Good day, everyone, and welcome to the K&S Second Quarter 2025 Earnings Call. My name is Lucy and I will be your call webinar host. [Operator Instructions] I will now hand over to Julia from K&S for some technical highlights.

Ladies and gentlemen, also from my side, welcome to our call. We hope you've had a chance to review our posted slides as well as our Q2 documents available on the website. After the opening remarks by Christian Meyer, we will jump directly into the Q&A session. On technical note, as always, please refer to our disclaimer on Page 2 of the presentation. A note on data privacy, please be aware that the Teams session will be recorded, webcasted and available as an audio replay on our [indiscernible]. People who ask a question in the Teams session should be clear that by switching on their camera [indiscernible] they agree to the recording and replay of video and audio [indiscernible]. Now I'd like to hand over to Christian Meyer, our CEO, for the opening remarks.

Christian H. Meyer: Thank you, Julia and welcome from my side as well. I would like to start with some explanations about our 2 ad hocs in context with our Q2 earnings release. Starting with the first ad hoc. On July 14, we had to publish an ad hoc on an impairment of assets. This impairment negatively impacted our Q2 group earnings and ROCE. According to IFRS, we must compare our book value, which is the CapEx spend on assets minus regular depreciation to our DCF value. If the DCF value is above the book value, our maximum asset value is the book value. This leaves room to cope with changing estimates in prices, exchange rate [indiscernible]. If the DCF value falls below the book value due to an estimate change, our asset value will be regulated by the DCF value, which likely fluctuate every quarter. Therefore, our annual reports always include sensitivities for the impact of changes in the different estimates. The last time our DCF value temporarily fell below the book value was in Q3 2020. At that time, we had to write off EUR 2 billion. Already 9 months later, the DCF value exceeded the book value. This required us to write back our assets to the book value. Our competitors' reporting is very different. According to U.S. GAAP, our competitors must write off assets but not write back. So these fluctuations won't be visible in their financial reports once they've been written off. Our impairment was mainly caused by the weaker U.S. dollar with the biggest impact on the DCF value now falling below the book value. We now use the rate of USD 1.20 per euro in our [ 150-year ] DCF model, up from USD 1.10 per euro. The future reaction of potash producers and customers to the weak U.S. dollar against most currencies remains to be seen. These effects were not yet reflected in the external potash price studies by Argus used for the impairment charges. Additionally, BHP's announcement of their delayed production start came after [indiscernible] and this, therefore, not reflected in Argus price curves. Once you have decided on the long-term exchange rate, applying it to a DCF is faster than analyzing quarter and updating the forecast. The good news is that this impairment on group level will not have a significant impact on K+S [indiscernible] individual financial statements according to HGB as of December 31, 2025. Therefore, from today's perspective, our ability to pay dividends is not at risk. Now some details on the second quarter. On July 29, we published an ad hoc with details on Q2, full year EBITDA and free cash flow. Despite [ wins ] in Q2 and having a weaker U.S. dollar-euro estimate than analysts assumed, we could confirm our full year outlook. Second quarter EBITDA was below the prior year and your expectations. This was driven by the one-off related to long-term mining provisions, lower sales volumes due to postponed shipments and the planned earlier start of the [indiscernible] maintenance and the U.S. dollar-euro exchange rate impacting earnings despite hedging, especially due to receivables needing to be evaluated with the spot rate on the reporting date. Let's turn to the full year outlook. We are very happy that since the previous forecast was published, potash prices have continued to rise moderately. Therefore, we confirmed our previous expectations for the full year despite a weaker U.S. dollar for the remaining months compared to our previous outlook and your expectations. We still expect EBITDA to range between EUR 560 million and EUR 640 million with a slightly positive free cash flow. For the midpoint of the EBITDA guidance, we assume that the average price level achieved in all regions and for all product groups remains stable during the second half of the year. For the upper end of the range, prices would need to increase further. Just to give you a sense of the phasing of figures for the rest of the year. Keep in mind that Q1 and Q4 are our strongest quarters due to seasonality in both business segments. As a maintenance quarter, Q3 typically has the weakest EBITDA contribution. Last year, it contributed EUR 65 million. We will see positive price effect in Q3 year-on-year but we will also see higher personnel costs due to the collective bargaining agreement as well as higher energy costs and negative FX effect. I'm looking forward to answering your questions together with my colleagues, Jens and Julia. And I will now hand over to the operator to start the Q&A session.

