K+S Aktiengesellschaft

Hello and welcome to the K plus S conference call regarding the publication of the quarterly report Q120 hosted by Thurston Booker's CFO. For the duration of the call, you will be a listen only. However, at the end of the call, you will have the opportunity to ask questions. If at any time you need assistance, please press star zero on your telephone keypad and you'll be connected to an operator. Please note on page two of the presentation you will find a disclaimer. I am now handing over the call to Thorsten Bokers to begin. Please go ahead.

Thank you, Judy. Good morning, everybody, and welcome to our Q1 conference call. Before we go through the presentation, I would like to mention two things. First of all, Burkhard Lohr asked me to take over this call. He has tested positive for corona, In his case, the cause of the disease is a mild one. However, he stays in quarantine this week. Secondly, some background on our announcement from last Friday. So far, we have come through corona operationally well. In Q1, we had some smaller burdens, for example, because of efficiency losses due to health measures to ensure the safety of our employees, or the delayed new contract with Chinese customers has an impact on the timing of recovery in potash prices. Also, we cannot rule out that access to liquidity remains difficult because of further uncertainty in the markets about the future economic development. As a precautionary measure, we have decided to adjust the dividend proposal to the minimum to maintain eligibility for a state-secured KFW loan. Let me start our presentation on page The corona crisis is keeping all of us on edge. In some industries, sales have dropped overnight. It is different for us because we offer essential products. It is also part of our social responsibility to serve the needs of our customers in the fields of medicine, pharmaceuticals, food production, animal feed, and agriculture in the best possible way and to ensure safe waste disposal. Particularly in these times, we are proving that we are a reliable supplier. Slide four, please. Every day, our employees are making great contributions with their personal commitment and flexibility by keeping our production and the whole supply chain up and running. We optimized the shifts at the production plants to ensure social distancing e.g. on the way into or out of the mine or in the changing rooms. We have expanded home office regulations for administrative staff. Social distancing also applies in our offices. On slide five, please. Corona will trigger an economic downturn. Based on our product portfolio, we analyzed that 77%, so a clear majority of our total sales, is not only slightly dependent on the general GDP development. This should provide us a certain resilience against what's coming up. On slide six, I would like to give you a brief update on our package of measures to reduce debt. And the biggest measure is certainly the sale of the OU Americas. In March, we informed you about that, that we now plan to fully divest the America's operating unit. Despite the current corona crisis, the same process is going according to plan, and signing in 2020 remains our goal. We still see a lot of interest from potential buyers, including everything from family-run offices to private equity and strategic investors. What is also a major part of our package of measures is what you see on slide 7, because with the complete sale of the operating unit Americas, the restructuring of the rest, and especially of SG&A functions, has to be done. With only one remaining operating unit, all of the administrative functions have to be adapted to the new K plus S structure. We are doing this to reduce our costs, and complexity, and to focus on our core business. We will also ensure that all production sites are able to generate positive free cash flow, even in difficult market conditions. Future-oriented solutions in the environmental sector that sustainably reduce our capex have also to contribute to this target. We will keep you posted throughout this process. I am convinced that the realignment of KplusS will result in a leaner and more efficient company. Moving on to slide eight. Our EBITDA reached 201 million euros compared to 270 million euros in the previous year. The main reasons were a very mild winter, which led to significantly lower sales in the community's business and lower average selling prices in agriculture. Good cost discipline and higher earnings contributions from industry and consumer segments were able to partially offset this. However, the coronavirus, as mentioned earlier, affected us too. Compared to other industries, we are in the favorable situation that our products are considered essential, and therefore, we only had small losses, or we had no losses on the sales side, but the measures to protect the employees and to ensure production and shorter shutdowns at some smaller sites cost us around 10 million euros in this first quarter. On slide nine, the customer segment agriculture. The Chinese import stock for potash was still in place in the first quarter. As a result, Prices in our overseas markets like Brazil continued to fall due to temporary product overhang and missing price orientation. In Europe, prices were almost stable. The good weather conditions in Europe helped us to return to normal sales levels after the production cuts in the second half of last year. At the end of April, we finally saw the signing of the Chinese supply contract at US$220 per tonne. We therefore assume that MOP downward trend has bottomed, and we have already seen a first positive reaction in the Brazilian market. On slide 10, just briefly, because I mentioned it already, the mild winter has led to a significant drop in sales and earnings in all regions. In total, the icing volumes in the first quarter were almost 50% below the high level of the previous year. On slide 10, in the industry segment, we offer products for a variety of applications. Some sectors, such as chemical source or the supply of hotels and restaurants, are affected by corona. Other segments, such as the pharmaceutical business or the production of cellulose, have so far more than compensated for the negative effects on our earnings. A significant improvement in operational performance also contributed to this, but we suffered a little with lower prices of our potash-based industry product range. What we lost to food sold in the B2B area was more than compensated by the demand in the consumer segment. The more people cooked at home, the more table salt was bought in the supermarkets. In these uncertain times, customers by well-known branded products that they trust, like Morton Salt and its Umbrella Girl. And then finally, the outlook on slide 12. We had a good start into 2020. However, mainly due to the late China contract and ripple effects on other markets, we see our EBITDA at about $520 million now for 2020. We also see further optimization potential in working capital and will stay CapEx disciplined, so we still expect the free cash flow to be around the break-even point. Because we have already received several questions regarding the impact of the dry weather on our wastewater disposal, due to the additional local storage capacities installed last year, we can state that even if we have a dry summer like in 2018, we will not see foresee any standstill. This concludes my presentation, and Judy, we can now go into the Q&A session, please.

Thanks. If you would like to ask a question, please press star 1 on your telephone keypad. If you change your mind and would like to withdraw your question, please press star 2. If you would like to ask more than one question, please submit one question at a time. Once answered, you will move on to your next question. You will be advised when to ask your question. And the first question is coming from the line of Christian Fietz from Kepler. Christian, you're now unmuted. Please go ahead.