In the recent earnings call, K+S (SDFG.DE) CEO Dr. Burkhard Lohr presented the company's third-quarter results, which slightly surpassed expectations with an EBITDA of EUR 66 million, though marking a decrease from the previous year's EUR 72 million. The agriculture sales volumes were reported at 1.8 million tonnes. Despite facing operational challenges, including higher illness rates affecting production, the company expects to maintain a stable financial performance, with an anticipated EBITDA of around EUR 540 million for 2024, which is at the lower end of their previous guidance. The free cash flow for the first nine months stood at EUR 111 million, and the company is optimistic about maintaining at least a breakeven free cash flow for the full year, even with increased capital expenditures.
Key Takeaways
- K+S reported a Q3 EBITDA of EUR 66 million, a slight decrease from EUR 72 million year-over-year.
- Agriculture sales volumes reached 1.8 million tonnes in the quarter.
- The company has reduced its agriculture sales volume guidance for 2024 due to production bottlenecks from high illness rates.
- Free cash flow for the first nine months was positive at EUR 111 million, with expectations to remain at least breakeven for the full year.
- K+S anticipates an EBITDA around EUR 540 million for 2024, closer to the lower end of their previous guidance.
Company Outlook
- Stable pricing is expected for the remainder of the year, with plans in place to mitigate production impacts from illness through health management initiatives.
- The Werra 2060 project is on track, with significant future capital expenditure planned from 2024 to 2027, and no cost overruns anticipated.
- Potash prices are expected to recover in 2025, driven by increasing global demand and limited new supply.
Bearish Highlights
- Operational challenges due to above-average sickness rates have impacted production volumes.
- Concerns were raised regarding potash pricing discipline and market dynamics.
Bullish Highlights
- The specialty business remains strong with limited competition and favorable sulfur prices.
- The Bethune project's production is expected to reach approximately 2.3 million tonnes, with cash costs projected to stay below $100 per ton.
Misses
- The company has lowered its agriculture sales volume guidance for the upcoming year.
Q&A Highlights
- Dr. Lohr discussed the ramp-up for production, expecting 100,000 to 150,000 tonnes, with a flat projection for 2025 at 2.3 million tonnes.
- He expressed optimism that potash prices have reached their lowest point, with a strong demand rebound expected next year, particularly from Russian and Belarusian markets.
In summary, K+S is navigating through operational challenges with a cautious but stable outlook for the upcoming year. The company's strategic initiatives, such as the Werra 2060 project and the Bethune facility ramp-up, are set to bolster its position in the market, despite the current headwinds.
InvestingPro Insights
To complement the recent earnings report and outlook provided by K+S (SDFG.DE), InvestingPro data offers additional context for investors. The company's American Depositary Receipt (ADR) trades under the ticker KPLUY, and InvestingPro reveals some interesting metrics that align with the company's current situation.
K+S's market capitalization stands at $2.15 billion, reflecting its position in the fertilizer industry. The company's P/E ratio of 77.64 and adjusted P/E ratio of 124.9 for the last twelve months as of Q2 2024 indicate a high earnings multiple, which is consistent with the company's current challenges and market expectations for future growth.
One of the InvestingPro Tips highlights that K+S "pays a significant dividend to shareholders," with a current dividend yield of 4.59%. This could be attractive to income-focused investors, especially given the company's commitment to maintaining financial stability despite operational hurdles.
Another relevant InvestingPro Tip notes that the company "operates with a moderate level of debt." This aligns with K+S's ability to generate positive free cash flow in the first nine months of the year and their expectation to maintain at least breakeven free cash flow for the full year, even with increased capital expenditures.
The revenue growth for the last twelve months as of Q2 2024 shows a decline of 25.25%, which corresponds with the challenges mentioned in the earnings call, including production bottlenecks and market pressures. However, the quarterly revenue growth of 5.81% in Q2 2024 suggests some improvement in recent performance.
It's worth noting that InvestingPro has 13 additional tips available for K+S, which could provide further insights into the company's financial health and market position.
These InvestingPro insights complement the earnings call information, offering investors a broader perspective on K+S's financial metrics and market valuation as they assess the company's performance and future prospects in the challenging fertilizer market.
Full transcript - KS AG DRC (KPLUY) Q3 2024:
Operator: 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 2 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 afterwards. People asking a question have to be aware that by doing so, they give consent to saving and replaying audio sequences. [Operator Instructions] At this time, I'll turn the call over to Dr. Burkhard Lohr for opening remarks. You may now begin.