[Operator Instructions] This brings us to the first question of Christian [indiscernible].

So 2 questions. First, I noticed that in Q2, sales in Latin America were some minus 10% down year-on-year. How much of that is FX and how much of that is lower volumes? And in that context, how are volumes at this point developing into -- in Latin America heading into the key application season?

Christian H. Meyer: With Latin America, we had some lower volumes, mainly based to optimize our regional mix. That's very important to understand. And with regard to the FX effect on a cash flow basis, we are nearly hedged. But from the perspective of receivables, there we finally realized some effects and that's very important to keep in mind.

And on current trading/demand out of Latin America, how is that developing?

Christian H. Meyer: Yes. The current demand, especially from Latin America, we are currently at quite season. We are in between the seasons but we expect a strong demand also from -- for the second half of the year. And that's very positive. We are in between the seasons but we still see stable prices.

Okay. Perfect. My second question would be on the -- your smaller business. The refill business for the icing was pretty slow in Q2, obviously, on the back of a past mild winter. Would you see this coming back in Q3? Or would this rather be a Q4 event with possibly some more winter events kicking in against a low comparison base?

Christian H. Meyer: This -- the icing business, we expect a normal year for this year. As you already mentioned, due to the warm winter last year, the early procurement was a little bit lower. But for the rest of the year, we expect a normal [indiscernible] sales.

[indiscernible] come back in Q4.

Christian H. Meyer: Yes, absolutely. Q4 is the biggest one due to the upcoming winter.

Our next question comes from Michael.

Michael B. Schaefer: Michael Schaefer from ODDO BHF. Well, the first -- my first question is rather on the supply side looking into '26 and what you see also currently for the rest of the year. I mean we started the year first half discussing on Russian and Belarusian supply curtailments. If my statistics are right, I'm looking at here, we are rather talking 12% up, the rail shipments year-to-date July. So I wonder whether you can shed some more light how you see the Russian and Belarusian supply evolving second half and also looking into '26? And maybe also related to that, what are you making out of the, let's say, in the meantime, approved import tariffs on Russian [ NTK ], how this is affecting your European business looking into also next year? And maybe also related to that on the supply side, the news from BHP, you mentioned this already deferring commissioning to mid-'27. So in general, the picture for '26 on the supply side.

Christian H. Meyer: Yes. Maybe starting with the second half of 2025, we still see a strong demand and we see high volumes from the supply side. But if there are some challenges from the supply side, then we won't see the -- the business won't be able to deliver all volumes that are finally from the demand side. With regard to 2026, we will see what happens in 2026 but we expect, especially from Russia and Belarus that they are very stable compared to the 2024 level. We will see some more volumes from Laos. We won't see any volumes from BHP, as you already mentioned. So additional volumes coming to the market, small volumes finally will be eaten up by the increasing of demand. So the market in 2026, we also expect that this will be -- the supply and demand will be in balance, some risk like in the current year from the supply side.

Michael B. Schaefer: The second one is on your cost base. Also looking maybe into next year and the second half, you highlighted rather high energy costs. And hence, I think you also reported a significant decline -- increase in energy costs. I think, roughly 36% first half, EUR 60 million up compared to the first half last year. So now looking into current spot rates, which were -- came down significantly over the recent months in [ TTF ] and also what we have learned from the German government when it comes to gas storage levy, which I think will be abandoned starting 2026. Some more color on how you see your cost base, your energy cost base but maybe also other costs evolving looking into next year?

Christian H. Meyer: Yes, sure. So maybe for this year, we are hedged at 50% for Q3 and about 70% for Q4 at a price of EUR 40 per megawatt hour. So at the moment, we are profiting from a lower spot price but you also have to keep in mind the spot price you see have to be added by a surcharge of EUR 2 to EUR 3. So this is actually the price we have to pay. And with regard to next year, of course, we have already hedged a portion of 50% at a price slightly below EUR 40 per megawatt hour. And we would profit from the initiatives of the new government with regards to the gas levy. So this is a positive effect but we will remain at a relatively high energy cost level. So some at least but not that big.

Michael B. Schaefer: Okay. And other cost items? So personnel, I think we should have seen -- I mean, starting April, we have seen the new collective bargain agreement hitting your P&L. So next year, probably not the same kind of order of magnitude of increase, right?

