10 November 2016

K+S Group

Revenues and earnings down significantly as expected

  • Revenues: 9M: € 2.5 billion (9M/15: € 3.2 billion) / Q3: € 688 million (9M/15: € 891 million)
  • EBIT I: 9M: € 202 million (9M/15: € 628 million) / Q3: € -31 million (9M/15: € 132 million)
  • Lower price level particularly in the Potash and Magnesium Products business unit
  • Production limitations due to restricted deep-well injection permit at Werra plant
  • Outlook: EBIT I between € 200 million and € 260 million in 2016
  • Legacy: Replacement of the damaged process vessel has started; first tonne in the second quarter of 2017

“As expected, the lower prices in the Potash and Magnesium Products business unit as well as continuing production limitations at the Werra plant had an adverse effect on revenues and earnings in the third quarter,” said K+S Board of Executive Directors’ Chairman, Norbert Steiner. “Prices for potassium chloride have stabilised in the meantime. However, production at the Werra plant is still extremely challenging due to the restricted deep-well injection permit.”

Revenues and operating earnings

K+S Group revenues fell 22 % to € 2.5 billion in the first nine months of the year (9M/15: € 3.2 billion). Beside a lower price level in the Potash and Magnesium Products business unit, the production limitations at the Werra plant have had the most impact. The mild 2015/16 winter also led to cautious early fills of de-icing salt. Salt business for consumers, food processing as well as for industrial and chemical use on the other hand showed positive results. In the third quarter of 2016, K+S Group revenues amounted to € 688 million (Q3/15: € 891 million).

In terms of results, the price and volume effects could not be absorbed completely by cost savings. Operating earnings (EBIT I) therefore fell by 68 % in the first nine months of 2016 to € 202 million (9M/15: € 628 million) and amounted to € -31 million in the third quarter (Q3/15: € 132 million).

Production limitations at the Werra plant

Due to the expected low water flow in the Werra river during the summer months and the restricted deep-well injection volume for wastewater from production in 2016, there were again significant production limitations at the Werra plant in the third quarter. It is no longer possible to make up for the resulting production losses by the end of the year.

A permit was issued on 18 August for the temporary storage of up to 200,000 m3 of wastewater from production at the Springen mining field (Thuringia). This means that no production limitations are expected at the Unterbreizbach site for the time being.

In addition the Lower Saxony mining authority has yesterday granted a permit to use tailings piles water from, amongst others, the Werra plant for the flooding of the decommissioned Bergmannssegen-Hugo mine (Sehnde, Hannover region). Between 1,500 and a maximum of 4,000 cubic meters of saline water can be transported from the Werra plant to Sehnde per day.

K+S is still also working very hard to realize additional wastewater disposal measures. The impending solutions show promise, but from today’s perspective still need some time for implementation. Technical tests, modifications of the infrastructure and permits are necessary.

The injection volume of 725,000 m3 authorised by the regulatory authority on an interim basis for the current year was used up by the end of October. Full production in the Hesse-Thuringia potash district is not possible in the short-term without additional injection options or significantly increasing levels in the Werra river.

K+S still assumes that the application submitted to the Kassel Regional Council in April 2015 to continue deep-well injection until the end of 2021 is entirely approvable.  

Legacy Project: Commissioning started

Commissioning of the Legacy Project facilities officially began at the end of August 2016. Work to repair the damage to a process vessel is progressing according to schedule. Based on knowledge to date, production of the initial tonne of potash should start unchanged in the second quarter of 2017. K+S is also assuming that it will be able to achieve its target production capacity of two million tonnes at the end of 2017.

It is clear on account of the damage that there will be a moderate overspend of the CAD 4.1 billion budget. However, in view of the favourable development of exchange rates (particularly in relation to the Canadian dollar against the euro), the euro budget of approximately € 3.1 billion planned in 2013 looks set to remain unchanged.

Implementation of the management agenda

K+S continues to work consistently towards implementing its management agenda. The specialties business will continue its expansion through the acquisition of fertilizer activities in China (Magpower), which was announced in July, and access to the growth markets in Asia will improve. The ‘Fit for the Future’ programme delivered the expected results during the quarter under review and the ‘Salt 2020’ growth strategy is still well on track.

Outlook for 2016: Guidance specified

The disposal of production water and tailings pile water needs to be based closely on the flow of water in the Werra river. How much can be discharged into the river at what time is determined by the official threshold values. If the flow of water is low then less wastewater can be discharged. In spite of efficient wastewater management at the Werra plant using available storage basins, further production limitations cannot be ruled out for the rest of the year. In view of this, an EBITDA of between € 500 million and € 560 million (previously between € 500 million and € 600 million) and EBIT I of between € 200 million and € 260 million (previously between € 200 million and € 300 million) is now expected for the whole of 2016.

Medium-term forecast for 2020 remains unchanged

In spite of the numerous challenges, K+S remains optimistic that it will be able to achieve its target of Group EBITDA of around € 1.6 billion in 2020 (2015: € 1.1 billion). The ‘Salt 2020’ strategy is already on track towards achieving the EBITDA target of over € 400 million assuming a normal winter. In the Potash and Magnesium Products business unit, the Legacy Project is encouraging. The current weakness in the potash market should not be sustainable as the medium-term and long-term growth trends remain intact. The Company is also developing numerous strategic initiatives, which should contribute towards achieving this aim.

Information for editorial departments

Further information and data on development in the third quarter of 2016 can be found in the Quarterly Report on our website at www.k-plus-s.com/2016q3en. An interview with Dr Burkhard Lohr, Chief Financial Officer of K+S, on business development and current issues facing the Company is also available on the website.

A conference call in English for investors and analysts with Dr Burkhard Lohr will take place today at 10 am. Press representatives and interested parties from the general public are invited to follow the conference via a live webcast (www.k-plus-s.com/en/audio-und-video/cc.html). The conference will be recorded and made available as a podcast.

About K+S

K+S is an international resources company. We have been mining and processing mineral raw materials for more than 125 years. The products we produce from them are used worldwide in agriculture, food and road safety and are important elements in numerous industrial processes. Potash and salt are integral nutrients for the megatrend of a constantly growing and increasingly prosperous global population striving for a higher standard of living. This will result in increasing consumption of mineral resources. We serve the resulting 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 achieved revenues in financial year 2015 of about € 4.2 billion and an EBIT of € 782 million. Learn more about K+S at www.k-plus-s.com.

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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