K+S Aktiengesellschaft

Good day, everyone, and welcome to the KNS second quarter 2025 earnings call. My name is Lucy, and I will be your webinar host. Please note that all attendees are currently in a list until the Q&A portion of the call, at which point you'll have an opportunity to ask your questions. I will now hand over to Julia from KNS for some technical notes.

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. Some technical notes, as always. Please refer to our disclaimer on page 2 of the presentation. A note on backup privacy. Please be aware that the team session will be recorded, webcasted, and available as an audio replay on our homepage. People who ask the question in the team session should be clear that by switching on their camera and microphone, they flee to the recording and replay of video and audio sequence. Now, I'd like to hand over to Christian Meyer, our CEO, for the ultimate remark.

Thank you, Julia, and welcome from my side as well. I would like to start with some explanations about our two-hour talks in context with our two tools, learnings, really. 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 ROC. According to IFRS, we must compare our book value, which is the capex spent on assets minus regular depreciation, to our DCF framework. 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 and prices to change rate or value. If the GCF value falls below the book value due to an estimate change, our asset value will be regulated by the GCF value, which likely fluctuates 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 2 billion euros. Already nine 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 US 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 US dollar, with the biggest impact on the DCF value now falling below the book value. We now use a rate of 1.20 per euro in our 150-year DCF model, up from 1.10 US dollars per euro. The future reaction of potash producers and customers to the weak US dollar against most currencies remains to be seen. These effects were not yet reflected in the external potash price studies by Argos, used for the impairment test. Additionally, BHP's announcement of their delayed production start came after our approach and is, therefore, not reflected in Argus price curves. Once we have decided on the long-term exchange rate, applying it to a BCS 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 plus S activization individual financial statements according to HCV 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 article. On July 29, we published an ad hoc with details on Q2 full-year FBTA and free cash flow. Despite missing Q2 and having a weaker US dollar-euro estimate, an analyst assumed we could confirm our full-year output. Second quarter FBTA 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 resume maintenance, and the US dollar-euro exchange rate impacting earnings despite hedging, especially due to receivables needing to be evaluated with a 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, cottage prices have have continued to rise moderately. Therefore, we confirmed our previous expectations for the full year despite a weaker US dollar for the remaining months compared to our previous outlook and your expectations. We still expect EBITDA to range between 560 and 640 million euros 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 partners due to seasonality in both business segments. As a maintenance water, Q3 typically has the weakest FETA contribution. Last year, it contributed 65 million units. We will see positive price effect in Q3 year on year, but we will also see higher personal costs due to this collective bargaining agreement, as well as higher energy costs and negative FETA effects. I'm looking forward to answering your questions together with my colleagues, Yen and Julia, and I will now hand over to the operator to start the Q&A session.

Thank you, Christian. At this time, we'll conduct the question and answer session. If you would like to ask a question, please click the raisin icon at the top of your screen to enter the queue. Please state your company affiliation when asking your question. Additionally, KNS would like you to to answer your questions one by one. So if you have multiple questions, please ask your question at a time, and Kenneth will answer it first. After that, you will have the opportunity to ask further questions. This brings us to the first question of Christian's line.

Good morning, Julian, team, and Christian. Christian, I hope you can hear me. Yeah. Yeah. Perfect. So two 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 in Latin America heading into the key application season?

With Latin America, we have 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 near the hedge, but from the perspective of the residuals, there we finally realized some effects. And that's very important to keep in mind.

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

Yeah, the current demand, especially from Latin America, we are currently at quite a season. We are in between the seasons, but we expect a strong demand also for the second half of the year. And that's very positive. We are in between the seasons, but with the stable prices.

Okay, perfect. My second question would be on 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?

With 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 sales.

Come back in Q. Yeah, absolutely.

Q4 is the biggest one, upcoming winter. Thanks very much.

Thank you, Christian. Our next question comes from Michael. Please proceed.

Yeah, thanks for taking my question. Hello, everyone. Well, 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 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 a year today, July. So I wonder whether you can shed some more light how you see the Russian, Belarusian supply evolving second half and also looking into in 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, you know, deferring commissioning to mid-27. So, in general, the picture for 26 on the supply side. Thanks for that.

Yeah. Maybe starting with the second half of 2025, we still see a strong demand, and we'll see high volumes from the supply side. But if there are some challenges from the supply side, then 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 markets, small volumes, finally will be enough by the increasing of demand. So the market in 2026, we also expect that the supply and demand will be in balance, some risk like in the current year from the supply side.