Christian H. Meyer: So the bargaining agreement is for 2 years. We have a increase of personnel costs, which is roughly about -- around EUR 10 million per quarter. So this is the effect we have already reflected for next year. And so we will have an increase in energy and slight decrease for next year in energy cost but stable personnel costs and all other factors remain the same -- at the level of this year.

And our next question comes from the line of Angelina.

This is Angelina from JPMorgan. I will have 2 questions, please. And the first one is a follow-up on the previous question around the market outlook for 2026. So you have commented on your expectations with regards to supply. And I want to understand a bit more on demand because it seems that based on what we've seen year-to-date, demand has been quite strong and the market has been able to absorb all the extra volumes that came out of Russia and Belarus from the year-on-year perspective. And also, we heard from your peers in North America recently upgrading their guidance expectations for demand globally this year. So with that in mind, how should we think about demand growth next year? Should it be slower demand growth compared to this year? Or do you think it could be in line with this year? Just to put it in context to the best of the supply picture you have described.

Christian H. Meyer: And with regard to -- you're absolutely right. We see a increase in supply but also on the demand side, we see the application of the additional volumes and that's very important. And with regard to the next year, we also expect that the additional supply will be finally eaten up by the additional demand. So we expect also for the next year an increase of the demand of around about 2% that would require round about 1.6 million tonnes in addition from the supply side. So for this year and also for next year, as I already mentioned, we see -- we expect that the supply and demand will be absolutely in balance with more risk on the supply side.

Understood. And the second question is more around the financials. So could you maybe give us a bit more context about how you think on the dividend right now? Of course, we have the dividend policy that it's a free cash flow-based payout and we have your adjusted free cash flow guidance for the year, which is slightly positive. But for example, given that you are in quite a significant CapEx cycle, free cash flow numbers can vary quite a bit because it's just slightly above 0. So with that in mind, how are you going to think about the dividend payout? For example, given that the market environment is quite good, would you consider maintaining the dividend in absolute terms somewhere close to the last year's level? Or in general, if you could explain how you think around that, it would help.

Christian H. Meyer: Okay. Yes, we have a clear dividend policy that we pay a dividend in the range of 30% to 50% of the free cash flow. And if you have a look to the consensus free cash flow currently, then you will end up at a dividend between EUR 0.06 and EUR 0.10 per share. The final decision we will make in March next year about the dividend. But you should keep in mind that we have announced that we have a high CapEx program with the Werra 2060 project for the next -- at least until the end of 2027 and that in total will finally be included in our decision.

And our next question comes from Oliver.

A couple of them remain. Can you elaborate about the price of salt -- of rock salt, given that demand is rather sluggish but still prices seem to hold up rather well. Is that something structural? Is that something that may pass? That would be my first question. Any thoughts on development and future development of the salt price would be helpful.

Christian H. Meyer: We are very happy with our small but very nice salt business. And we have finally higher prices compared to previous years and also better netbacks in total. And that we expect with the discussions we have in the market also for the next year.

Okay. Second question is about your long-term mining obligations. They have increased, I guess, using different interest rates could be the thing that was behind that. They seem to have -- also seem to have not only a balance sheet but also P&L impact. You said it was round about EUR 10 million. How does that work? I thought the P&L impact would be like the service costs. Is that still true? Or is the EUR 10 million somewhere, let's say, a residual of what happened in the balance sheet?

Christian H. Meyer: So the effect is twofold with regards to the effects in the EBITDA, this is at our inactive sites and that's not on the operating earnings or the operating expenses, so to say. And so we had different measures actually for monitoring and [ reconfiguration ]. So this was the smaller part of it with an effect on the EBITDA. And from the long-term perspective, we have a very long-lasting time period we are looking at. So this is also with regard to the DCF model. And if you change -- and you have a lot of assumptions in that model. And if you change any of this assumption, that could have an effect. And so it was, yes, so to say, an effect of different assumptions that have changed and that led to the changes in our balance sheet.

To be clear, the EUR 10 million, is that cash relevant in the P&L? Or is that a noncash item?

Christian H. Meyer: That's a noncash item.

Okay. And lastly, about -- obviously, the elephant in the room was the EUR 2 billion impairment charge. And that was according to you, triggered by the changes -- mainly in the changes of FX rates that you used. What specific -- I know about the [ 1.20 ], that's because you stated that but what's the source of that? Because you use that obviously for, let's say, your [ 150-year ] DCF. So what kind of FX rate -- it's not the spot rate, obviously. So what kind of assumptions goes into that [ 1.20 ]? And obviously, how fast can that change and what would trigger a change there?

