K+S Aktiengesellschaft

Ladies and gentlemen, welcome to the KplusS first quarter 2024 earnings call. We hope you had a chance to review our posted slides as well as our Q1 documents available on our website. After some opening remarks by Dr. Lohr, we will directly jump into Q&A. Some technical notes. Please refer to our disclaimer on page 2 of the presentation. Then a note on data privacy. Please note that the Teams session will be recorded, webcasted and be available as a replay on our homepage afterwards. People asking a question in the Teams session have to be aware that by turning on their camera and microphone, they give consent to saving and replaying video and audio sequences. Now, I would like to turn over to Dr. Lohr for the opening remarks.

Thank you, Julia. Ladies and gentlemen, welcome to our Q1-24 earnings discussion. We had a good start into the year with a strong European and specialty business, resulting in agriculture sales volumes of more than 2 million tonnes. IndustryPlus also showed a nice performance. In total, Q1 EBITDA reached 200 million euros and was even better than Q4 last year. Free cash flow amounted to 111 million euros. For the year as a whole, we continue to expect EBITDA to range from 500 million euros to 600 million euros. Although the good first quarter has made the lower end of the range less likely, It cannot be ruled out as long as contracts have not yet been concluded by major competitors in China and India. So these were my short opening remarks and now we are happy to take your questions.

If you would like to ask a question, please use the hand signal and write your name and the name of your research house in the Microsoft Teams function. We will then call you individually and you can address your questions to us live. 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. That brings us to the first question of Konstantin Wichert from Baader.

Yeah, hi, thanks for taking my questions and thanks for having me the first here. Maybe if I may immediately start with some more detailed question, maybe on agriculture. I think usually when you had these around 950 kilotons in Europe in the first quarter, your second quarter came in rather somewhere around the 700 kilotons, 750, 760, somewhat in that range. Do you think or do you currently see this already and do you expect this seasonality again or do you expect the change from that? And maybe this is also then for the specialties as well where normally If you had a quarter like this, your volumes came down to somewhere between 500 to 700 kilotons. So maybe if you also could give some color on that.

Yeah, that is totally correct that the first quarter is the strongest and especially in Europe. because the strongest season is running in that period of time. That means that we will have lower volumes for MOP and for specialties in the second quarter. The amounts you mentioned, I wouldn't like to confirm. It shouldn't go down that much, but it will be lower, and we will see more overseas business.

Okay, and maybe also Maybe then again on the specialty second question here. Also again, a bit with regards to the historical levels. I think the premium over the specialties for MOP, even though that might fluctuate a lot during the quarters, when we take the full year averages over the last years, that has always been between 32 to 34 euros per tonne, maybe excluding 22 here. And I think in the first quarter now we were at 50 euros. So maybe what would you say is a reasonable timeline until that recovers to a normal level? Or would you say there are some arguments? And if so, which arguments would there be for you to assume that this premium could be higher for longer?

Yeah, the specialty business is running very well. The demand is strong and we see especially when we talk about SOPs some competitors struggling with their production volumes and that gives us a lot of opportunities to keep the specialty prices high for a longer period of time. So I'm not expecting a significant drop of prices of specialties in Q2.

All right, maybe if I may ask one last one. A difference here on the industry plus, you said nice start into the year. However, also here, if I may challenge you a bit regarding volumes, I think if we exclude de-icing here, the volumes were more or less flat over the fourth quarter, whereas in general, the chemical industry has seen a relatively good recovery in the first quarter, and we would expect maybe some restocking here also for chlorine production and so forth. With the question here, do you expect more volumes over the rest of the year, or will that also then potentially, as we currently see in the chemical industry, that volumes in the second quarter might be a bit lower again?

As you know, the Industry Plus volumes are mostly impacted by the de-icing weather, de-icing situation, which is a situation in Q1 and Q4. If we strip that out, we see a very promising development in both potash and salt business in the Industry Plus segment. We expect this to continue and we are very pleased you talked about volumes we are very pleased about the pricing in that segment and especially the salt pricing so we have taken some init initiatives to keep prices high and that were successful and we There's hope that we can keep the prices on high levels All right, thanks, I keep it like this for now, thanks.