Thanks for that. 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 increase in energy costs, I think roughly 36% first half, 60 million up compared to the first half last year. So now looking into current spot rates, which came down significantly over the recent months in TTFs, 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. Thanks.

Yeah, sure. So maybe for this year, we are hedged at 50%. but you also have to keep in mind the spot price you see has to be added by a first charge of 2 to 3 euros. So this is actually the price we have to pay. And with regard to next year, of course, we have already hatched a portion of 50% at a price slightly below 40 euros 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 leaves, but not that big.

Okay. And other cost items? So personally, 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 magnitude of increase, right?

So the bargaining remains for two years. We have an increase of personal costs, which is roughly around 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 a slight decrease for next year in energy costs.

But we have stable personal costs.

and all other sectors remain the same.

Okay. Thank you. At the level of the .

Thanks. That's all my questions.

Thank you very much, Michael. And our next question comes from the line of Angelina. Please proceed.

Hello. This is Angelina from . Thank you for taking my questions. I will have two 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 here today, 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.

And with regard to , we see an increase in supply, but also 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 around about 1.6 million tons 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 imbalanced. There's more risk on the supply side.

Understood. Thank you very much. And the second question is more around the financials. 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, the 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 zero. So with that in mind, how are you going to think about the dividend payouts? 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. Okay.

Yes, we have a clear dividend policy that we pay a dividend in a range of 30 to 50% of the free cash flow. And if you have a look to the condensed free cash flow currently, then you will end up as a dividend between 6 and 10 cents per share. The final decision we will make in March next year about the dividend, but you should keep in mind that we have Announce that we have a high-capacity program with the World 2060 Project for the next, or at least until the end of 2027. And that, in total, will finally be included in our decision.

Understood. Thank you.

You're welcome.

Thank you, Angelina. And our next question comes from Oliver. We now proceed. Oliver, please ensure that your line is unmuted.

You made a mistake. Thank you for reminding me. Thank you for taking my questions. 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 future development of the salt price would be helpful. Thank you. Hi, Oliver. 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 with the market also. 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 also seem to have not only a balance sheet, but also a P&L impact. You said it was around about 10 million euros. How does that work? I thought the P&L impact would be like the service cost. Is that still true, or is the 10 million somewhere, let's say, a residual of what happened in the balance sheet? So the effect is twofold with regards to the effect in the EVTA. This is at our inactive site, and it runs not in the operating earnings.

or the operating expenses, so to say.

And so we have different measures, actually, for monitoring and recultivation. So this was the smaller part of it with an effect on the EVHDA. And from the long-term perspective, we have a very long-lasting time period we are looking at. So this also is a guide for the DCF model. And if you change and you have a lot of And so it was, yeah, so to say, an effect of different sanctions that have changed and that led to the changes in our energy. To be clear, the 10 million, is that cash relevant in the P&L or is that a non-cash item? Okay, thank you for that. And lastly, about, obviously, the elephant in the room was the $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 120, because you said that, but what's the source of that? Because you use that, obviously, for, let's say, your 150-year DSAF. So what kind of, actually, it's not the spot rate, obviously. So what kind of assumption goes into that 120? And obviously, how fast can that change and what would trigger a change there? Yeah, that could change. As you have seen, for example, in 2020, 2021, that was more price related, but also there we saw some ethics defects in 2020. We also had the 1.20 in the calculation. Where is the 1.20 coming from? We look at the spot rate, but mainly on the futures for the US 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 ethics 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 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. Thank you. That's all for my questions. Thank you very much. Thanks, Oliver.

Thank you very much, Oliver. And our next question comes from Tristan. Tristan, you may now begin.

Hi. Thanks for taking my questions. Just one. I just wanted to understand better your guidance for EBITDA for 2025. I think you said 330 is your midpoint ASP assumption. But in Q2, I think we're already at 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. I just wanted to understand whether you're assuming price decreases in Q3 and Q4 to come to that 330 average that you're talking about, or maybe there's something I'm missing.

Yeah, no. Thanks for this question. What we expect, finally, for the midpoint is that the price level that we currently achieve will be stable for the second half of the year, as you already mentioned. What's very important, 330 euro that we expect for the whole year is the basis that we see increasing prices, US dollar prices. Around about 50% of our volumes are exported to the US dollar market. So the increasing prices will be eaten up by the FX expectations, US dollar FX expectations. And the ASP doesn't include, finally, the hedging position that will compensate some of these volumes. Okay. Thank you. You're welcome.