Christian H. Meyer: Yes, that could change, as we have seen, for example, in 2020 and 2021, that was more price related but also there we saw some FX effects there in 2020, we also had 1.20 in the calculation. Where is the 1.20 coming from? We look at the spot rates but mainly on the futures for the U.S. dollar. And then you have to make a decision where the U.S. dollar will end up over the next years, up to the [ 120 ] years, that's a rough calculation. It's a clear calculation within our model. So we are absolutely in line with the previous calculations. And if you, for example, read the [ 100 plus ] from yesterday or today, there was a big discussion between the different FX experts. They see the U.S. dollar between 1.13 and 1.25. So with our 1.18, 1.20, we are absolutely in the range of the expectations of the capital markets. So we -- finally, we have to -- it's not the spot rate. It's more what happens within the next year, what are the expectations. And there, we are more or less in the midpoint.

And our next question comes from Tristan.

Just one. I just wanted to understand better your guidance for EBITDA for 2025. I think you said EUR 330 is your midpoint ASP assumption. But in Q2, I think we're already at EUR 336 and we had price rises in the second quarter, which I imagine will hit your P&L with a lag in Q3 and Q4. So I just wanted to understand whether you're assuming price decreases in Q3 and Q4 to come to that EUR 330 average that you're talking about? Or maybe there's something I'm missing.

Christian H. Meyer: Yes. Thanks for this question. What we expect finally for the midpoint is that the price level that we currently achieved will be stable for the second half of the year, as you already mentioned. What's very important, EUR 330 that we expect for the whole year is the basis that we see increasing prices, U.S. dollar prices, round about 50% of our volumes are exported to the U.S. dollar market. So the increasing prices will be eaten up by the FX expectations, U.S. dollar FX expectations. And the ASP doesn't include finally the hedging position that will compensate some of these volumes.

We'll now take the next question, which comes from Aron.

I have 3 questions, please. First, could you provide an update on the current situation at Bethune and explain perhaps if the logistic issues are behind us now?

Christian H. Meyer: Bethune, sorry? With regard to Bethune, we are in budget and in time from our current perspective. We are very happy with the additional investments we are now planning that as we explained, the ramp-up that we want the site to be ramped up to 4 million tonnes by the end of the 30s. And with 2030, we expect to be able to ramp up until 3 million tonnes. And there's nothing new. We are absolutely...

But you were referring to the ship that was postponed from the end of Q2 into Q3 probably and the logistics there. That is -- I mean, that is nothing special. We always have that ships can leave 1 day later. Yes. And we also were saying that we have logistical challenges in the second quarter but these were mainly in Germany with regards to low water levels. You know that we are not transporting that much via barges. It's a low percentage point. But if in Germany, there are low water levels, you have a higher pressure on the Deutsche Bahn system and we just felt that but it was not a big thing in Q2.

I believe in the ad hoc, you mentioned a longer-than-expected break at Bethune. That's what I was referring.

No.

Christian H. Meyer: No, no. That was just -- we started earlier with the maintenance. So we saw it already in June and not in July. That depends on the summer holiday season in Canada and then we optimize just the time when we are making maintenance. That's regular. You won't see any impact on the annual basis.

So we always have 3 weeks maintenance in the June. And this year, we did 1 week in June and 2 weeks in July. And last year, we did 3 weeks in July, yes and that makes the difference.

So that should provide a benefit to Q3 EBITDA in fact?

You still have 2 weeks in Q3, yes. So still a maintenance quarter but a little bit of benefit [indiscernible]

My second question is on volumes because your Q2 volumes were 100,000 tonnes lower on a year-over-year basis but you kept the guidance range of 7.5 to 7.7 million tonnes. So what factors should enable you to perhaps reach the upper end? We talk about stronger demand. So that could perhaps be a benefit. But -- or should we think about more on the mid- to lower end of the guidance today after what happened in Q2?

Christian H. Meyer: Yes. The -- with our volumes, finally, we see a strong demand. So from the demand side, we don't see any risks. And that's also why we think that we will be able to catch up the logistical challenges or issues that you have just explained over the total year. So we are very -- we think that we are very happy with the outlook for the volumes. It's a realistic outlook, Aron.

