K+S Aktiengesellschaft

Good day, and welcome to the K&S Q3 Analyst Call with Dr. Burkhard Lohr, CEO, and Dr. Christian Meyer, CFO. My name is Britt, and I will be your EverCall coordinator. The format of the call includes opening remarks from the company, followed by a question and answer session. Please refer to our disclaimer on page two of the presentation, slides posted this morning. Then a note on data privacy. Please note that a session will be recorded, webcasted, and available as a replay on the K&S homepage afterward. People asking a question have to be aware that by doing so, they give consent to saving and replaying audio sequences. Please note that all attendees will be on a listen-only mode until the Q&A portion of the call. At this time, I'll turn the call over to Dr. Burkhard Lohr for opening remarks. You may now begin.

Thank you, Britt. Good morning and welcome from Kassel, ladies and gentlemen. We would like to start the Q3 earnings discussion. We had a robust quarter, slightly above expectations, and we again benefited from a strong specialty business. Agriculture sales volumes were 1.8 million tons, which is quite good for a maintenance quarter. Industry plus also performed well. Overall, Q3 EBITDA reached 66 million euros compared to 72 million last year. Lower revenues, mainly due to lower prices, were largely offset by lower costs and positive currency effects. Our free cash flow for the first nine months amounted to 111 million euros. For the full year 24, we now expect EBTA to be around 540 million euros and therefore closer to the lower end of the previous range. We also reduced the upper end of the agriculture sales volumes guidance. This is due to production bottlenecks, mainly as a result of an above average illness rate. We continue to expect free cash flow to be at least break-even for the full year, despite the planned increase in capital expenditures. And now we are happy to answer all your questions, and I give back to Britt.

Thank you. At this time, we'll conduct the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to enter the queue. And again, that's star 1. on your telephone keypad to enter the queue. We will pause here briefly to allow your questions to generate. Our first question comes from Christian Faiz of Kepler Chevro. Your line is open. You may proceed.

Yes, thanks very much. Good morning. Good morning, Burkhard, Christian, Julia, and team. I have a couple of questions. So Burkhard, you mentioned yourself there was apparently a production shortage due to sickness rates in Q3. Is that also a topic for Q4? That's the first question.

Then second... Christian, could we do it as usual one by one, please? Of course. Yes, absolutely. Thank you very much. Thank you for your first question. Yeah, the illness rate is, of course, a topic which is, I know you are aware of that, something which is a total German issue, and I know in some other European countries as well. And you cannot stop it from one day to the other. So we expect to have some impacts also in Q4, but that is already modeled in our guidance for the rest of the year.

Okay, great. Thank you. Then the second question is, do you have any early view on own produced volumes for 2025?

Now you know that we are not guiding our production volumes, but we are expecting a strong demand in 2025. You might have seen the calls from or heard the calls of our competitors. We are all in line to see

yeah a strong demand in 2025 and that of course will trigger also our sales volumes okay thanks very much third question um and final question can you please share with us the current production level for bethune i.e also the current ramp status of the secondary mining thanks very much yeah thank you very much yeah we are we will um

produce volumes close to 2.3 million tons this year. And as you know, the ramp up is ongoing with a magnitude of additional 100,000 to 150,000 tons a year, which will not be the case in 2025 for technical reasons. But we are on a very well track. And, you know, everything we add now is secondary mining, low-cost secondary mining volumes, because we have reached the full capacity of primary mining already with a 2 million tons threshold.

Okay, thanks. I'll go back in line. I would love to know the reason for the technical reason, but maybe somebody else can answer it.

There is nothing unplanned, just to say it like that. Okay, thank you.

Thank you, Kristen. Our next question comes from Aaron Ceccarelli at Barenburg.

Hello, hi, good morning. Hello, thanks for taking my questions. I have three questions. The first one, maybe could you help me understanding a little bit how these production bottlenecks are impacting your profits in Q4. Maybe you can talk about the impact on gross profit and EBDA. My understanding is that you have not hired extra people.