You're welcome. I

The next question comes from Christian Feitz from Kepler.

Yes, good morning. Thank you. And good morning, everybody. Just a couple of questions. First question is, can you tell us a bit about the demand situation for Potash, both about the current demand situation, not in Q1, both in the northern hemisphere, but also about any early signs of potential demand revival in Brazil? Thank you.

Yeah, thank you, Mr. Veits. So the volumes are not the problem in the current situation. They were not the problem in Q1 and are not the problem as we speak. So Brazil is showing a very strong demand and there is hope that we could see another record here in Brazil. We talked about Europe already. This will go down a little bit, but for a seasonal reason, not for an underlying demand reason. The only weak area would be Southeast Asia currently, but all other areas are in a good condition. The only question mark is about pricing, and here we desperately wait for an indication from India and China.

All right, thank you. And then my second and final question, in terms of, can you give us an update on your tailpiling situation and also on the Turingia mine, which you plan to fill with highly saturated salt prime? Is there any update on that front? Thank you.

Yeah, the expansion of the tailings piles are running quite well. So we are not seeing any disturbance or problems. Other is with the coverage of the piles. Here we have, like always, discussions with the local authorities and with some interested parties. We have seen that in the past with every single pile that we are covering, but we will get there, find the solution at the end of the day. But unfortunately it takes years, but maybe that is not so important because the whole process takes decades. So it's not really meaningful if we start now or in two or three years from now. And the storage into Springen is also... Germany has always promised to get quicker with the approval processes, but I'm not seeing anything. I rather get the impression we are getting slower. But the longer, the more successful we are with VERA 2060, the less important this opportunity to discharge our salt waters into spring is. The importance is going down and we will have finished spring 2060 until the end of 2017. So by then we have a remaining volume, which is not really a problem for us any longer. Okay, thank you very much. Thank you, Mr. Feitz.

The next question comes from Aron Ceccarelli from Berenberg.

Good morning. Thanks for taking my question.

I see the comment in your presentation about supply. You were not expecting oversupply for this year in the market. Can you talk a little bit about the confidence on this topic, please?

Yeah, we have already assumed, and I think all our friends, the other producers are doing the same, that Belarus and Uralkali will be back with their whole production in the markets. But at the same time, we are seeing stronger demand. And the proof was the first quarter. So we will have a balanced situation between supply and demand. The split is different than it was before the war. So good for us, less competition in Europe, stronger competition in Southeast Asia, China, India. also in Brazil, but that is the fastest growing market. So in total, the new situation, first of all, is a balanced one, and secondly, is positive for K plus S. I can add one more.

Can you remind us just your hedging strategy for this year? How much you hedge ready for gas for this year, please?

Yeah, like always, we are hedging the running year almost entirely. As we speak, we're talking about 90%. And I can give you the numbers for the following years as well. So it's 30% for 25% and 20% for 26%. These numbers will increase over the summer.

Can you disclose the price at which you hedge 2024?

the the average price is slightly below 40 euros per megawatt thank you very much you're welcome the next question comes from angelina classova from jp morgan good morning thank you for taking my question i just have one question could you please discuss in a bit more detail the key changes that we should expect to happen between Q2 versus Q1 and as part of that specifically I would be interested in comments what impacts you are expecting to see from Canadian rail strikes as in you likely see it more as a net negative because of potential volume issues or it could possibly be a net positive because of upside risks for pricing?

Listened correctly that were two questions, but we are going to take both first of all Yeah, I think I gave an indication already q1 was an extraordinary good quarter in terms of volumes and a big European portion with the higher prices So we will not be able to repeat that. The prices will not change a lot, but the mix will change. We will have more overseas business and in total a lower volume than the 2 million tonnes that we have seen in the first quarter. Railstrike, would you like to say something?

