11 August 2016

Production standstills and difficult market environment

Decline in revenues and earnings in the first half of 2016

  • Revenues in the first half of the year: € 1.8 billion (-20%)
  • Operating earnings (EBIT I) of € 233 million (-53%)
  • Review of deep-well injection permit still ongoing
  • Legacy Project:
    • Commissioning at the end of August despite of incident
    • Production of first tonne in the second quarter of 2017
  • ‘Fit for the Future’ and ‘Salt 2020’ again make important contributions
  • Outlook for 2016: EBIT I of between € 200 million and € 300 million anticipated
  • Medium-term forecast for 2020 remains in place

“Alongside a difficult market environment in the potash business and lower de-icing salt sales volumes, the production standstills at the Werra potash plant had an adverse effect on our business, particularly in the second quarter,” said Norbert Steiner, Chairman of the Board of Executive Directors of K+S Aktiengesellschaft. “We are currently working hard to find additional saline wastewater disposal measures in order to reduce further standstills at the Werra potash plant.”

K+S continues to work consistently towards implementing its management agenda. “We are expanding our specialties business with the acquisition of fertilizer activities in China and this will give us better access to the growth markets in Asia,” Steiner continued. The Company is also making progress with the ‘Salt 2020’ and ‘Fit for the Future’ initiatives.  

From today’s point of view, in spite of the incident at the Legacy Project, production capacity there should reach two million tonnes at the end of 2017 as expected.

K+S Group: Revenues and earnings down significantly

The K+S Group had to record a significant decline in revenues to € 1.8 billion in the first half of 2016 (H1/15: € 2.3 billion); this represents a good 20% dip. Revenues of € 732 million in the second quarter were also significantly lower than the previous year's value of € 914 million.

K+S Group operating earnings (EBIT I) fell by 53% to € 233 million in the first six months compared with € 496 million in the previous year. In the second quarter, EBIT I of € 15 million was almost 92% lower than in the previous year.

This was mainly due to lower average prices in the Potash and Magnesium Products business unit as well as lower sales volumes following the production standstills at the Werra sites. The outages had a significant adverse effect particularly in the second quarter. This was accompanied by demand-related lower sales volumes primarily in the North American de-icing salt business as a result of the mild winter in 2015/2016.

Further details on business development in the first six months of the year can be found under: www.k-plus-s.com/2016q2en

Werra potash plant: Saline wastewater disposal remains challenging

The review of the application submitted by K+S to the Kassel Regional Council in April 2015 to continue deep-well injection until the end of 2021 remains ongoing. Under the terms of the current temporary permit, only a limited volume of saline wastewater can be injected underground. This means that the disposal of saline wastewater is dependent on the flow of water in the Werra river.

In spite of efficient wastewater management using available storage basins, production outages were unavoidable in the first half of the year at the Werra sites, particularly at the beginning of the months in which there was low rainfall. In the first half of the year, production had to be suspended at the Unterbreizbach (Thuringia) and Hattorf (Hesse) sites for a total of up to 49 days. Based on a ‘normal hydrological year’, significantly fewer days of standstills had been anticipated. It is not possible to offset the production shortfall.

Measures to improve production capabilities

In order to maintain production at the Werra potash plant during the drier months with expected lower flow of water in the Werra river and limited deep-well injection volume, the Company is carrying out extensive tests on the feasibility of additional wastewater disposal measures. A key aspect is temporary, and in some cases permanent, disposal in own and third-party mines or caverns, both around the sites and in regions that are located further away using appropriate truck and rail transport. The promising technical solutions still require numerous permits and some time from today’s perspective in order to actually be put into practice. Full production in the Hesse-Thuringia potash district is not possible without additional deep-well injection options.

Further information on potash mining and water protection at:
www.k-plus-s.com/en/gewaesserschutz/index.html

Legacy Project on the verge of commissioning in spite of incident

In spite of the damage to a processing vessel during a routine test on 17 July, commissioning of the facilities at Legacy, which have not been affected by the damage, is still scheduled for the end of August 2016. From today’s point of view, production of the first tonne of potash should start in the second quarter of 2017 and not at the end of 2016 as originally planned. Regardless of this, K+S is still assuming to reach its target production capacity of two million tonnes at the end of 2017. Production will be below the expected volume of up to one million tonnes in the course of the delayed start-up period next year.