You know, we are not talking about very big numbers. We have indicated that the upper end of the sales volumes range is down by 100,000 tons. So you can see that the magnitude of this production impact are below 100,000 tons. And that translates in a low EBTA impact.

My second question is on your SOP, the specialty business, which remains extremely strong. I think this is driven by your competitors not being fully back and sulfur prices remain favorable. Maybe can you expand on these two points as I thought one of your peers was back in production, but I'm not sure at this stage. Thank you.

The situation is unchanged. The competition is limited. All the Mannheim producers are having problems or too high cost. And that's why the prices are leaving on the current high level and the premiums on MOP are on almost historical levels. And we believe that this will continue for a while.

My final one is on free cash flow. item of acquisition disposals of securities. It's very volatile. In the first nine months of the year, it's negative 84 million compared to negative almost 280 last year. Can you maybe help me a little bit understanding how you think about going into 2025? You expect to dispose more securities, investments. What's your view there?

Yeah, we have a lot of cash currently due to the positive net financial asset position we have. And with regard to the investments of these cash positions, that's why we have a lot of interest earnings. And that's what we finally make a correction for. Thank you.

Thank you, Aaron. As a reminder, ladies and gentlemen, if you'd like to ask a question, it's star one on your telephone keypad. Our next question comes from Konstantin Weichert at Botterbank AG. Your line is open.

Yeah, hi. Yeah, hi, gentlemen. Thanks for taking my questions as well. If I may come back to the SOP part, I think, or just in general, maybe a bit on the specialties. If we now take the ASP from your third quarter and your guidance that For the full year, you still expect the average selling price at €313. I guess this is implying that you will sell less specialty volumes in overseas areas in the fourth quarter. But is there any other aspect involved in this more or less deeper decline in ASP into the fourth quarter? Is that maybe also that you see some more pressure on SOP prices? I've read that especially in Asia, buyers are becoming a bit more cautious and think the premium to the MOP might be too high. And if I look at the difference between the Asian and European prices, that also seems relatively high. So is that something where you're concerned or what are the drivers there?

It's very easy. We expect that the prices continue to be on the current level for the rest of the year and the year is almost done. And we are now in the middle of November. We have really high visibility and we are not seeing significant movements on MOP and not on our specialties. Of course, SOP is our star product. We always talk about SOP, but we have a range of other products, partially even with more volume, like corn-carly, which becomes more and more prominent with our project BERA 2060, because we increase the corn-carly volumes and we'll ship it into target markets like Brazil and China. But again, for the rest of the year, we see stable prices, on the high end of the specialties and no big movements on the lower end of MOP, but here we are optimistic that we will see some positive developments soon.

Okay, so the quarter-over-quarter decline in ASP would be mostly down to a change in where you send the specialty volumes more to Europe and less to overseas, if I understand it correctly then.

Even the regional mix will not change a lot. So it will just be business in terms of pricing and regional mix. It will be very close to what we've seen over the last two quarters.

Okay, perfect. Thank you. If I may also ask a more general question on 25 maybe already is, If there's any, just if you could give some color on potential cost savings that you would expect for 2025. And especially I would be interested in what you see, how your material expenses are developing in the next year. If there's any reason we should assume maybe a softening year or if that's kind of stable.

We are working on the price level, which could in total be stable to slightly up against 2024. Of course, it depends on the outcome of the bargaining agreement with the unions, which the negotiations have started. But historically, we always have seen very balanced and reasonable bargaining agreements. We have only 50% hedged of our gas price currently, which gives us the chance to gain from lower price moments. The gas prices are very volatile, and if we are clever, we can lock in good pricing. And for the rest, we rather see potential for lower prices than higher prices. So in total, maybe we end up on the level of 2024.

Perfect. Thank you so much. And if I may squeeze the third one in. Given that you now have a relatively precise EBITDA guidance but still have a volume range, anything that explains why you kept this range rather wide there still?

I don't know.