With regard to the Railstrike, we are well prepared, especially where we store finally our inventories in Canada. And we expect only very low impacts to our results. So you have to keep in mind, you have as a rail strike on the one hand, then the workers at the ports and depending on the situation, we are able to react. So it's only a little bit impact for our P&L.

Understood. Thank you very much.

You're welcome.

The next question comes from Andreas Heine from Stiefel.

Yeah, I start with the first one. Thanks for getting the opportunity on the European price. You have a very strong position with your strong market share in Europe, and it's probably not, let's say, about the competitive situation in Europe where the price is and more how, let's say, strict you can be by having a significantly higher price in Europe compared to overseas markets. Can you elaborate how you think about the spread you will ask for European farmers to pay more than what the market price in other regions is?

Yeah, thank you, Mr. Hainer, for the question. It's a difficult one because you have to take a lot of aspects into account. And you know that we have always a gap between the European pricing and the overseas pricing. And I'm not talking about freight costs or granulated against a standard. It's a traditional development. If we see movements, they are quicker in overseas, and they are slower in Europe. Currently, we have the outstanding situation, and it looks that this will last for longer, that there's less competition in Europe. And people, I'm asking very, I'll get, be asked very often, why don't you get the prices even higher? Because European farmers, of course, know what in the rest of the world is going on and would not accept a difference which is too big. But what is too big? The second impact is volumes have not come back to the volumes that we have seen in 21, so before the war. Obviously, farmers have used more biological ways to fertilize. Many reasons. The legal situation for the farmers in Europe is a difficult one as well. So we are missing roughly 500,000 tons. And as you know, they have always the opportunity to take an additional potash holiday. Not now, because they have done that in the past very often. So if you take all these bits and pieces together, our expectation is that the European prices will continue to be higher than in overseas markets, but with a less magnitude over the time. Long answer to a short question.

Yeah, it was a difficult one, as you mentioned. The current spread you see transferred to dollars, it's 20-25%. Is that something what you would say reflects the usual premium you would have plus the more favorable competitive situation? Or is that something where you say it's extreme and has to come down?

I wouldn't say extreme, but we expect this to come down a bit. Not in big steps, but slowly and surely. Okay, thanks.

Second question is on the regional split. As you outlined that the situation has changed. with Belarus-Carlo and Uralkali delivering significantly less to Europe, but in total the same. So that means that from here, for the foreseeable future, your regional split will be also different than it has been historically. Would you share how much volume you expect to delivered to Europe, let's say, as a broad average for this, and probably also the coming years, from your total volume of, let's say, 7.5 million tonnes.

I think we will never have a normal year. We have achieved to react quicker than in the past. And we have even done the lowest Brazilian volume we have done for many, many years. So we can react on prices in every region and try to optimize and maximize the netbacks. So that's why I'm struggling to give you a new split, a new normal, but of course we are keen to have the European portion as big as possible.

Then coming to the financials in the first quarter, you had a very strong free cash flow, which was helped by the networking capital. Is that something what is sticky so that what you have earned and will not reverse or is that now inventories were run down pretty much in the first quarter due to the seasonal strengths and will be higher towards the end and that the collection of European Sales are obviously faster than overseas and that with more sales in Brazil, that networking capital will not stay that favorable over the course of the year.

What we will see at the end of the year depends on the volumes we are going to sell. If you have a look at the inventories, the positive thing is that we had a really strong demand that you see in our figures already, and that we were able to reduce our inventory on the one hand, and on the other hand, There was, compared to the prior year, Q1, a much lower receivables level due to the fact that you had real high prices one year ago, potash prices. These are lower now and the portion in Europe is much higher where you have shorter due dates, the payments, and these effects are mainly driven by very positive free cash flow in Q1. For the rest of the year, you see that, as Bogart-Lohr already explains, that we expect a little bit higher share of overseas, where you have different maturities or other maturities, so that we will see how the working capital will be at the end of the year.

