K+S Aktiengesellschaft

Ladies and gentlemen, good morning and welcome to our Q2 video conference. We are delighted about the great interest. This is already the second time we hold this event via Microsoft Teams, so we look forward to work with you in this format. I would like to welcome our chairman of the executive board, Dr. Burkhard Lohr. Dr. Lohr will present the highlights of our second quarter 2021 and give an outlook for the current year. I would also like to welcome Torsten Böckers, CFO of KplusS, who will be available for Q&A together with Burkhard Lohr. Before we start, a few technical notes. This conference is webcasted live and the replay of the webcast will be available on our website afterwards. After the presentation of Dr. Lohr, you will have, of course, the opportunity to ask questions. Listeners of the webcast will have the opportunity to submit questions in writing, which will be read to the audience and answered at the end of the Microsoft Teams Q&A session. Please note that we will consider which questions have already been answered when treating that written questions. If you would like to ask a question via Microsoft Teams, please use the hand signal and write your name and the name of your research house in the Microsoft Teams chat function. We will then call you individually and you can address your question to us live. And please switch on your camera then. With that, we'll get started and I will hand over to our CEO, Dr. Burkhard Lohr.

Thank you, Dirk. Ladies and gentlemen, welcome to our Q2 call. Before we start with the results, I would like to highlight some achievements of the last quarter. And therefore, please move to slide number three. With the successful closing of the sale of the North and South American salt businesses on April 30th, we received net proceeds of around 2.6 billion euros and realized a book gain of 742 million euros. With the proceeds, we reduced our gross financial debt. In May, we already paid back our drawn credit facility, maturing promissory notes, commercial papers and some credit facilities with a total amount of over 1 billion euros. Additionally, we offered a buyback program for three of our four bonds. We targeted a buyback volume of 450 million euros and achieved a good 100 million euros more, making a total of 560 million. Finally, the KfW facility had been terminated, which had never been drawn. In total, we achieved a reduction of gross financial debt of around 1.7 billion euros within two months after closing the Americas transaction. Therefore, we could significantly improve our balance sheet and made it much more robust. The leverage improved to a sound net financial debt to EBITDA ratio of 2.0 by the end of the second quarter, compared with 12.3 at the end of last year. And the equity ratio furthermore improved significantly to 48% coming from 27. And now please turn to slide four. In addition to operational topics, KplusS has also taken social responsibility. Until the end of July, our employees and family members at the German sites received more than 3.5 thousand vaccine doses against COVID-19. This is our contribution to the German vaccination campaign. And now please turn to our Q2 results on slide five. Looking at the results of the continuing operations, we achieved higher revenues and a significantly higher 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 moderately higher versus the level of last year's Q2 and also compared to Q1 this year. In total, the increase was higher than we expected before. We saw a strong demand in the agriculture customer segment and together with higher product availability, this led to additional sales volumes of more than 100,000 tons. In the industry plus customer segment, we saw a normalized demand for chemical and industrial applications after the lockdowns from last year's Q2. Together with a good early fill season for the icing, we increased sales volumes by nearly 300,000 tons. Combined with strict cost discipline and positive effects from currency hedging, able to more than compensate higher prices for freights and energy. So EBITDA has more than doubled versus prior year to 112 million euros. Following our impairment on potash assets last year, we will see value fluctuations on these assets quarter by quarter. Because of higher potash prices with a positive effect and higher capital costs absorbing parts of this, we increased the value of our potash assets by another 147 million euros in Q2. Adjusted free cash flow was impacted by higher interest payments due to our bond buyback program. We also had further cash outs for the SG&A restructuring project. Accordingly, it amounted to minus 68 million euros, including the positive cash flow from the Americas operations until April, it reached minus 24 million. Please turn to slide 6 for a closer look at the agriculture markets. Since summer 2020, there have been significantly rising prices for the main crop commodities. Falling stock-to-use ratios, mainly on the corn and soya bean, have triggered this price development. In the last weeks, we saw some smaller declines from the peak prices, but overall, these price levels are multi-year highs. With higher agriculture prices, farmers' income and their prospects have improved significantly. Along with strong demand, farmers switched from a cost-minimized to a volume-optimized mindset with still very good affordability, despite higher input costs. As a result, we see a very good potash demand in all regions. The tight supply situation is a limiting factor of worldwide volume growth. Now please turn to slide 7. Especially in June and July, prices in Brazil and the US rose sharply. And Europe as well as Southeast Asia followed this price trend. Based on an already strong demand, concerns on supply from Belaruskali due to sanctions and the shutdowns at Easterhazy K1 and K2 further boosted price increases. We expect the sales volumes worldwide on the record level of last year of about 76 million tons, including 5 million tons of specialty. Further volume growth will be limited to the tight supply situation. The average selling price for our agriculture customers increased significantly year on year. Please turn to slide 8 for the industry plus customer segment. We started into 2021 with a strong performance of our de-icing salt business. Due to the favorable winter weather, the customer inventories were quite low. This had a positive impact on the early fields business in Q2 with higher volumes compared to last year. Just to remind you, last year's Q2 was hit by the first lockdowns due to COVID-19. In this year's Q2, we saw a strong recovery of the economy and our products for chemical and industrial applications benefited with higher sales volumes of around 200,000 tons year on year. Now please move on to slide nine and let's talk about our outlook for the current year. I'm sure you have recognized our ad hoc announcement from last Tuesday with the strongly increased guidance on EBITDA. I've already described the positive market environment for fertilizers. We are therefore optimistic to achieve strongly higher average prices for our agriculture year on year. we continue to expect sales volumes in the agriculture customer segment to rise to more than 7.5 million tons. After the good winter, we expect still more than 2.6 million tons of de-icing salt sales volumes for the year as a whole. The notable savings of the SG&A restructuring cannot fully compensate for the overall rising costs, especially for freight and energy. Overall, we expect EBITDA from continuing operations to increase to a range of 700 to 800 million euros, which is 200 million more than in our last guidance. This continues to include the one-off gain of around 200 million euros generated at the closing of the Rex joint venture, backed this closing in this year, but now in Q4. Our adjusted group earnings from continuing and discontinued operations are meanwhile expected as significantly more than 1 billion euros. But we also expect three digit million amount from continuing operations. Our adjusted free cash flow, including the cash in from the sale of operations until a unit, sorry, will be significantly above 2 billion euros. Our free cash flow without these proceeds for 2021 is still be expected negative, but now on the level of the prior year. Last but not least, I would like to inform you that Julia Bock will take over as Head of Investor Relations. You all know Julia for quite a while. She has more than 10 years of experience in our IR department and 15 years at KplusS. On behalf of the entire board, I wish her great success in her new role. She succeeds Dirk Neumann, who will take over as Head of Corporate Development at KplusS. The board thanks Dirk for all his efforts and wishes him great success in his new role as well. Ladies and gentlemen, this concludes my presentation and we are now happy to take your questions as usual, one by one please. Operator, please open the line for the Q&A session.

Thank you very much, Dr. Lohr. Ladies and gentlemen, you now have the opportunity to ask questions to our board members. If you would like to ask question via Microsoft Teams, please use the hand signal and write your name and the name of your research house in the chat function of Microsoft Teams. We will then call you individually and you can ask your question live. And to remember you, please switch on your camera. One more request, as usual, we would like to answer your questions one by one. So if you have multiple questions, please ask one question at a time, and we will answer it first. After that, you will have the opportunity to ask further questions. This brings us to our first question from Lisa Deneuve.