Okay, that is, you know, we have big vessels. We are doing bulk business, and if one vessel slips from the 31st of December into the 1st of January, then we already have 50,000 tons of deviation. That's why we need still this range.

Okay, perfect. Thank you so much.

Welcome.

Thank you, Konstantin. Our next question comes from Angelina Glazova from JPMorgan Securities. Your line is open.

Good morning. Thank you for taking my questions. I just have to, please, my first question is on the FARA 2060 project. If you could just give us a quick update on the progress of the project so far, as in has the cap expense been in line with your expectations? And broadly, how much of the total CAPEX fund has been invested so far and how much remains in the next couple of years?

Yeah, the project is on a very good track. We are very happy with the current status and we are very sure to achieve all our targets. As they are so magnificent, I need to remind you that we will reduce our uh co2 output by 50 percent our production waters by more than 50 percent that we can enlarge the lifetime of that project by 10 years it's a win-win-win situation um and uh yeah the the main part of the capex is still ahead of us um and as you know it runs until 2027 so the first year which is then not inflated. CAPEX is not inflated by VERA 2060 will be 2028, but we are in totally in line. There is no overrun to be expected. Yeah, and we will deliver as promised.

This is great. Thank you so much. And my second question is actually a follow up on the guidance for full year 24 or the fourth quarter 24. So I understand that the reason for adjusting the volume guidance was in part operational and we see that in part this is a seasonal development when it comes to above average sickness rates. And of course I hope that the situation improves soon. But I was wondering in general if there are any steps that you could take for the future or maybe are taken already to minimize or reduce the impact from such cases on production volumes. Thank you.

Yeah, that is a good question because it's a difficult topic with many dimensions and that's why we have mentioned it because it's really outstanding what we see here and we will work hard on that like measures raising the awareness of our managers even more than in the past and offerings from corporate health management We make it to an KPI, the illness rate, which the board of executive members will discuss and look at all the time. And we are sure that we will achieve the same what we did with our safety rates in Germany, which is half of what it was 18 months ago. And this path we are going to see with the illness rate as well, I'm sure.

Understood. Thank you so much. Thank you, Angelina. As a reminder, ladies and gentlemen, if you'd like to ask a question in today's conference, you may press star 1 on your telephone keypad to enter the queue. Our next question comes from Andreas Hein of Spiegel. Your line is open.

Yes, good morning. I'd like to start with a price outlook. So what if prices are on a pretty low level? There was not much price discipline among the players, at least is my feeling. We have now heard statements from Belarus, out of Belarus, actually not from Belarus producing company itself, but from the president. And the profitability and cash generation across the industry is pretty dull. The volume of the Eastern European players is back in the market. Is there any chance that the price discipline among the players will be higher going forward?

Yeah, you are touching a very sensible issue. First, I would like to elaborate on what Mr. Lukashenko said and the background. I think it shows that the current pricing is on a level. There's a lot of noise.

Andreas, can you mute yourself while you are typing?

I do that, sorry.

So, it shows that on the current level it's hard to make money even for the Belarusian and the Russian competitors and it does not justify at all any new capacities. And together with the outlook of high demand, worldwide demand in 2025, I'm convinced that we have seen the bottom of this cycle and that we see rising prices in 2025. You know that we have never actively curtailed volumes, and we are not going to do that. but we also had issues with the illness rates, so we could not achieve our planned production. We heard that ICL also has issues, so nobody can run his mind 100% on the theoretical capacity. That also shows that there is rather a shortness in the market for the next couple of months to come than an oversupply.

Thanks. So that was my first question. The second is on the VARA project. Do we have to wait until 2028 that we see benefits of this, or are there milestones in between which could either change the mix of products in a positive way or reduce the unit costs?

With regard to the VERA 2060 project, we need finally to rebuild our site for the next two to three years. And when we finalize the constructions, then we will see the change in the mix. We will have a slightly increase of our corn-carly product, but the main effect we will see is 2028 and on forward.