Do you think that some of these federal network and capital movement will reverse or is that what you have if you compare them year on year by year end that it might be similar to last year and that what you have collected in the first quarter is what we can add to the free cash flow for the full year or is that positive?

No, we don't expect this strong free cash flow that will be the same in the next quarters. On the one hand, we have a big CapEx program. On the one hand, that's especially more year-end loaded CapEx program. We started with Vera 2060. the Bethune ramp-up, so we will have higher payments for investments in the second half of the year. And based on the fact that the overseas share will increase with longer maturities, we expect higher receivables for the end of the year.

Thanks. Very helpful. Then the last question I have is on the de-icing business. Usually you have quite a good visibility if it comes to the price trend, which usually is depending on how depleted the inventories of the municipals are. And then the early loads, the pre-buying will be in Q3 latest. Do you think that this favorable situation, what you mentioned at the beginning of the call, in the de-icing or in the total salt business is something we can extrapolate for the whole year, or was that something only for the season, which is now behind us?

Yeah, the only thing you can extrapolate is if a season runs well, the pre-stocking season, the following pre-stocking season will run well as well. And that is what we expect because in total, so if you look from October to March, we had a very good de-icing salt season in Europe. Not equally distributed, but that is not important. That's why we expect a good destocking season, late summer, early autumn, but the rest is depending on the weather in Q4 and Q1 2025.

Now that's a volume Q4 and Q1, but if it comes to price and margin, how would you see that going into the next season?

The base for good pricing is of course a good one if the pre-season was good, and that is the case, but don't expect things that we have seen in the US business. European pricing is also in the de-icing area not as volatile as in other areas of the world.

thanks for answering all the questions and um then i go back to the line thanks thank you very much the next question comes from alexander jones of bank of america great thanks morning um the first question on specialties you had a very good quarter in specialties with volumes up quite a bit how do you see the mix of that evolving for the full year relative to mop thank you

Yeah, we are happy to get all our specialties into the markets, you know, out of the 8 million tons, which is the total volume for agriculture and Industry Plus. Something more than 3 million tons are specialties. We always talk about SOP, but there's much more, especially with VERA 2060, Kornkali is getting more important, which is running very well also, volume-wise and price-wise. And we started developing the Brazilian market, for example, for Kornkali. We are going to sell 100,000 tons this year into Brazil. So we are very happy with our specialty portion. and we make the best out of it in terms of netbacks and continue to do that for the rest of this year.

Great. And then following up a bit on Andreas's question on working capital, I think in this slide you highlight a cost impact from underutilization, from selling out of inventory. Are you able to quantify that for us? And should we think of that just being a Q1 thing or is the further inventory to sell down in Q2? Thank you.

No, I think we had an extraordinary good quarter in terms of volumes, which was higher than the production, but that should normalize in the following quarters. So don't expect something like that again. Thank you. You're welcome.

The next question comes from Lisa Denev from Morgan Stanley.

Hi, good morning. I have two questions. I'm just following up on a comment you made earlier. So why, in your view, is Southeast Asia weak? I mean, I saw in publications that first quarter imports were plus 60% year on year for Indonesia. And first two months, Malaysia was up 130%, clearly from low level. So should we read as you having a cautious tone on this market into the future quarters this year? Or how should I understand that?

Thank you for the question is a tricky one as well because it's Not fully explainable for us as well what we see generally worldwide that granular product is running much better than standard and Southeast Asia is a almost hundred percent standard market that it might be one explanation and this second explanation is This region even more is waiting for an indication from India and China, especially India in this case, which is missing. And that is maybe 80% of the explanation why this area is weak. The remaining 20% is a mystery.

Okay, maybe just following up on that. I mean, I know that you're just a price taker in the market and don't lead the conversations on these potash contract settlements. But what is your personal view on why this Indian contract seems to be lingering, while actually inventories for potash in India seem to be quite depleted at this stage?