And final one, just on the cost. I wanted to follow up what you mentioned before. Am I correct saying so that you expect stable personnel costs in '26? Energy, you are hedged 50%, at 40% but you should be lower on a year-over-year basis if we remain at these levels. But then you mentioned flat energy costs, which were -- was referring to electricity. Is that correct?

Christian H. Meyer: So we didn't differentiate between the 2 portions. But I would say that's more or less [indiscernible]. But the effects for next year is very limited.

And team our next question comes from David.

Just a quick one on the mining provisions on the balance sheet. So you mentioned in the release that the interest rates that are used to discount this provision have significantly increased and yet the mining provision itself has also increased. So I'm just curious as to what are the moving parts in there, please?

Christian H. Meyer: Yes. As I have already explained, the different assumptions, you are totally right. We, to some extent, benefited from the higher interest rates or the discounts actually. But it refers mainly to the [ reconfiguration ] of our tailings pipes. There you have different assumptions and this reflects to freight rates to material, to the way you cover those tailings piles. And there we had changes. And with regards to the long period we are looking at, they are quite significant as we reflected in our balance sheet and the way that you can see there.

Okay. But there's no -- there's nothing FX related in there. It's [indiscernible]

Christian H. Meyer: No. No, [indiscernible].

And team, we have a follow-up from Oliver.

Opening the mic first, I learned. Just another follow-on on -- basically on future potash pricing. When you talked about the impairments, you also reflected on what is happening at your competitors due to the fact that the U.S. dollar is not the currency that's normally used as a cost item in the production of potash because that's located elsewhere. You said the supply will be probably outmatched even by the demand or will be even matched by demand next year. So the path should be clear for people raising prices. However, I haven't seen any of that neither in, let's say, spot rates nor in the communication of your competitors yet that they are striving for, let's say, a compensation of what they will be losing due to the adverse changes in FX. And I also don't see that obviously reflected in your outlook, which was kept stable. There's no outlook by K+S on 2026 yet and I understand that. But when do you expect those likely price increases that you alluded to when talking about probable reversal of the impairment, probably also only partly. When do you expect them to kick in? That would be my question.

Christian H. Meyer: Yes. And what's very important to know that we are currently in between the seasons but you're absolutely right that finally, also our competitors are facing challenges with the weaker U.S. dollar. That for example, Mosaic also explained that their cost position is higher compared to the prior year because every competitor is producing outside of the U.S., U.S. dollar, not in the U.S. And all of them are finally facing challenges with the weaker U.S. dollar. So currently, we don't see it in the spot rates. But on the long run, we expect that there should be a reaction in the prices. When we will see this, you can't calculate directly the switch of the weaker U.S. dollar to the prices. But at the end, if you have to look to the earnings of all the competitors, then there's finally needed to increase the prices due to the weaker U.S. dollar. But I think at least if it will stay at this low level of the U.S. dollar, you should have seen that at least in the spring season.

And we have a question from Axel.

I just have a follow-up to the mining provisions. So these mining provisions have been relatively constant between 2017 and 2023, almost EUR 0.9 billion to EUR 1.1 billion. Since then, they have risen by about 40% to now EUR 1.4 billion. So the question is, what are the reasons behind that? So what is exactly meaning of [indiscernible] or tailings containment? And where is this provision journey going in the next -- in the mid- to long term?

So we're looking at a lot of tailings pipes that have to be covered. And there you have different concepts to cover those tailings pipes. Therefore, you have to conduct application procedures with the authorities and they give feedback on the material you can bring on, on the way you cover actually the [indiscernible], then you have different assumptions because we are looking at a very long period of time. And so we made several assumptions. And this is a process that is almost happening every year. Now the effects were a little bit higher but you cannot deduct from the development you saw now, the future increases in the mining provisions. You can also have the opposite effect. It's just the fluctuation we see almost every year. This year, it was great [indiscernible].

Christian H. Meyer: Very important maybe to add that we still expect cash outflows for the next 10 years of round about EUR 250 million. But that's because of the long-term projection we finally have over the [indiscernible] years.

[Operator Instructions] Excellent. Team, it appears there are currently no further questions. This concludes the Q&A and today's call. Thank you all for joining today and have a great day.

Christian H. Meyer: Thanks to all of you.

Thank you very much.

Thank you. Bye-bye.