Okay, fair enough. Then maybe one word on the de-icing. We are in the season for the de-icing business. Can you outline a little bit how the price, de-icing prices will be in the next season and how the pre-buying into the de-icing season was and what you expect from, let's say, Q4, Q1 season?

Yeah, the salt bus business is delivering a significant portion to our EVPA. We are very happy with the salt business. In total, not only the icing, and the pre-bidding phase was a good one. So we have started with good volumes, and as usual, now we are waiting for some weather, but it's expected that we will see a change in patterns over the weekend, and the pricing is a good one. So in total, nice conditions for our sole business.

Okay, that was the third one. If I may squeeze in one more in the basically adding up to what Christian was asking. You mentioned betune in 2025 will not see the usual 100 to 150 kilotons increase. Is that that it will stay flat for technical reasons as you mentioned them? Or is it just a little bit less than what you usually have? So what do we have basically to put in our model and volume production for between?

Yeah, thank you very much for the question because it gives me the chance to avoid misunderstandings. A technical reason I meant that is the path of the ramp up. We always said at the room of Samp, take 100 to 150,000 tons. But actually, of course, we have some steps in between because we have to work on infrastructure and now we are working on additional compaction because everything which comes out of the cooling pond has to be granulated and here from time to time we have a year with the flood development and that will be the case in 2025 with 2.3 million tons and then we continue to see higher volumes in the years after.

But, for example, the step in 2024 was also higher than 100,000 to 150,000 tons. So you will always see one year with a little higher, one year with a little lower. But in average, it will be the 100,000 to 150,000 tons a year.

Thank you. That's all my questions.

Thank you, Mr. Heinz.

Thank you. Ladies and gentlemen, if you'd like to ask a question in today's conference, please press star 1 on your telephone keypad. Our next question comes from Lisa Dean at Morgan Stanley Securities.

Your line is open. Hi. Thank you for taking my questions. This is Lisa Denevy. I have three questions. The first one is a bit of a follow-up on Bassoon. With your comments that there's a little bit of need for establishment of infrastructure in 2025, I mean, How should we think about the bassoon's cash cost position on a forward basis? Can you give any guidance on that? Thank you.

We always give the guidance for a fully utilized site, which means we have a double-digit cash cost number, so below $100 a ton. which is a mix of the primary mining and the very low-cost secondary mining capacity. It doesn't make sense to give cash costs for a non-fully utilized mine.

Okay, thank you. And then maybe talking about broader CapEx requirements. I believe earlier in the year you sort of deferred a little bit of your CapEx from 2024 to 2025. I mean, how should we think about the different CapEx budgets into next year, being the maintenance, the growth, and maybe let's call it environmental or where are 2026, 20, yeah, 2060 CapEx. Can you just outline that for us?

Yeah, the number that we expect for 2024 will be very close to the numbers that we expect for the next three years, five, 25, 26, 27. And then we should come back, we should come back to a more normalized number.

Okay, thank you. And then, I mean, following on from your comments earlier in the call, I mean, you stated that you think we've seen the bottom in MOP pricing and you expect for a strong demand next year. Can you share what you think will trigger the revival in Polish prices? And if it's demand, where particularly regionally you expect to see strong demand next year? Thank you.

Yeah, I'm... I'm seeing the development of supply and demand of 2025. I'm not seeing a lot of additional supply for next year. We have seen already the full capacity of Russians and Belarusians in the market this year. Maybe a little bit more from last, but significant higher demand. And that alone is already good for higher pricing.

Okay, thank you very much.

Thank you.

Thank you, Lisa. Ladies and gentlemen, to ask a question today, it's star one on your telephone keypad. We will pause here briefly to allow any additional questions to generate.

appears there are no further questions sending it back to dr bookart lore the closing remarks yeah thank you very much thank you for your interesting questions um and uh yeah thank you thank you for joining us in that call and now we go on the road and we will see you personally and can answer more questions and all the best to you and see you bye bye

This concludes today's EverCall. Thank you and have a great day.