I stopped making forecasts because they are always wrong. We have heard so many times this year the Indian contract is almost finished. There's a settlement soon and as we speak there's still no Indian contract. This must be playing games over the negotiations and as you mentioned we are not part of the negotiations so we don't know, easily don't know. The only thing I really expect is that we will see an Indian contract earlier than a Chinese contract.

OK, thank you very much. And then maybe lastly, also following up on your comments on Europe. I mean, what do you think is the reason that demand has not trended back after two, three years now to historical levels? I mean, is it really just related to the use of biologicals or is it just like a function of lower availability of product volumes? And in the latter case, would you not expect these volumes ultimately to be covered by other suppliers, like, for example, ICL over time? or would you say that this european demand will never really return to historical levels and never is a strong word but maybe like for the foreseeable future of three to five years

Yeah, it's a mix of many things. I think we have the most difficult legal environment here in Europe for farmers. That is for sure one reason. I think the EU and the local governments are now thinking, especially after the strikes that we have seen, thinking about a release that could help. But that will take years. Secondly, the biological way to use fertilizers is more common. There's a limit, a natural limit. Maybe we have reached that limit now, but in total, the market is... roughly 500,000 tons shorter than it was in the past. But again, at the same time, as you mentioned, ICL, they have been in the market earlier, but Belarus was a big player. It's zero. And Uralkali was a big player, and their volumes are not meaningful either. So the situation is better than it was before.

Thank you.

You're welcome.

Currently, I do not see any further questions. Is that right? Otherwise, there would be a last chance to raise your hand. Konstantin, you rose your hand again. Konstantin Wichert from Baader.

Yeah, thanks. Hi. Maybe just adding, trying once again on this topic about Europe. So just maybe, I think in the past you always mentioned that the European market is about 5 million tons. So maybe how has that in your view now reduced? So is it rather going towards the 4 million or 4.5 million or is it still the 5 million? And then because you also mentioned in the past that you gained market share here, And I think if we look in the years 2015 to 2018, you averaged more like 3.7 million tons. And since then, that hasn't really been able to be recorded again. So isn't that something that should still be in range when you say now you gain market share or is that too much?

First of all, we're talking about different numbers in Europe. we came from 6 million, roughly 6 million tons, and now we see 5.5 million tons. So that is the difference is the 500,000 tons that I mentioned earlier. And your question to the market share, is this a global question or is it related to Europe as well?

So obviously it's related to Europe. I think you said you get market shares here. And as I said, you had back in the days from 2015 to 2018 you had 3.9 million tons here and since then you don't really come close to that but maybe over the last years that was due tend to potash holidays but uh isn't isn't that something that should be in range or is that too much

I guess from 13 to 19, there was still the industry potash products included, because at that time we were reporting potash and magnesium product, including industrial volumes. And I guess that's here a calculation problem. So I would say if you just look, for example, at Q1, then we had 200,000 tons already more than last year, which is quite tremendous for Europe.

Thank you for that clarification. That is important. Of course, we still do important volumes in the European industry plus markets in potash as a product. But a market share in agriculture in Europe. So Belarus and Uralkali had 40% market share. They fell down to maybe 5%, 6%. That's the small remaining volumes that Uralkali is delivering into Europe. And we saw a little bit more of ICL and others, but you can imagine that our share has increased tremendously.

And now maybe to close this, so now the first quarter volumes would, in your view, reflect your share of the market on a normalized demand from Europe where there's no farmer doing a pottage holiday?

Yes. There are always farmers doing pottage holidays. They are not doing that at the same time. But we have a normal mix. And that was a representative quarter, if you wish.

Okay, thanks a lot.

You're welcome.

So I don't see any further questions.

Yeah, but there were a lot of interesting questions. And thank you very much for that, to giving us the opportunity to share more light on that quarter. And we are quite optimistic, as you see, for the rest of the year. All our projects, Ramp Up Bethune and VERA26, are running very well. So you see a quite happy CFO and CEO. And we are quite happy to see you soon again because we are both going on the road and a lot of opportunities to talk to us in person. Thank you very much and goodbye.