Dr. Burkhard Lohr: 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 tonnes, which is quite good for a maintenance quarter. Industry+ also performed well. Overall, Q3 EBITDA reached EUR 66 million compared to EUR 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 9 months amounted to EUR 111 million. For the full year '24, we now expect EBITDA to be around EUR 540 million and therefore, closer to the lower end of the previous range. We also reduced the upper end of the agriculture sales volume 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 breakeven for the full year despite the planned increase in capital expenditures. And now we are happy to answer all your questions, and I'll give it back to Britt.
Operator: [Operator Instructions] Our first question comes from Christian Faitz of Kepler Chevreaux.
Christian Faitz: CheuvreuxI 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...
Dr. Burkhard Lohr: Christian, could we do this, as usual, one by one, please.
Christian Faitz: Of course. Yes. Absolutely.
Dr. Burkhard Lohr: For your first question. Yes, the illness rate is, of course, a topic which is -- I know you are aware of that's something, which is the 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 impact also in Q4, but that is already modeled in our guidance for the rest of the year.
Christian Faitz: Okay. Great. Then the second question is, do you have any early view on own produced volumes for '25?
Dr. Burkhard Lohr: 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 strong demand in 2025. And that, of course, will trigger also our sales volumes.
Christian Faitz: Okay. Third question 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?
Dr. Burkhard Lohr: Yes. Thank you, very much. Yes, we will produce volumes close to 2.3 million tonnes, this year, and as you know, the ramp-up is ongoing with a magnitude of additional 100,000 to 150,000 tonnes a year, which will not be the case in 2025 for technical reasons. But we are on a very well track. And 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 tonnes threshold.
Christian Faitz: Okay. I go back in line. I would love to hear -- know the reason for the technical reason, but maybe somebody else can ask that.
Dr. Burkhard Lohr: There is nothing unplanned just to say it like that.
Operator: Our next question comes from Aron Ceccarelli at Berenberg.
Aron Ceccarelli: I have 3 questions. The first one, maybe could you help me understand a little bit how this production bottlenecks are impacting your profits in Q4? Maybe you can talk about the impact on gross profit and EBITDA. My understanding is that you have not hired extra people.
Dr. Burkhard Lohr: We are not talking about very big numbers. We have indicated that the upper end of the sales volume range is down by 100,000 tonnes. So you can see that the magnitude of this production impact are below 100,000 tonnes. And that translates in a low EBITDA impact.
Aron Ceccarelli: Okay. 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 2 points as I thought one of your peers was back in production, but I'm not sure at this stage.
Dr. Burkhard Lohr: The situation is unchanged. The competition is limited. All the Manheim producers are having problems or cost -- too high cost. And that's why we can -- while 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.
Aron Ceccarelli: Okay. And my final one is on free cash flow. When I look at your item of acquisition, disposals of securities. It's very volatile over in the last -- in the first 9 months of the year, it's negative EUR 84 million compared to negative almost EUR 280 million 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?
Dr. Burkhard Lohr: Yes. We have a lot of cash currently due to our positive net financial asset position we have. And with regard to the investments of this cash position, that's why we have a lot of interest earnings, and that we finally make a correction for.
Operator: [Operator Instructions] Our next question comes from Konstantin Wiechert at Baader Bank AG (ETR:BLMG).
Konstantin Wiechert: 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 EUR 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 steeper 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 of? Or what are the drivers there?
Dr. Burkhard Lohr: 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 Korn-Kali, which becomes more and more prominent with our project Werra 2060 because we increased the Korn-Kali volumes and we will 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 low end of MOP. But here, we are optimistic that we will see some positive developments soon.
Konstantin Wiechert: 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.
Dr. Burkhard Lohr: Even the regional mix will not change a lot. So we will -- it will just be business in terms of pricing and regional mix, it will be very close to what we have seen over the last 2 quarters.
Konstantin Wiechert: Okay. Perfect. If I may also ask a more general question on '25 maybe already, if there's any -- just if you could give some color on potential cost savings that you would expect for '25. And especially, I would be interested in what you see, how your material expenses are developing in the next year. Is there any reason we should assume maybe a softening year or if that's kind of stable?
Dr. Burkhard Lohr: Yes, 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 moment. 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.
Konstantin Wiechert: Perfect. And if I may squeeze one -- 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?
Dr. Burkhard Lohr: Okay, that is -- 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 tonnes deviation. That's why we need still this range.
