects for us, which all need capital. And so we would decide where does it make more sense, where do we have the biggest profit contribution. There is a fair chance, it's Bethune. But again, I don't want to be misunderstood. There are technical boundaries. And again, I'm a little bit under the skin and in techniques. But we continue to open up caverns. And when I say that the salt concentration increases over time, that also means that opening up a cavern brings you less concentrated brine as well. So that's a limitation. So again, we are ramping up, and that's why. So it is not so capital intense as it looks like because there's no shaft to build, and the evaporation already is already existing. And it's at the capacity to get to the 4 million.
Burkhard Lohr:

I think to get maybe to avoid a misunderstanding, we are not able and that's what Holger said, we're not able to react in a month or a quarter. So you need to have a horizon of a couple of years. That's one thing. Second, first priority for us is to get the balance sheet in a situation where we want to have it close to or even at investment grade. And it looks like that we could achieve that in 2022. After that, we have with spare capacities and then we have to decide where to invest it. And if we believe Bethune is it's the right decision to speed up ramp-up in Bethune, then money will run there.
Unidentified Analyst:

Second question, you outlined some of the German sites that you wanted to increase the share of specialties over time in the output. Could you give us a sense at a group level, I guess, Bethune offsets that to some extent as it ramps up with more commodities where you see the share of specialties in your output going in 3, 5 years' time?
Holger Riemensperger:

You mean from a product perspective?
Unidentified Analyst:

Yes.
Holger Riemensperger:

Well, I would separate this. About cities, what I said is we are looking mainly in the next step into higher concentrated 99 grade product, and that makes a lot of sense because it's pretty close to what we already do. If you look to the Werra side, where I also mentioned that we are moving the portfolio towards more specialties, it is a real new market development project. So there is already a product on the market, our well-known branded Korn-Kali, which is pretty close to what I'm talking about. It's not something completely new, but we are going further steps. So we need to develop this market. And I can say the target -- the first target is very likely in Europe and Eastern Europe because of soil conditions. And all this, it makes just sense to start from there. But that's the 2 sites where we are really moving, but it's a little different reasons, and it's also a little different direction.
Unidentified Company Representative:

I have a question from Joel Jackson from BMO.
Joel Jackson:

Do you hear me?
Burkhard Lohr:

Yes.
Joel Jackson:

I have a few questions. I'll ask them one by one. I want to get a little more so I understand. So as someone who cover potash on a knows too much about solution mining, unfortunately, when you talk about a greater concentration, you're talking about, I guess, a greater grams per liter of ataxia chloride coming up out of the brine. So why is this increasing over time? Is this because you're going through a part of the deposit that has a higher temperature gradient? Is this because you're going to inject hotter water and higher OpEx because you've got to run the caverns, like also about your -- how you could keep pushing the volume for -- are you going to run the caverns? Have you developed some technology or some ideas that you can run caverns for longer than the life you thought you could run them at, therefore, getting a much better return on each cavern that you have to drill the holes? I mean, can you explain a bit more tactically what's going on?
Holger Riemensperger:

Okay. Yes. You have hit a lot already. So actually I'm repeating a little bit. So the brine concentration increases, and again, one, because when you are increasing the cavern, you increase the surface where it can solve the salt from. So that's one. The other one, and quite rightly, you said it's a temperature of the solution water of the process water use. So that as well. And then the technology of secondary mining, and there are different ones. And frankly speaking, I don't want to disclose exactly what we do because this is proprietary know-how. But I can rest assure you that there is technology available, which further increase and then it's the way you operate the carbon. And to your other question, by all this, the cavern -- the cost of cavern or the production cost in the cavern is decreasing. But again, there is also an optimum. So this is not that you can continue that forever. So there is an optimum also in the size of the cavern. So a certain size because then the surface is too far from the center and so on. So again, I mean that would be quite a technical lecture, to be honest.
Joel Jackson:

I'm going to ask on CapEx question again, unfortunately, but in a different way. So you're outlining all your growth opportunities, and you say Bethune is one of your -- I think you made a line, it's your biggest opportunity for growth going forward if it plays out and the market can take it. And I understand we're trying to be able to push the technicals and push more production. At some point, you'd have to make a decision to increase the operating to decrease the plant. How much capital beyond your base CapEx would you think you'd have to spend? Now if you don't want to answer it, why don't you want to answer the question today because you present it as your #1 growth opportunity, I think. So why wouldn't you want to give more details around what that would be for us to understand?
Burkhard Lohr:

Yes. Thank you, Joe, for that question. I think it's no secret that we have invested already since we are in operation with Bethune roughly €100 million a year. And this is our plan to continue doing this. But the big difference is in the years between '17 and now, it had a negative impact on our free cash flow as a group. From now on, Bethune is able to earn that by itself. And here, we have the flexibility, as I said earlier. Once we have the balance sheet in a stage where we want to have it, we can increase that number. And we can, at the same time, exceed the ramp-up of Bethune. But as a rule of thumb, I think €100 million is a fair number annually.
Holger Riemensperger:

That's the base CapEx, yes.
Joel Jackson:

So my last question is very high level. Magnesium prices have gone up a lot. You have magnesium in some of your mines. Is this something you've looked at? I mean, this could be a bit peaky, but maybe looking at ways to monetize magnesium more if we're in a higher commodity price or magnesium price environment?
Holger Riemensperger:

Yes. Like I said, we are sitting on big magnesium resource, one. And, by the way, maybe not everybody will know that, but it's almost 100 years ago, the predecessor of K+S decided Werra did produce magnesia. So it is possible. And yes, we are looking into that. But to be honest, this is not something we can do completely on our own. So you will not probably find K+S back in 10 years being a producer of of magnesium, but we have the precursors to provide to those guys that need it. And the dependency, we know where it comes from. And I think this is a strategic question that Europe needs to answer.
Unidentified Company Representative:

The next question comes from Markus Mayer from Baader.
Markus Mayer:

I have 3 questions if I may, and I will ask one by one. The first one is on your CO2 neutrality target by 2025 or 2024, . What additional CapEx is needed for this? Is this 2% of your EBITDA per year enough? Or is that more than enough to produce this target? And when will we start to invest into the CO2 neutrality target?
Burkhard Lohr:

Okay. Thank you for that question. The 2% is needed for achieving the minus 10% CO2 footprint by 2030. And of course, the next step is a long one. And the CapEx requirement is not a big issue here. It's more or less the cost of green energy and the availability of green energy. So the number -- the CapEx number, I want to raise it now, but it will not kill us. The big question is, will the government be able and not only in Germany and Europe, worldwide, were able to secure green energy, the right volumes and the right -- to the right pricing. And that is major issue. And again, that's not a K+S issue. That is the main question to answer for this whole planet to achieve CO2 neutrality. But CapEx is not a big problem.
Markus Mayer:

Okay. Understood. Second question is on your remaining salt business. You said it's not any more core. You're not really significantly investing anymore. So you refrain from saying that the cash cow, but nevertheless, would declare it as such. Long term, if you say you also want to expand your portfolio in this kind of things like micro nutrition, et cetera, interesting target would come up. Can we see it as an acquisition refinancing tool?
Burkhard Lohr:

So we said it's not core anymore, but look into other groups, there are a lot of noncore businesses who have been part of the company for many years. And I said we are not seeing it as a cash cow because we are willing and ready to invest into this segment to make sure that we have everything in a good stage and properly running. We would not go actively into the market and offer it. But on the other hand, I think we would do a wrong -- a bad job if we wouldn't listen if somebody would be willing to ask for transaction here.
Markus Mayer:

And only other question this is how easy is it to separate your German salt business from the German potash business? Because if I remember correctly, certain shaft is running very, very closely.
Burkhard Lohr:

It's not 100%, but close to 100% separate. So that should not be a problem.
Markus Mayer:

Okay. And then my last question is on your new strategic targets. First of all, regarding your free cash flow positive target reminding us in the group in any kind of potash cycle, what is basically the worst-case potash price you've baked in, in this kind of guidance where you still think that you can generate cash?
Burkhard Lohr:

The environment that we have seen in 2020. And maybe a good question because I forgot to mention that we believe, and that's not only us, if you look in, market projections, et cetera, that we are now facing a at least midterm, maybe long-lasting positive cycle of the potash business, and we don't believe that we are going to see the prices from 2020 soon again. But still, we will prepare K+S to a situation like that. And that's what we mean with the lower end of the cycle.
Markus Mayer:

Okay. My last add-on question. This will be how is the of incentivization linked to this new strategic targets?
Burkhard Lohr:

You mean the financial targets?
Markus Mayer:

Yes.
Burkhard Lohr:

We have a short-term incentive, which is totally linked to the EBITDA. So and the EBITDA, as you know, is a prerequisite to have positive value added. And in the long term, all the -- a good portion of our sustainability targets are the base for our long-term incentive. And by the way, another portion of the LTI is the share price development. So I think a good -- sorry, a good mix to make sure that the incentivation is -- yes, has the power that it needs.
Unidentified Company Representative:

The next question comes from one Teams, I only see a telephone number of. So yes, you can just ask your question, and please state your name and your institution. Okay. That does not work. More questions from you.
Markus Mayer:

Just slightly following up on that last question actually. In the reverse or kind of back to AUR on there -- on the provisioning on, you mentioned the change in long-term potash prices that's feeding into that impact. I understand short term, we're in quite a tight market right now. I can see where you're thinking there. But long term, what do you define as a long-term, first of all? And what do you think has structurally changed beyond additional capacities that we now know for sure, what else do you see that's a positive instigator long term in that market?
Burkhard Lohr:

Yes. When we talk about long term, we talk about 35, 20 -- '35, 2040, so it's really long term. And I can make it easy because in the past, we have done our own long-term price projections. Then in 2017, we have used the tool from BCG. They have a tool to project price developments of raw materials, partially very successful with gold. In our case, we were not always happy with the outcome. Now we decided to make it more objective. And we are using for the first 3 years, our own midterm planning. And for the long-term prospective, Argos, which has clearly the best database. And there was a shift, and that is a long list of indicators which they look in to make up their mind how the development could be long term, and we have seen a major shift upwards. And we have used it for our impairment and the outcome is a full write-up.
Holger Riemensperger:

I would just add a little bit on some of the structural changes in your question. So I think -- and I've mentioned a few, I believe, in my presentation, so reducing, the reduction of so fertility, climate change. So you should not expect that agriculture is getting more simple and that yields just naturally increase. And allow me also to say not that I'm any against this, but organic farming, big topic. Reality is that compared to conventional farming, organic farming is about 20% to 30% less effective by yields. So if you combine all that, you would rather expect that there is a stronger need for more fertilizers generally or -- and also for the other products mentioned. And even long term, who say that we have not executed the strategy, which brings us also in a different position from a portfolio perspective. So I would fully stand behind that comment.
Unidentified Company Representative:

So do you have more questions? I cannot see questions in the
Markus Mayer:

Sorry, one more. On the climate investments, I think you talked about 2% of EBITDA. Could you give us an idea of what that was historically given I think you mentioned an 80% decline in emissions since 1990? How much incremental spending are you going to be doing on climate in the 2020s?
Burkhard Lohr:

No, the funding will start in 2022 for the period between now and 2030 to get to the minus 10%. So the achievement of the 80%, we have not recalculated it. It was, as I said, partially closing of mines. And a big change was the shift from coal to gas, natural gas. And we have a power network between our mines which is very efficient and many other measures, but we have not recalculated it a bit, which was the cost between '19 and 2020. Because there's no learning curve, we now have completely different tasks to do.
Markus Mayer:

Short question. To which extent do you rely on renewable energy to reach that 10% CO2 reduction targets?
Burkhard Lohr:

The renewable energy issue will come after 2030 as a prerequisite for us to get even below the minus 10%. So there's not a big portion incorporated here.
Unidentified Company Representative:

We have one more question from Markus Mayer from Baader.
Markus Mayer:

Yes. Another question I would have would be on the project. Could you give us a kind of indication what this might be worth if you would sell it or if -- what's the strategy to find the partner than the form a joint venture?
Burkhard Lohr:

I would love to answer that, but that would minimize our opportunities to get partners or to achieve the maximum price. So it's a very valuable asset. I would like to leave it with that.
Markus Mayer:

Just add very well, it's triple-digit to 1 million? Or sorry to double-digit volume?
Burkhard Lohr:

I think it's by far too early. We have not even the environmental approvals in hand that should happen soon, but then we talk about what to do and when to do what.
Unidentified Company Representative:

We have one more question from Adrien Tamagno from Berenberg.
Adrien Tamagno:

Just a question on the German mines profitability. You outlined several initiatives and I would like to get more color around the cash cost per tonne impact for K+S, excluding the positive mix impact from Bethune, please.
Burkhard Lohr:

Yes. I'm also sorry that I cannot be more precise on that as well. We decided to give only a blended number, overall mines. And as you know, that is roughly €160 cash costs, production costs overall, with only 50% utilization rate of Bethune. It's -- the impact is not as big on the reduction -- of the reduction of the cash cost as it will be with a growing number year-by-year, but we wouldn't like to split that into all elements.
Adrien Tamagno:

Okay. And yes, . If you -- I mean if you were to increase the specialty portfolio, what K+S would provide to start-ups in the biostimulants that would like to maybe expand the reach to farmers? Is this something you could provide to these smaller companies because across Europe, it looks like there are a lot of -- yes, new companies entering the field. The regulatory framework is quite supportive, or would you view rather the growth here being 100% internal to K+S?
Holger Riemensperger:

So what can K+S provide to a start-up that wants to grow the business, I think that's relatively simple in that area. I mean, we are already in the specialty market. We have a strong sales and marketing organization worldwide access to at least the market, if not down to the farmer in some specific places. We do have the agronomic know-how to accelerate development. We do have compared to a start-up certainly cash to inject. And also technologies around all of this. So I would see a lot of reasons why start-ups would like to work with us moving forward into those markets.
Unidentified Company Representative:

The next question comes from Kenny Tang from CIB.
Unidentified Analyst:

This is Kenny Tang from JPMorgan. And so doesn't see my camera working. So I just want to follow up on your slide regarding the per tonne cost. You have one mention about when it ramps up to 4 million tonnes. So you're confident about the cost being able to have a top quintile. So I assume that's the cost per tonne regarding cost. So I want to ask if you can give some more color on how would your target cost compared to now? And why you believe you have such a cost of engagement on the ramp-up?
Burkhard Lohr:

Yes, the -- I think the cost of the best-in-class or the first quartile should be known. And that's what we are targeting once we have achieved the full capacity of 4 million tonnes. And the way to the 4 million tonnes, as Holger said, starting with 100,000 tonnes a year. And it is up to us to accelerate it or delay it, most probably accelerated if we all believe in the condition of the markets, but that means a higher CapEx number per year. But we know the cost per tonne of our best competitors.
Holger Riemensperger:

And actually, the reduction of cost, of course, comes with scale. But also, like I said earlier, with an improved brine input concentration to -- in operation. And keep in mind that the second step is not evaporation, not as energy intense, actually is the cooling technology, which comes with different costs compared to an evaporation. So that's the rationale behind why we can get there.
Burkhard Lohr:

So we have 5 more minutes if you have further questions. There is another question.
Unidentified Analyst:

And if we talk about something a little bit different on the new businesses, the kind of long term. On the kind of carbon storage hydrogen storage, I just want to understand the kind of options that you have a little bit better. Are all of your mines equal in opportunity? I presume not. What are the -- on general, if you don't want to talk specifics, on a general basis, what are the most important factors that you see on picking which assets would be more suitable?
Burkhard Lohr:

No, there are technical differences between the sites. So we do have the solution mining activities with great, which actually today are used for, for instance, natural gas. So you can use it basically the same way, make it pretty simple. And then in our conventional mines, there is a little difficult, let's say, to put gas below ground. I wouldn't say it's technically impossible, but it's probably not what we would do. But there is also technologies out there to extract CO2 from atmosphere by solvents, for instance. And so that brings it into a solid form in a safe -- it's safely captured but in a solid form that you could technically bring below ground and store it. And even actually recover it if, like I said, and really I strongly believe into that CCU will come. And so it's not waste, it is actually safely stored raw material.
Unidentified Company Representative:

We have one more question from Chaudhry Mubasher from Citi.
Mubasher Chaudhry:

Just one, if you could make a few comments around the potash S&D outlook. I mean, I think you made a comment that you do not see the prices coming off in 2022. Just some thoughts around kind of the supply side factors, both from a sanction perspective and an outage. And then if you see any other supply coming on to offset that, then how do you see the demand progressing given -- well, given where the urea prices are? Just some thoughts around that would be very helpful, please.
Burkhard Lohr:

Yes. So we did not say that we are not expecting prices coming down in 2022. I even showed you that we expect crop prices coming down, but on a level where it totally makes sense for farmers to fully invest in fertilizers. And that at a time where the pipeline is empty, and that means if we even would come back with the pipeline to a normal level, that would mean a couple of million of tonnes of demand. That's why we are optimistic for 2022. I think there are many reasons to be optimistic for the time after, but it's always difficult to be more precise on the cycle. But I think we have stressed a lot many times that we believe this is a quite long-lasting positive cycle for the industry. And even if we would see prices below 800 coming down 100 or $200 per tonne, this is very, very attractive to be in the spot, and that's why we are happy to be in that spot.
Mubasher Chaudhry:

And sorry, just to follow up from a supply side response, I see incentivizes people to bring on capacity if they can, at the current pricing level. So when you look at it from a supply side response, where do you see -- or do you see chances of increased capacity in 2022, '23 versus kind of pre the prices -- the potash prices spiking upwards?
Holger Riemensperger:

I would say you need to look to this from a different angle. So reality is that on the short term, midterm, let's say, 3, 4 years out, potash prices are not driven by supply. They are driven by demand. And actually, we already answered that the supply pipeline is empty. You can find that easily. And you should not expect that every announced project is going as expected. So I would rather be careful with what comes on stream. But what is more important for the short term is that also the stock-to-use ratios, if you look to the agri commodities. And actually, it's empty as well. So this is not a combination that you can recover in a year or 2. It's just -- I mean, the crop cycles already tell you it's not possible.
Burkhard Lohr:

And in addition, you should really expect that everybody is running at full capacity. And it's not that easy to ramp up capacity just like that. That's why we are not expecting huge additional supply in 2022. Okay. That was the last question. Thank you very much for these good questions, and you can look very forward to the next workshop with totally different footprint and totally different information. But until then, we have a half hour break. Thank you very much.
Thorsten Boeckers:

All right. Good afternoon in the room. Good afternoon to Europe, and good morning, not only to Ben and also to Joel, to everybody overseas. So we have 2 parts we're going to present in this session to you. The one is what you see on the screen. It's about the Q3 numbers. And it's about the financial targets, which are part of our new strategy which has been presented to you by Burkhard and by Holger already. And the second part is our new climate strategy. And this strategy is presented by my colleague, Markus Midden. He will introduce himself then later on, Markus, nobody can see you now. But we'll do this. You got your part. And we have also in the room here from Investor Relations, Julia and Janina. So let's kick off. Q3. So when I look at the Q3 numbers, in the earlier session, I said, to me Q3 is relatively boring. Why? It's -- of course, depending on which consensus number you're looking at, but more or less in line. So the number we are using it, it's absolutely in line. And we have seen the same effects as already in Q2. We have a strong price increase. And this is why the -- why you have the €132 million coming from agricultural pricing mainly. When we compare the 121 we have achieved in the quarter, with previous year's quarter, it's also worth to know this is what we told you last year already that this Q3 last year included a one-off of €50 million, €60 million -- or €56 million, which you have to deduct. So it's a strong increase. We also saw higher de-icing presales actually and in general, a little bit higher than last year. Sales volumes last year was still a little bit depressed by the import stop of China and then the production reductions we all have seen in the industry. So that's one thing. This is why I say Q3 is relatively boring. On the other hand, we also had an appreciation on the assets again, which you saw already, right? In the quarter alone was €1.4 billion. And this means that the net profit is, of course, dominated by this. If you would adjust for this reversal of the impairment. You cannot just calculate back the €1.4 billion on the €1.29 billion. There's also tax effect in. So on a net -- on a basis adjusted for the impairment reversal, we have a €4 million negative group result in this quarter. I think these are the highlights in Q3 on this chart. And I think what is also worth to look at is the cash flow bridge. I skipped the EBITDA bridge you see on the top of the chart, but let's look at the cash flow bridge at the bottom. So it appears strange when you see we come from €10 million after 9 months last year, minus €10 million free cash flow to minus €150 million now when the EBITDA increased significantly. But last year, we had here the positive effect from the sale and leaseback of our administrative building in Kassel, it was about €40 million. And we also started with our factoring program last year. It was in the run-up. And this year, we more or less have the same volume in there. So the like-for-like number we start with in 2020 is €200 million. We have the strong EBITDA increase. But we have also some -- and we have some positive effects from lower CapEx. But we also have some negative effects one needs to keep in mind. One is we have the severance payments for the SG&A restructuring program, which we started earlier this year. We had a €50 million approximately prepayment for energy demand we have. So we have 2 suppliers. I mean K+S, which is very or worse in the past, unlikely has money to invest, right? And instead of spending it with negative interest rates on the market, we are looking for alternatives. So we could make a prepayment. We got offered a good discount on this. And this is why we had a negative effect here in this quarter, €150 million for energy, for gas consumption actually, which we need to pay -- or needed to pay in the rest of the year anyway. That's worth to know. And we have bought back our bonds or parts of the bonds in July. Plus we had a tax audit, which is normal course of business every couple of years. This was the tax audit from 2011 and 2013. And I've never seen a tax audit where we come out with a payback from the tax authorities. So these are the main drivers why we come down -- why we increased from €200 million like-for-like to minus €150 million, but we did not see the same development as we saw in the EBITDA. Looking at the markets. And I mean, this is something you know. And certainly, Holger and Burkhard also talked about this lengthily. But this, of course, helped and will help us also in the rest of the year. The price in Brazil, and it's not only Brazil is very strong, and it's backed by demand. It's backed by good farmers' income. We do not see a destruction of demand in none of the regions actually. We see also our specialties. And you see here just exemplary the green line for the SOP prices, you see now the specialty is following. So you see also the average selling price of K+S going up. Just between the second and the third quarter, we increased the average selling price from €250 to €300 a tonne. And I would say, of course, when there is, again, news about Belarus sanctions, that this helps the potash price from 1 week to the other to increase. But we wouldn't say that there is too much speculation in the current potash price we see on Belarus because behind the scene, and this is what you know everybody, yes? And the public probably doesn't know, but you know because you're following the situation that only 20% approximately of the Belarus potash production is actually eligible to the sanctions. So this is really -- this is driven by demand and demand is supported by good farmers' income and good farmers' income is supported by strong soft commodity prices. And then not to forget our industrial business, what we call now Industry+. We have a good -- we had a strong winter, which lasted until April. We have, due to this strong performance also in Q3, we haven't seen the winter yet. In Bavaria, maybe. But we have good early fields business. So people are now already filling up their stocks for the next winter season. When we look at the pharma business, when we look at the chemicals industry, we also have here some effects, which -- because we had last year seen a demand decline in both chemical and pharma due to the COVID-19 situation. Surgeries have been postponed, which is sad, of course, but we now see them coming back especially, for example, when it comes to dialysis. And when you see here on the bottom of the chart that consumer products are normalizing, yes, last year was pretty strong. I want to frame this a little bit with the new cable as a set-up. Last year, our Consumer business was large, with Morten sold. But since we sold our OU Americas, we talk here about revenues in the Consumer business of less than €20 million. So it declined from 18% to 16%, but you won't see it in the headline figures. But it's worth to mention, it's a business which is there. And we are also making Industry+ good progress. And also for some of the products, the rising potash prices have a spillover effect on some of the products containing potash, especially for industrial applications. And then the outlook. And when we look at the €630 million, we announced this already a couple of weeks ago that we now see an EBITDA of €630 million. The drivers behind that are actually the same as we saw in Q3. So prices and a little bit of volume in agriculture.And of course, on a full year basis, the de-icing -- the good de-icing business in Q1. We see higher freight costs. We see higher energy costs. And this is something which will also spill over into next year. But in order to judge the €630 million again, the old guidance, where the midpoint was €750 million still included this the €200 million one-off income from the REKS joint venture, which is now not coming at this time. So the actual comparable number is €550 million. So we increased the guidance by €80 million underlying. And I think what is even more important is when you look at the cash flow, we had previously expected a cash flow of minus €100 million. And we now see that the cash flow is around 0. And just saw the October numbers. So it is -- the money is really coming in. So we are -- we have a good confidence of achieving this guidance. So both on EBITDA and also on the cash flow side. And then this is something you saw already from Burkhard. We expect that an EBITDA of €1 billion for next year is achievable. This may sound conservative to some, but at this point in time -- it's November, yes, and we haven't finished the year yet. So we're certainly not going to go out with a high number for next year because we need to see -- we are selling already potash for next year, but it's not even early in the year. The year hasn't started even. But we are pretty confident that this is something we can achieve. And this is including freight rates. I mean alone in this year, we expect the freight rates headwind of €40 million. And I would say that we expect the same number on top, incremental, for next year. Same with energy, approximately €740 million. And the same will also be the case next year. Markus will talk about energy costs later in his speech. And the rest as well. I mean we talk about pellets, packaging materials, right? So there's a lot we need to buy even steel for maintenance. When we buy screws for our maintenance work, this all has a higher price than it used to have. One thing is positive. We get our product shipped, which means we get the freight capacities we need. We switched from containers to bulk because containers are either not available or even more expensive. So we are doing more bulk now, but we can -- we get our product to the customers. Also with the others, with price for pallets, for packaging materials. Our procurement organization is really under stress right now. We have lead times, which were previously 4 weeks of now 14, 15, 16 weeks, but we get it done. And we reroute some of the -- or we source from other suppliers than we would normally source from. This means also higher prices because you're going into spot contracts. But we get the material. And that is more important for us right now than to pay a little bit more. And then a word on the CapEx. And this is already an outlook also to next year's. We said in the past, we expect a little bit then around €400 million for 2021. And we see the CapEx going down in the next years. The thing is with the situation I described, we want to spend the money, but we cannot spend it because we don't get the material, right? Or we don't have the service people in order to do the projects we want to do. This is why we expect from today's point of view that about €50 million of this year's CapEx will be shifted into next year's CapEx. On top, this also Markus will elaborate later, very positive, of course, on the one hand, but costs money. And when you ask me as a CFO, everything has cost money. Okay. But it's a good thing in this time. We have set up a climate fund. And Holger talked about site strategies. So how do we want to improve the cost situation and the product setup and the disposal setup of the sites and this cost a little bit of money as well. And this is why we do see the CapEx next year of about €450 million. We will specify this further also in the next year when we have more knowledge about how much of this can be really spent. And now a few words on our new strategy. And what we have done here is in this line chart. And this is a little bit of a new philosophy. We also -- we want to bring into our company internally. We are happy about the current price, of course. But one thing is true, I don't know when. But one thing is sure, the price will also fall again. And we have here shown different cycles. The cycle lasts 4 years, 3 years. We believe that the new cycle can last about 4 to 5 years. And this is why we said we're not going to set a target for a specific year where you need to have an assumption on the potash price, and we know how volatile the potash price is and not always influenceable by somebody. And we said, okay, let's do an average. So what you see here, what we expect that we want to earn our cost of capital is over a 5-year cycle. It's a rolling 5-year cycle. So the first time, of course, we would see this cycle is in 5 years, but we are also tracking it on the way then. And this is, I would say, a pretty tough target. It is not that the others are not tough targets, but especially earning the cost of capital at the capital base we have indicates already where do we see in the long term, in the midterm and the long term, the earnings go with the strategy Holger has described. Over the last 10 years, there are not many companies that have earned their cost of capital in our industry. EBITDA margin, also a 20% margin. At current prices, we don't need to discuss. But you see in the bottom here in this table, the second last line, there were many years or many cycles, many periods where we haven't earned a 20% margin. We saw margins between 13%. There are also single years where we had an 80%, 80, 8-0 EBITDA margin when the prices hiked in -- or was it 2009 or so. This is certainly not an easy target. But this is something we have really shown in the past that we can achieve that. And then the other is -- and this is what we talk a lot about, and we talked already a lot about and what we talk about a lot within the company. When the price goes down again and the price may fall, and I'm pretty sure about that below $250 in Brazil, again, that's our reference price. We need to show that we do not lose money on a free cash basis, and this is what we want to achieve. So and then the last slide here for me is already -- no, one more. We also made up our mind about the dividend. Positive is last year, we didn't pay a dividend. This year, we paid a dividend again. And we said we want to avoid, if possible, periods where we have to cut the dividends again. So let's think about a base dividend we can afford. And we came up -- we looked at different dividend yields in Germany and from comparable companies. They are somewhere between 2.5% -- 2% and 2.5%. So this is a dividend where I would say -- this is a dividend yield K+S should pay. On the other hand, I also say that we may be not comparable with many other and companies. We still have high CapEx and especially for environmental measures. We always will have a volatile potash price. Again, what goes up must come down. And I would even say we are still in a restructuring phase because until we haven't shown that we can be cash-neutral when the potash price is below $250, we are not there. And this is what I call restructuring. And this is why I say we should pay not the 2% and 2.5% the benchmarks are paying, we should pay less. And this is how we came up with a €0.15 base dividend per share. Yes, of course, if we can afford it, if we have the right balance sheet and the outlook is bright, we may pay more, right? But I want to have you the €0.15 in the models for the next years. And yes, this is also something because you know in the past, we said we're going to pay 40% to 50% of the net profit. I showed you €1 billion. I showed on the chart before, €1 billion EBITDA for next year. I showed you just that we're going to see a significant free cash generation with this, but I don't want to pay out hundreds of millions which are -- for this -- or for the next couple of years, certainly much better capital within the company. It's not that we don't want to give the money to the shareholders, but I think it's better within K+S for the next couple of years. And now this is really my last slide before we can go into Q&A. You don't need to read that. Our goal is to achieve a low investment-grade rating. So again, with these prices and with the cash flow next year, then this should be an easy thing, right? We need to convince S&P to lift the rating, but I'm pretty confident there with the numbers you will see. What I mean here is this also needs to hold over a cycle. And this is where we want to bring our balance sheet, too. Because I'm deeply convinced that we will see in years -- or we have experienced it last year in a crisis mode, like corona, there was no opportunity for us to refinance by commercial paper. And we didn't even need to think about bond issuance, of course, right? And you don't play with liquidity. And I also -- yes, survived, I would almost say, the financial crisis where we have seen the same. So for me, it's really very important that the company is at a higher rating. We don't need an A rating. That's also not what our industry has. We need a low investment-grade rating, then we can survive trough cycles, and this is why we want to bring the company to not only next year, next year is easy, but also over the cycle. All right. Shoot questions, please. How does it work? So we also have questions from the Internet live or -- okay.
A - Unidentified Company Representative:

So we have a look into the Teams chat and we start with the room again. Alexander?
Q - Alexander Jones:

First question on the cash flow for next year without getting into specific numbers, but you talked about the 2021 bridge having a number of one-offs in there with that severance or energy prepayments in this quarter. Are there any one-offs we should be aware of at this stage for next year's cash flow?
A - Thorsten Boeckers:

Not at this stage. We pay back a bond, but this is planned. And we are still in the planning phase, by the way, yes. So -- but we don't expect any major from SG&A restructuring. No, I wouldn't expect -- I would expect a clearer cash flow statement next year than this year.
Q - Alexander Jones:

Excellent. And then just on -- following up on your last slide on leverage. Could you translate those sort of target ratings for us into a net debt-to-EBITDA level that you'd be comfortable with through cycle.
A - Thorsten Boeckers:

Depending on the EBITDA, right, EBITDA. But -- so assuming that we need, let's say, a 3.5x net debt-to-EBITDA in the S&P definition. So this means we talk about over the cycle, I would say, €500 million EBITDA. So €1.5 billion, €1.8 billion EBITDA -- sorry, €1.8 billion net debt. We have this mining provisions on the balance sheet. And we have this -- yes, we have some pension provisions still on the balance sheet. So when you want to translate this into net financial debt, you come up with about a number of €1.2 billion less. But €1.8 billion, €1.9 billion net debt is something which will bring us into this region. Long way.
Q - Unidentified Analyst:

Had a bit of steps today. First question is on CapEx for 2023, '24, can you give me any detail on the €350 million? And if there's any growth CapEx in that? And if so, if it's not in the air, I mean if there's a potential number to go higher on a circumstances?
A - Thorsten Boeckers:

There's not much growth CapEx -- I mean, define growth CapEx, yes? We are expanding the number of pets in Bethune and the ramp-up of Bethune and Holger talked about that certainly. The ramp-up of Bethune is sort of something we want to do. It's to bringing us into the better cost position in Bethune, but it could also be considered as growth, right? That's the only growth number for volume growth that is included there. It's a lot of maintenance, it's environmental CapEx, but there are no M&A situations or so.
Q - Unidentified Analyst:

And the environmental CapEx is just 2% of EBITDA to bring down your CO2?
A - Thorsten Boeckers:

No. That's the Climate Fund.
Q - Unidentified Analyst:

Separately.
A - Thorsten Boeckers:

We have about -- yes, I would say, €100 million, a good €100 million still in form of what you could classify as environmental CapEx in there. But that's normal course of business, right? It's heap expansions. It's investing into new for water storage, et cetera, et cetera.
Q - Unidentified Analyst:

And then can you just give us some detail on the current inflationary environment? I mean, you've just talked about logistics and energy, but just could you formulate the numbers where you see them going today in 2022? What do you think there will be first half weighted? And maybe also talking a little bit about labor. Do you need more labor next year? And how is your labor and wage inflation situation as that seems to be a problem across all industries really?
A - Thorsten Boeckers:

We need, on a constant basis, new people because I mean to get the potash out of the ground and always means you need more people, more shifts, right? But we talk about, I don't know, 80 people or so per year. So it's not much on 1,100 FTE basis. And we have a general cost inflation for personnel costs of about 2%. That's what we have -- has an annual increase.
Q - Unidentified Analyst:

And that will also be for 2022? You think that's a reasonable...
A - Thorsten Boeckers:

For 2022 and then new negotiations have to start. But when I look at the historical outcomes of these negotiations, it's somewhere always between 2% and 3%.
Q - Unidentified Analyst:

Okay. And then normally, I just talking about specialty pricing a little bit. Maybe I should have off in a different session. But normally, we see in sort of specialties that pricing has not almost a spot market? Or is more reviewed on a quarterly basis or a 6-month basis? Do you see different pricing patterns as we see the steep inflation in the MOP price? Is there a different sort of reset of the pricing level?
A - Thorsten Boeckers:

Yes. It depends really on the product we are talking about, right? When you look at tezeride fertilizers, magnesium fertilizers, they will stay at about the same level as they are today. And they make up about 800,000 tonnes of our products portfolio. SOP, I don't know what Holger said about that, but we do see -- had it on the chart as well, right? We do see the SOP prices following right now. And we also see prices for this German product, the corn product, which has a reduced potash content, but it's enriched with magnesium and sulfur. So the farmers in Germany are using this instead of MOP, it's following the MOP price. Same with industrial prices, KCI 99, so high-grade potash, we have a time lag there of up to 6 months, but the prices are now following. So you will see further -- even if we expect that the MOP price in Brazil or the average MOP price wouldn't increase further, you would see an increase in the average selling price because of the increasing specialties.
A - Unidentified Company Representative:

Okay. The next question comes from Markus Mayer from Baader.
Q - Markus Mayer:

2 questions, if I may. You said that your 2022 indications for EBITDA already includes the higher energy costs. The first question is, can you remind us on how you are hedged or what kind of contract structure you have there? And the second question is then on, but I wait for the first one.
A - Thorsten Boeckers:

Yes. We have -- for 2022, we have locked in already 3/4 of the gas supply we need. I need to look at Markus, but he's nodding. So we have a 25% open component, and this is true for both for Germany and for Canada.
Q - Markus Mayer:

Okay then. And then second question is on -- now with the potential new government and percolation discussed at the EEG, but we might get a higher CO2 price. If I remember correctly, you are basically secured, most of the CO2 prices are secured. But there could be, I guess, a positive effect on the fall away of the . What is basically the assumption there?
A - Markus Midden:

The European market is regulating us...
A - Thorsten Boeckers:

Can you go to different mic and answer the question? Because we have the energy expert here in the room, right, with Markus Midden.
A - Markus Midden:

I can answer the question. Yes, the CO2 price and the impact is mainly regulated by the EU ETS, the emissions trading stream coming from Europe. Because most of our sites and our power stations, they are regulated based on this regulation. And Germany, there's a national tax since beginning of this year, and that impacts us, yes, but on a very low ratio, probably 10% of our natural gas consumption is based on this new tax. And also here, we get the tax release for a relief based on carbon leakage protection.
Q - Markus Mayer:

Understood in CO2. But I guess on EEG, part of production might be right EEG, yes, but others not. So therefore, if we for the rate, there might be a positive net effect for you, I guess.
A - Thorsten Boeckers:

Okay. On EEG, that is basically the relief for energy-intensive industries. They consume lots of power, and they can then be relieved. We have also sites in the Salt unit where we have a relief in EEG. On the potash side, due to the fact that we have a high ratio of self-generation, we are relieved on EEG for years already. So if that goes away or the EEG amount is going down over the years, it has a minimum impact. It has a positive minimal impact on the Salt business, almost no impact on potash.
A - Unidentified Company Representative:

The next question is coming from Knud Hinkel from Pareto.
Q - Knud Hinkel:

Yes. I got 2, actually. The first one, I would like to understand what is behind your guidance for the next year. So doing the math a little bit about the cost increases that you incurred this quarter, I guess, you see year-on-year increases of €20 or even more per tonne of potash. I guess you also assume that this is not going away. So at least I take this away from your statement. But what about prices? Do we have the current spot prices baked into your guidance? Or do you also already assume a certain slowdown over the course of the year? That would be my first question, so cost versus price, what's behind your guidance? And the second one...
A - Thorsten Boeckers:

Can we answer one, Hinkel? Yes. And I already now, beg for your pardon that I don't go too much into detail on the 2022 guidance at this point in time. But I can answer your question a little bit by saying that we expect -- and this is certainly something my colleague, Holger Riemensperger told you. We expect that demand holds and we will produce more next year, and we will be able to fulfill the demand from our side because of the ramp-up of Bethune. We also expect that the prices will stick. So we do not expect a decline in the pricing. We have different dynamics, right? So we do see -- we don't know how this nitrogen situation will turn out from Russia, which may increased prices for nitrogen and this means also less demand for other fertilizers in Europe, but we expect that this could be, for example, offset by higher demand from China and from India. So this all gives us -- so we may see regionally different demand patterns. But in general and especially in the core markets like Brazil, we expect that the prices will hold. And therefore, we have factored in the current prices we are seeing. We haven't factored in a higher price. The best visibility is maybe until next half or so -- until the end of the first half of this year. But yes, that's actually what I want to give you at this point in time. We expect the prices will hold but not increase further for MOP. When we look at the specialties because also of the time lag, we do see a further increase. And this means we also will see a further increase of the average selling price.
Q - Knud Hinkel:

And with regard to cost, I guess you assume that the current cost situation will remain the same in the coming year?
A - Thorsten Boeckers:

The current cost situation will?
Q - Knud Hinkel:

In potash will remain like this, like in Q3 and the coming year?
A - Thorsten Boeckers:

It will even go up. I mean, so incremental, I would say, that we have further headwind from energy, further headwind from freight. And we also will see cost inflation in spare parts, for pallets, for foils, so packaging materials. We will see a significant cost inflation in all parts. But that's baked in.
Q - Knud Hinkel:

Okay. And the second topic I want to touch upon is you didn't mention the issue with the DPR here in Germany. Could you talk a lot -- a little bit about what could be the worst case scenario here? So could it be that there will be a restatement and this is it? Or could there also be a fine? I guess into potential consequences in case you didn't get -- you're not right or you have to do something about it.
A - Thorsten Boeckers:

But the last sentence is already something that disturbs me because we are absolutely sure that we did the right things. We do not see any error there, and that is also what we have told the DPR in a written statement and also we had a meeting with them, a virtual meeting. And we also have IFRS experts confirming that. If you ask me and in order to give you a feeling of what, from our point of view, could be the worst case and Burkhard said this in his opening speech. We are not talking about cash, right? We are not talking about €1 billion that is missing on some accounts in Southeast Asia. We talk about, for example, long-term price assumptions and volume assumptions in the potash business, which are in dispute. And this is something which has an impact on balance sheet valuation, but not on the cash figure. And even -- and this is what Burkhard also said this morning, we may have to make or not restatements in some of the earlier accounts. But this doesn't mean that there is an eventual effect for the shareholder because there is no scenario we see that the equity could cut in that way that we have to make because of this capital increase. So I would say we are safe on that side. It's a very theoretical discussion.
Q - Knud Hinkel:

All right. And fine is also not a possibility that you see?
A - Thorsten Boeckers:

Again, we are sure that we didn't make an error, and we are fighting until the end in order to avoid this. But it's ongoing, yes. And this is why I can't give you a more concrete answer than that.
Operator:

So, the next question is coming from Adrien Tamagno from Berenberg.
Q - Adrien Tamagno:

Just a question on CapEx. In this €350 million you provide medium term, how much is related to the salt business?
A - Thorsten Boeckers:

About €20 million, Adrien, in CapEx terms. And this is relatively stable. The European salt operations don't need a lot of CapEx because we don't have these environmental issues like you have in the potash business. And we also said it's not core anymore. This doesn't mean that we consider it as a bleeding business right now. We want to keep the level we have, but we are not putting more than maintenance into this, and this is about €20 million.
Q - Adrien Tamagno:

Okay. And just another follow-up on -- some details here. How much interest -- cash interest savings do you expect for next year given that you have repaid quite a lot of bonds?
A - Thorsten Boeckers:

Bond paper -- bond paybacks, bond buybacks, plus no need to draw our credit lines. So I would expect a financial result -- a cash financial result of about €50 million next year, 5-0.
Operator:

The next question is coming from Rikin Patel from Exane.
Q - Rikin Patel:

Firstly, just a quick follow-up on free cash flow for next year. In terms of working capital, can you give us any sort of steer there and what the puts and takes are from your view? And on CapEx, in terms of the €50 million incremental that you're shifting into next year, should we assume that, that all comes in Q1 or H1? Or is that phased throughout the year?
A - Thorsten Boeckers:

Tough questions. Starting with the first 1, with working capital. We have -- we are not yet done with the planning, right? That's the current status of our planning. And planning receivables in an environment where prices are increasing very strongly and quickly. My best guess at this point in time is that we have a less, less negative impact on working capital than in 2021. But that's the only statement I want to make at this point in time. And then the shift of the €50 million, yes, it's more an H1 thing in terms of phasing, I would say.
Q - Rikin Patel:

Okay. And just another 1 on specialty pricing. The SOP premium has come under a bit of pressure in the last couple of months as European MOP prices have run away. Just curious when you think we'll see a catch-up in the premium and whether that's had an impact in how farmers decide between those 2 products.
A - Thorsten Boeckers:

Yes. We -- I mean we see a very favorable situation for SOP right now. And we have a high energy increase for the Manheim producers who need a lot of energy. We are not a Manheim producer, so our energy input in SOP production is relatively low. And we do not need to pay on higher sulfuric acid prices, so -- but we still experienced a good strong demand for SOP, so we do not see that the SOP pricing increase comes to an end soon.
Operator:
Q - Unidentified Analyst:

Two questions on logistics really. Can you hear me on the microphone, okay? The first 1 is you talked about moving towards bulk freight because that's what was available and what's possible. Is that a transition that you now think you'll stick with? Or do you want to be back to container when you can?
A - Thorsten Boeckers:

No. We would switch back to containers. But it's really a question of price, right? The containers are somewhere stuck in LA or somewhere stuck in or somewhere stuck in Asia. And this makes availability of containers -- there's no availability of containers. Prices for containers are more strongly up than for bulk. And for -- it's a question of who customer are we serving with that. So normally, we would deliver to Asia with containers. And whenever this is possible, we would switch back, but our supply chain, people expect the current situation to last for at least 12 to 18 months. So it's not a short-term switch.
Q - Unidentified Analyst:

Okay. And then the other aspect, coming back to the CapEx, where you've seen a lower spend this year because you can't get some of the materials you need for that CapEx. Given the context of what we've said, like logistics continuing to be challenging through the rest of the year into next year. What gives you confidence that you can not only achieve the right level that you plan next year plus a capture the downside risk?
A - Thorsten Boeckers:

Good question, and we can't answer this because it's really -- we need to see -- I mean I also hear people saying the €50 million we are switching now from '21 to '22 will also be switched again from '22 and '23, but we don't know at this point in time, frankly. I mean there's some -- we talk about various things. We talk about availability of material. We even talk about the availability of service providers on the ground doing maintenance or doing projects, right? And so I can't tell you at this point in time, frankly. Sorry.
Operator:

The next question is coming from Joel Jackson from BMO.
Q - Joel Jackson:

So a couple of questions. I'll ask 1 by 1, as I know you like that. So you talked about -- a couple of times today about trying to make every single site, free cash flow positive starting in 2023, even in low potash price scenarios. I think that's your language. Can you talk about which of the sites or the problem areas, what you're going to do to get them into that camp and what it might cost to do so?
A - Thorsten Boeckers:

Sorry, Joe, you should have asked Holger. Too late. No, it's -- what means -- I don't like to talk about problem areas where we talk about our sites because every site has its own beauty, yes? Bethune is in the ramp-up. And once Bethune is ramped up more than today, we come into a cost situation which is brilliant. Holger talked about that. Zielitz is already today for -- from a German perspective very well on the cost curve. It's, of course, higher than Canada and Russia. But from a German perspective, just producing MOP -- and it's a relatively new plant and has good logistics and no significant environmental issues. So both good from -- good on costs, good on earnings and also good on cash flow. I think the most challenging, that's the way I would call it, is Werra. And Werra is not a bad site. It's a great site, and it stands for a good portion of our EBITDA. But as you know, Se Werra has a very complicated setup. We are producing the MOP. We are producing there a lot of specialties. It consists of 3 different single plants. So it's not 1 Werra. It used to be 3 separate plants in history. And we have always the issues there with the tailings piles expansions. So we are losing the money at Werra, I would say, in the product setup meaning not being focused on a few products but on too many products. Plus we have always high CapEx for environmental measures, and these environmental measures are also linked to the product setup. Because when you have a specialty that has a nice margin on -- in terms of EBITDA but brings you a high wastewater occurrence and you need to pay -- you need to either stockpile it or you need to inject it in the river, and therefore, you need to invest into pipelines and whatever you have to do and new permits. This is what's cost us money there. And so I think the most challenging is Werra.
Q - Joel Jackson:

So my follow-up on that is this is -- so when potash prices were weak in 2019, demand was a bit weaker, what were the mines that you curtailed? Did you curtail Bethune? Or you were down for a bit, and you just held out that down here for a bit longer? You curtailed Zielitz, Zielitz being MOP only. So if Zielitz is not a challenging 1, but when potash prices are lower and demand is lower, you actually curtail Zielitz. Like does it matter if your challenging ones are -- like I guess I'm asking, does this even matter? Because you're not going to shut down Werra, it seems like. If Werra on our swing line, Zielitz is. Do you see what I'm saying?
A - Thorsten Boeckers:

Yes, but why? Zielitz and Bethune. Why? Actually, you would curtail the high-cost mines of course. But the issue was in MOP, right? So demand went down for MOP and not for SOP and not for and not for Kieserite. And this is what we are producing at the Werra. And we have -- I mean when you go down into the Werra and you take out a tonne of ore, you have, what, 17% MOP in there. But then you have magnesium in there, you have sulfur in there, where you produce the specialties off. So if you would curtail the Werra, you would also reduce the production of the specialties, and that's the issue because this is something which helps us over water, I would say, even in the tough times in '19 and '20.
Q - Joel Jackson:

Was Werra free cash flow-positive in the fourth quarter 2019? You're welcome. You're welcome.
A - Thorsten Boeckers:

No.
Q - Joel Jackson:

It wasn't?
A - Thorsten Boeckers:

No. But because of the -- simply because of the high investments, right?
Q - Joel Jackson:

Right. Okay. No, I just wanted to see because if that's what will happen -- I'm trying to figure out why that matters because maybe in your profile and things in the bad part of the cycle, it will be Zielitz that you have to curtail, maybe even Bethune even if it's low cost. I'm just trying to figure how you think about throughout the cycle, how you manage assets.
A - Thorsten Boeckers:

Question answered?
Q - Joel Jackson:

Yes, sir.
End of Q&A:
Thorsten Boeckers:

Okay. So we have no more questions for now. I will still be around here, of course. And Markus, are you ready?
Markus Midden:

Yes.
Thorsten Boeckers:

So I would like to hand over to our -- introduce himself, to Markus Midden. He will explain to you our climate strategy. And in this case, climate strategy is focused on CO2, on gas consumption. When we talk about -- and Burkhard talked about this when he presented the strategy, sustainability is more than CO2, right? It's for us also wastewater and governance and LTI rates, so protecting our people. But Markus will talk about the CO2 footprint today. I'm going to be quiet and gone in a second.
Markus Midden:

Thank you. Okay. Let's see what I have here. All right. Okay Hello, everyone. My name is Markus Midden. I'm Head of Technology and Energy, and I have the pleasure today to present to you our climate strategy. The climate strategy was developed last year, and discussed and approved early this year. We collaborated very closely with our sites and with external consultants, consultants out of Germany specialized in regulatory framework, and also in decarbonization technologies. Together, we were quite successful in demonstrating and simulating various pathways towards 2050. We took a bottom-up approach. We looked at each of the sites and the processes in order to find the right decarbonization technology. What we excluded are the Scope 3 emissions because Scope 3 coming from all the materials we use for producing our products or from logistic. That was, at that moment in time, too complicated to build this into Scope 1 and Scope 2 emissions, and the impact to, or the possibility to influence those emissions are quite limited at this time. But that is something we can always add in future studies. Okay. Let's have a look at the content of this presentation. And what you see here are the 4 main aspects of the climate strategy. So we will look at the contribution to decarbonization, mainly technologies and at -- the different pathways. The pathway towards net zero is the most important, most interesting 1, I guess. We will look at the climate fund. We were able to initiate a climate fund, which is a finance instrument for us where we can finance decarbonization measures separate from the CapEx budget. And we did the risk-opportunity analysis. But before we start with the content of this presentation, I just want to explain why mining or decarbonization in mining differs quite a lot from other industries. Just as an example, if you consider automotive industry, and when they look at decarbonization and sustainability, they heavily look on innovations. They can use different materials which are sustainable or more sustainable. They can use different components. They can build and design a different product, a new car, an electrical-driven car, for example, that becomes a sustainable product. So they have various ways to decarbonize on different value chain parts. And if you look now on mining, like potash mining, our raw material underground is the same than 100 years ago, and it will be the same in 100 years. And our products will also be the same in 100 years, and customers want exactly that in 100 years because when you want to increase efficiency in agriculture, for example, you need to apply efficient nutrients. So that makes it a bit easy. We don't need to look so much on our raw material underground, and we don't need to look so much on our MOP, SOP and specialties. So in the second step, we look really at our process sites at very single technical process in order to see where we can find a different technology. And we verified that we already use the right technology for producing our products. And of course, we will find, for sure, efficiencies, and improvements, and innovations, on the process side. But the main focus in the third step waswe need to look at our energy supply side to the process. And that is what the whole study is after first session is focused on. And that was important, I think, just to explain this difference that you can put this into the right picture. So now we can start with the content. Here you see the energy mix of K+S. And you see that we are very energy-intense. We consume 10 million-megawatt hours per year. That is -- if you compare, that is the equivalent to the power consumption of Berlin or represents approximately 1% of the total German natural gas consumption. So quite energy-intense. If you look into the details, you see 43% of the natural gas is used in CHP applications, mainly in Germany. CHP is combined heat and power. So a very efficient way to convert natural gas into power and heat. And then 31% we consume in our steam boilers, mainly in Bethune, because over there, we have only a small portion of CHP, and the 9% natural gas consumption for our dryers in order to dry our salt. 12% is coming from external heat suppliers. There are 2 waste incineration plants, we run within energy contracting. And approximately 50% of the waste input is biomass. So you can say, from the 12%, approximately 6% is already carbon-neutral. 3% is coming from the grid. Only 3% power requirements coming from the grid. The main power consumption is covered by the CHP application. That is also interesting to know because the question we had in the formal presentation was about the EEG in Germany. And if you have a very high self-generation, you're normally exempt from EEG tax. 2% fuel for underground, that is diesel, basically. Okay. If we move on, here you see the various price assumptions for setting up the model. And of course, natural gas, power, and CO2, are the main cost drivers for us. And we looked at short-, midterm, long-term influence and also the assumptions. And here you see, currently, the market is overheated, of course, natural gas, especially. We think that the price is coming down in the next year. You probably all know what is behind the high cost at this moment in time. The good thing is, and we mentioned this already, is that we are hedged towards 2024. So more than 70% in Germany, we have hedged. And that is definitely a limitation of influence to our cost. In the long term, we see moderate cost increases. On the power side, here, we marked the mid- and long term in green because it requires a transformation in the energy system. We assume that, currently, we have also an overheated situation, of course, but we have very limited demand in Germany from the grid. In the mid and long term, we require low prices. The whole industry requires low prices because that is the enabler for energy-intensive industries like us, to switch from fossil fuel to power. The electrification requires, of course, low power prices in order to compete with other fuels. And if prices are not coming down quickly enough, the financing instrument, CCFD, so carbon contracts for difference, definitely will play a role in Germany and in other countries in Europe, I think, because it covers and compensates for the difference in cost when you install and invest in greener technologies, opposite the conventional technology. And on the CO2 price, we see constantly higher prices in the future. That, of course, driven mainly through the EU emission targets, the ETS regulation, the cap and trade. So the cap will be reduced slowly over time, and we only see 1 direction at this moment in time. Also here, important to know is that we have hedged our open position towards the end of 2025 completely at very attractive low prices, below €25 per tonne. The current price is €60. But on the other side, after 2025, we need to see what we can do in terms of hedging, but we will definitely face higher prices than nowadays. Before we look now to the future, let's have a quick look 30 years back, and then we look 30 years into the future and look at the results because it is important to know when you look into the future to see where we are coming from. We have reduced our emissions by 80% opposite 1990. In Germany, the CO2 amount has been reduced by 40%. So we doubled that ambition. And that was possible because we switched from coal to natural gas already. That is something Germany needs -- still needs to do towards 2038. And we installed CHP applications, so very efficient systems. We also closed sites and inefficient processes, and that amounts to approximately 30%, the closure of process plants. So that you see that the main effect is coming really from coal switch and CHP applications. Interesting is also that we have invested approximately €80 million when we did this transformation in the 30 years, and we were able to earn €20 million by just selling surplus CO2 certificates in the early phase of the ETS. That was doable because we were so efficient. The efficiency rate was higher than the best technology available at that moment in time. So we received more credits than that because of these early actions. And that is really a story which shows that when you start doing things earlier in terms of efficiency increase, you receive the benefits earlier basically. When we look to the study, we -- and the decarbonization path, we defined 4 paths. And you hear you see how we did it. Path 1 is the status quo, the business as usual, the baseline. Path 2 considers 2 measures we have currently in the pipeline, which is the combined heat and power plant in Bethune because here, we can really be much more efficient if we apply combined heat and power systems, and the electrification of part of our underground fleet. And Path 3 utilizes now the new K+S Climate Fund in order to finance additional technologies, which were in former times not meeting our internal economic requirements. So we can boost with this tool, for example, heat recovery ideas, and projects, or heat pumps, or solar parks. Also solar parks -- even if solar parks are not a big influence or contributor to our decarbonization, it can be done on our sites. But also wind power, whether we install wind farms by ourself or we use power purchase agreements. And Path 4 is really we apply power to heat and synthetic fuels in the model to force the path down to net zero emissions. This is basically the result of the model. You see now the 4 curves. You see the first top 3 paths
Q - Unidentified Analyst:

On the CHP and Bethune that you mentioned on 1 slide where I saw it correctly. There are also some CapEx coming then in the second half of this decade. Isn't that like putting a double pressure when you also do not have hedged your CO2 certificates for the second half of the century? And how will that maybe affect the cash flow in that area then?
A - Markus Midden:

The CHP application in the Bethune comes with a natural economic benefit. Because the gas prices in Canada is so low compared to Germany, and the power price is quite high and is rising. So the difference is so high that with this investment, you have a very nice return. And then CO2 comes as a benefit on top.
Q - Unidentified Analyst:

And then on the graphic, actually, which shows the 80% decline, just I think that I get it right. So I think the numbers for today or for 2020 now, the 1 million is basically from your emissions in Germany, right?
A - Markus Midden:

Yes. Exactly.
Q - Unidentified Analyst:

And so just that I have an understanding where does all the emissions, the come from back in the because then I was not covering you not today as well, but also not back then.
A - Markus Midden:

Likewise. Yes, it is -- I mean K+S has developed over the last 30 years. And we had to compare really apple to apples. And we really picked out just the Scope 1 emissions. And that is -- the today is not the total emission. That is the emission from Scope 1 in Germany, and we were able to compare that to 1990. And we had lots of plants in Germany. And basically, the coal-to-gas switch made the biggest difference plus CHP. That is approximately 50%. And closure of mines, a few mines and inefficient process, amounts to approximately 30%.
Q - Unidentified Analyst:

So basically, just that I get it right, back in 1990 I would say more of your revenue or more of your total production was actually allocated in Germany, right?
A - Markus Midden:

Yes.
Q - Unidentified Analyst:

So then why is it not more probable to take into account that you basically just shifted part of your CO2 emissions to Canada now, so that you would compare it with I think, CO2 emissions that you -- I think it's -- yes.
A - Markus Midden:

We just wanted to show our reduction in Germany because we have such a long history, and we have reached a very high efficient level. And it's easy to compare to Germany because we are still on coal. In Canada, we are also still on coal. And probably in 10 years' time, we can make the same picture in Canada because they run on coal, and we want to apply now CHP. So what we have done here in the '90s and in the '20s, we do now in Canada. We draw the same picture basically.
Q - Unidentified Analyst:

Okay. 1 last question. Maybe you can give me some more insights on the carbon storage. I think it isn't part of that why maybe Germany is not so ambitious about that a kind of technology by now that technologies that actually reduce the emission of CO2 are much cheaper than trying to like take out emissions from which were already, yes, admitted?
A - Markus Midden:

You mean from the air -- direct air capture?
Q - Unidentified Analyst:

Yes. Yes, for example.
A - Markus Midden:

Direct air capture is very costly, and that is really the last measure which you need to apply towards 2050. CCS cost you probably 10% efficiency. And there are a few -- we also have 1 cooperation with a university, a new technology. And we think that we can reduce also this efficiency loss, maybe down to 7% or 6%. And then it becomes a nice technology. You can run on natural gas as a bridging technology, not that we want to run on natural gas. However, we want to flip to power use and electrode boilers, but CCS is a very good, efficient technology, and there are storage available in and around Europe, which you can utilize. Even our cabins would be an option, but I think there will be a stretch to pursue the government. But we will try.
Q - Unidentified Analyst:

First question on Scope 3. And I know you didn't include it, but I'm interested in sort of how material that problem is relative to this Scope 1 or 2, and what your approach is to those Scope 3 emissions going forward?
A - Markus Midden:

Yes. Scope 3 emissions coming from materials we use, has a very low impact because our raw material is the biggest material amount. We utilize, of course, raw salt from underground. And other materials, they come with a very low CO2 footprint into the value chain. Of course, in the long run, with more regulation, with taxonomy and so on, I think we will have to also report those emissions, and then we will focus on those emissions more closely. But the regulatory framework is not there yet. And on the logistical side, I think that there's 1 good step from the EU taking the cargo, the logistic chain into consideration is a good step forward to force the emissions down. And -- but that needs to really, needs to be out here expand to worldwide logistical chains, not only in Europe. But also there, the regulation is not there yet.
Q - Unidentified Analyst:

Yes. That's clear. The other 1 is on your customers' reaction to this sort of presentation. I don't know how many conversations do you have with the retailers who are stocking your product about the intensity of your fertilizers in terms of CO2 emitted to produce them versus other producers they could get that from and whether that's a competitive advantage you can develop going forward.
A - Markus Midden:

I think it is very -- it's a different picture about our -- around our sectors. When you look at agriculture in Brazil, those customers, they really ask those questions at this moment in time. In the pharma sector, or in the consumer sector, the picture is different. They want to know what the footprint is. And we see more and more interest. And yes, there might be chances when we move -- if we are the first mover, we can maybe utilize first-mover effects, definitely. But it is growing. Maybe you can expand on that, Jan, about...
A - Unidentified Company Representative:

Yes. It's a very current topic. Yes -- thanks. Scope 3 is something here we are proud to make more precise at the moment. It's based on estimation. I know that many companies are doing so at the moment because it's easier to grasp. And those systems are quite new for a company, like 5 years is quite new here. Yes, but we are developing on that.
Operator:

So, the next question is coming from Adrien Tamagno from Berenberg.
Q - Adrien Tamagno:

A couple of questions here. If you achieve your 10% target for the CO2 reduction, in what position would you be with regards to the EU ETS? That will be the first 1.
A - Markus Midden:

Yes. Understood. With smaller measures financed by the Climate Fund, we should be able to reduce our emissions in Germany. But if you have realized that, the biggest investment is in Canada for the CHP plant. So the ETS influence by the 10% target is minimal in Europe because we have already reached that high level of efficiency. And we really need to do the next step. That means electrification in the long run.
Q - Adrien Tamagno:

Okay. That's understood. And yes, I believe I'm not sure if the MOP fertilizer, I included in the CBAM adjustment. So do you count...
A - Markus Midden:

No.
Q - Adrien Tamagno:

Yes. Okay. Is it retaining concrete, or is there any way can change?
A - Markus Midden:

We are currently not part of the CBAM methodology because CBAM is only functioning if you have a benchmark for that product. And we are only a few potash producers in Europe. And normally, you create a benchmark out of the 10 most efficient producers. In Europe, we are only a few. So we use in the ETS fall back benchmarks, the fuel and heat benchmarks. For potash, there is no benchmark available. And I don't -- I think that we will not have a benchmark in the future.
Q - Adrien Tamagno:

Okay. And yes, just lastly -- yes. So your -- on your chart until 2050, how should we think about the declining of the ore grades in Germany, and the amount of power required to mine the same amount of MOP?
A - Markus Midden:

Yes. We have assumed in the study that our sites in Germany will steadily on that level produce further towards 2050. We have 1, and so you see that here in the curve, we have assumed that we will have 1 adjustment of the site structure in the early '30s. Here, we might restructure our portfolio. But all other sites, we assume that they can run on the same or quality towards 2050. Oh, yes, question here?
Q - Unidentified Analyst:

So currently, I understand that you're hedged on your carbon credit costs until 2025. How should I think about the carbon credit costs for you after that period? And is it just your net exposure, so that's your carbon credit exposure minus your net allowance times the prevalent common credit price in Europe at that point in time? Or are there any offsetting factors for you?
A - Markus Midden:

No, we don't have offsetting factors. It is really the open position. We are a carbon leakage industry, so we receive free allowances. So the open position, the allowances, we need to really cover our emissions. That is the open position, and that is completely closed by hedging, by fixing prices.
Q - Unidentified Analyst:

Okay. So you have about 1 million tonnes of Scope 1 emissions?
A - Markus Midden:

Yes. Yes.
Q - Unidentified Analyst:

You get about 0.5 million of carbon allowances?
A - Markus Midden:

Yes.
Q - Unidentified Analyst:

You fall back at 2.2% per year, then 4.2% from 2022? And then basically, your 0.5 million tonnes of CO2 will just be open and that's whatever...
A - Markus Midden:

That is what we have closed, exactly.
Operator:

One last chance for the team's chat to have questions. I don't see a hand and also not in the room.
End of Q&A:
Markus Midden:

Thank you very much.
Dirk Neumann:

Okay. Thank you, Markus. Very interesting. I learn with every presentation from you. Thanks, , the room. If there are no questions left, we can close the session already now, right? And we see you for dinner. Okay. Julia, I wanted to give the organizational structure.
Unidentified Company Representative:

Exactly. We see each other for dinner at 7 p.m. and it will be shown with signs. So it will be a winter garden on the right-hand side here. And I just wanted to give you some information on the site visit tomorrow because we start early. We have to start early because otherwise they would lost in the mine, and we don't want to be there.
Dirk Neumann:

You don't want to be left.
Unidentified Company Representative:

So the train is leaving at 6

K+S Aktiengesellschaft Q3 2021 Earnings Call Transcript

Other K+S Aktiengesellschaft earnings call transcripts:

K+S Aktiengesellschaft
Q3 2021 Earnings Call Transcript