Thank you, Christen. We'll now take the next question, which comes from Aaron. Aaron, you may now begin.

Hello. Hi. Good morning. I have a quick question, please. First, could you provide an update on the current situation at Bethune and explain perhaps if the logistic issues are behind us now?

Bethune? Sorry? With regard to Bethune, we are in budget and in time from our perspective. We are very happy. With the additional investments we are now planning, as we explained, a ramp-up that we want the site to be ramped up to 4 million tons by the end of the 30s. And this 2030, we expect to be able to ramp up to 3 million tons. And there's nothing new.

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 ship can leave one day later, yeah? 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 by air. 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 HADOC you mentioned a longer than expected break at Bethlehem. That's what I was referring to.

No, no, no. We started earlier with the maintenance, so we saw it already in June. and not in July. That depends on the summer holiday seasons in Canada, and then we optimize just the time when we are making maintenance. That's rainy July. You won't see any impact on the annual basis.

So we always have three-week maintenance in Bethune, and this year we did one week in June and two weeks in July. And last year we did three weeks in July. And that is the difference.

So that should provide a benefit to Q3 EBDA, in fact.

You still have two weeks in Q3, yeah, so still a maintenance quarter, but a little bit of benefit.

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

With our volumes, finally, we see a strong demand, so from the demand side, we don't see any risks. That's also why we think that we will be able to catch up the specific challenges, issues that you have just explained over the total year. So we are very, we think that we are very happy with the output for the volumes. It's a realistic output.

Final one just on the cost. I wanted to pull up what you mentioned before. Am I correct saying, so that you expect stable personal cost in 26, energy, your hedge 50% at 40, but energy should be lower on a year basis if we remain at these levels. But then you mentioned flat energy costs, which was referring to electricity. Is that correct?

So we didn't differentiate between the two portions, but Thank you. Thank you very much.

Thank you, Aaron. And Tim, our next question comes from David. David, your line is open.

Hi, good morning. Thank you. Just a quick one on the mining provisions on the balance sheet. So it mentions 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 the, what are the moving parts in that case?

Yeah, as I already explained, there's different assumptions. You are totally right. We, to some extent, benefited from the higher interest rates for the discounts, actually. But it's referred mainly to the recultivation of our savings files. There you have different assumptions, and this reflects to price rates, to material, to the way you cover those savings 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 that. Okay, thank you. But there's nothing FX-related in there? No, no FX-related. Okay, thank you.

Thank you, David. And, Tim, we have a follow-up from Oliver. Please proceed.

Opening the mic first, I learned. Just another follow-on on basically on future cottage pricing. When you talked about the impairments, you also reflected on what is happening at your competitors due to the fact that the US 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++ on 2026 yet, and I understand that. But when do you expect those changes? likely price increases that you allude 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. Yeah. It was very important to know that we are currently in between the seasons, but you are absolutely right that finally also our competitors are facing challenges with the weaker U.S. dollar. For example, Mosaic also explained that their cost position is higher compared to prior year because every competitor is producing outside of the U.S. dollar, not in the U.S., and all of them are finally taking challenges with the retail U.S. dollar. So currently we don't see it in the spot rate, 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 a look to the earnings of all the competitors, then there's finally a need to increase the prices due to the weaker U.S. dollar. I think at least if it will stay at this low level, the US dollar, then you should see that at least in the spring season. Thank you very much.

Thank you, Oliver. And we have a question from Axel. Axel, your line is open. Please proceed.

Thank you very much. Hi, everyone. I just have a follow-up to the mining provisions. So, these mining provisions have been relatively constant between 2017 and 2023, almost 0.9 to 1 billion. Since then, they have risen by about 40% to now 1.4. So, the question is, what are the reasons behind that? So, what is the exactly meaning of or tailings containment, and where is this provision journey going in the next, in the mid to long term?

We're looking at a lot of that have to be covered, and then you have different concepts to cover those . 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 heat And this is a process that is almost happening every year. Now the effects are 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. Okay. Thank you very much. Very important maybe to add that we still expect cash outputs for the next 10 years of round about 250 million euros. That's because of the long-term protection we finally have over 800, 900 years. Okay. Thank you.

Thank you, Axel. And ladies and gentlemen, once more, if you would like to ask a question, that's through the raise hand icon at the top of your screen. Excellent. 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.

Thanks to all of you. Thank you very much.

Thank you. Bye-bye.