Operator: Our next question comes from Angelina Glazova from JPMorgan (NYSE:JPM) Securities.
Angelina Glazova: I just have two, please. My first question is on Werra 2060 project. If you could just give us a quick update on the progress of the project so far as in has the CapEx spend been in line with your expectations? And broadly, how much of the total. CapEx spend has been invested so far and how much remains in the next couple of years?
Dr. Burkhard Lohr: Yes. 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 CO2 output by 50%, our production waters by more than 50%, that we can enlarge the lifetime of that project by 10 years. It's a win-win-win situation. And yes, the main part of the CapEx is still ahead of us. And as you know, it runs until 2027. So the first year, which is then not inflated -- CapEx is not inflated by Werra 2060, will be 2028, but we are totally in line. There is no overrun to be expected, yes, and we will deliver as promised.
Angelina Glazova: This is great. And my second question is actually a follow-up on the guidance for full year '24 or 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. 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?
Dr. Burkhard Lohr: Yes. 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 our corporate health management. We make it to a 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 rate 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.
Operator: [Operator Instructions] Our next question comes from Andreas Heine of Stifel.
Andreas Heine: I'd like to start with the price outlook. So prices -- potash 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 down. 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?
Dr. Burkhard Lohr: Yes, you're 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.
Operator: Andre, can you mute yourself while you are speaking.
Andreas Heine: I do that. Sorry.
Dr. Burkhard Lohr: 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 higher 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 like with the illness rates. So we could not achieve our planned production. We heard that ICL (TASE:ICL) also has issues. So nobody can run his minds 100% on the theoretical capacity. That also shows that there is rather a shortness in the market for the next months to come than an oversupply.
Andreas Heine: So that was my first question. The second is on the Werra 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.
Christian Meyer: With regard to the Werra 2060 project, there, we need finally to rebuild our site for the next 2 to 3 years. And when we finalized the construction, then we will see the change in the mix. We will have to slightly increase of our Korn-kali product, but the main effect we will see 2028 and on forward.
Andreas Heine: 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?
Dr. Burkhard Lohr: Yes. The salt business is delivering a significant portion of our EBITDA. We are very happy with the salt in total, not only de-icing and the prebidding 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 salt business.
Andreas Heine: 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 Bethune 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 we do, do we have basically to put in our model and volume production for Bethune?
Dr. Burkhard Lohr: Yes. Thank you very much for the question because it gives me the chance to avoid misunderstanding, technical reason, I mean that is the path of the ramp-up. We always said a rule of thumb take 100,000 to 150,000 tonnes. But actually, of course, we have some steps in between because we have to work on infrastructure. Now we are working on additional compaction because everything which comes out of the cooling bond has to be granulated. And here from time to time, we have a year with a flat development, and that will be the case in 2025 with 2.3 million tonnes. And then we continue to see higher volumes in the years after.
Christian Meyer: But for example, the step in 2024 was also higher than 100,000, 150,000 tonnes. So you will always see 1 year with a little higher, 1 year with a little lower, but in average, it will be the 100,000 to 150,000 tonnes a year.
Operator: [Operator Instructions] Our next question comes from Lisa De Neve at Morgan Stanley (NYSE:MS) Securities.
Lisa De Neve: I have 3 questions. The first one is a bit of a follow-up on Bethune. With your comments that there's a little bit need for establishment of infrastructure in 2025. I mean how should we think about the Bethune's cash cost position on a forward basis? Can you give any guidance on that?
Dr. Burkhard Lohr: Yes, we always give a 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 [ CapEx ] for a non-fully utilized mine.
Lisa De Neve: Okay. 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 2016 CapEx. Can you just outline that for us?
Dr. Burkhard Lohr: Yes, the number that we expect for 2024 will be very close to the numbers that we expect for the next 3 years, '25, '26, '27. And then we should come back to a more normalized number.
Lisa De Neve: Okay. 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 strong demand next year. Can you share what you think will trigger the revival in potash prices? And if it's demand, where particularly regionally, you expect to see strong demand next year?
Dr. Burkhard Lohr: Yes. 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 Russian and Belarusian 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.
Operator: [Operator Instructions] It appears there are no further questions. Handing it back to Dr. Burkhard Lohr, for closing remarks.
Dr. Burkhard Lohr: Yes. Thank you very much. Thank you for your interesting questions. And yes, 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.
Operator: This concludes today's Evercall. Thank you, and have a great day.
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