Consistent implementation of the management agenda

K+S continued its considerable efforts in the first half of 2016 through the ‘Fit for the Future’ programme to make the cost and organisational structures of the entire Group more efficient. Total cost savings of € 500 million are set to be made between 2014 and 2016. A higher contribution to the result was achieved again in the first half of 2016.

The acquisition of the activities of one of the largest Chinese producers of synthetic magnesium sulphate (Magpower) in July 2016 is a further step towards strengthening the specialties division and improved development of the growth markets in Asia. This is also the purpose behind the launch of the Ashburton Salt project (end of May 2016) to construct a solar evaporation salt production facility in Australia. It represents a further component of the ‘Salt 2020’ growth strategy, which continues to be on track. The aim of ‘Salt 2020’ is to significantly increase efficiency and, assuming normalised winter business, increase the operating earnings EBITDA of the business unit to over € 400 million by 2020.

Further information on these topics at:

Magpower: www.k-plus-s.com/en/news/presseinformationen/2016/presse-160714.html

Ashburton Salt: www.k-plus-s.com/en/news/presseinformationen/2016/presse-160525.html

Outlook for 2016: Significantly lower result expected

K+S is forecasting EBITDA of between € 500 million and € 600 million for the 2016 financial year (2015: € 1.1 billion) and EBIT I of between € 200 million and € 300 million. (2015: € 782 million). The decline compared with the previous year relates particularly to the Potash and Magnesium Products business unit. In addition to a significant drop in the average price, the production standstills at the Werra site resulting from the lack of a comprehensive deep-well injection permit to date have a negative impact on the result. The forecast is based among other things on the assumption that it will be possible to implement short-term measures to improve production opportunities at the Werra plant. Depending on if, and when, a permit is granted for additional deep well injection volumes, there could be repercussions on the business unit’s costs as well as expected sales volumes. Sales volumes of around 6.2 to 6.4 million tonnes are anticipated in 2016.

In the Salt business unit, we are expecting a tangible decline in earnings due to the mild weather in the previous winter season.

The ‘Fit for the Future’ programme will continue especially in light of the challenges described and is also likely to make a positive contribution in 2016 that goes beyond the one originally planned.

Further details of the outlook for 2016 at: www.k-plus-s.com/2016q2en

Medium-term forecast remains on track

In spite of the numerous challenges in the current year, K+S remains optimistic to achieve its target of Group EBITDA of around € 1.6 billion in 2020 (2015: € 1.1 billion). The Company does not believe that the current weakness in the potash market will last as the medium-term and long-term growth trends remain intact. The medium-term forecast assumes unaffected operations of the potash plants in Germany and Canada, a return to the same potash price level as in the summer of 2015 (when the forecast was created) and achievement of the declared goals of the ‘Salt 2020’ strategy.

Information for editorial departments

The Half-Yearly Financial Report and Facts and Figures for Q2/16 are available at www.k-plus-s.com/2016q2en. An in-depth interview with Dr Burkhard Lohr, Chief Financial Officer at K+S is also available at www.k-plus-s.com.

A conference call in English with Dr Burkhard Lohr will take place today at 10 am. Investors, analysts and press representatives as well as interested parties from the general public are invited to follow the conference via a live webcast (www.k-plus-s.com/2016q2en) or by phone on (+49-69) 71044-5598. The conference is being recorded and will be made available as a podcast.

About K+S

K+S is an international raw materials company. We have been mining and processing mineral raw materials for over 125 years. The products we produce from these raw materials are used worldwide in agriculture, food and road safety and are important elements in numerous industrial processes. The nutrients potash and salt will accompany a major future trend: A constantly growing global population is becoming increasingly prosperous and striving for a more modern standard of living, which results in an increasing consumption of mineral raw materials. We satisfy the consequent growth in demand from production sites in Europe, North America and South America as well as through a global distribution network. K+S is the world’s largest salt producer and one of the top potash providers worldwide. With more than 14,000 employees, K+S generated revenues of approx. € 4.2 billion and EBIT of € 782 million in the 2015 financial year.

Visit www.k-plus-s.com to find out more about K+S.

Thorsten Boeckers

Board of Executive Directors

Thorsten Boeckers
Board of Executive Directors

Bertha-von-Suttner Str. 7
34131 Kassel
Germany

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Michael Wudonig

Spokesman

Phone: +49 561 9301 1262
michael.wudonig@k-plus-s.com

Michael Wudonig
Spokesman

Bertha-von-Suttner Str. 7
34131 Kassel
Germany

Phone: +49 561 9301 1262
Fax: +49 561 9301 1666
michael.wudonig@k-plus-s.com

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