Frankfurt
The Kassel fertilizer group K + S earns significantly more thanks to higher potash prices. Therefore, the company is once again increasing its profit target and is also re-evaluating its assets, as the MDax group announced on Thursday when it published the figures for the third quarter. In the third quarter, K + S posted a total increase in value of 1.4 billion euros, after around 327 million euros had already been attributed in the first two quarters.
A year ago, the company had announced a non-cash depreciation of around two billion euros in anticipation of continued low potash prices. In the end, this amounted to around 1.7 billion euros for the 2020 financial year.
This depreciation is fully made up with the current write-up. “When valuing our assets, the future potash price is the big lever. The price level has risen so much in the past few months that we had to carry out a write-up of this magnitude in accordance with the accounting rules, ”said K + S CEO Burkhard Lohr to the Handelsblatt.
The high value adjustment that K + S made last year called the Federal Financial Supervisory Authority (Bafin) into action in February. The authority commissioned the accounting police, the German auditing office for accounting (DPR), to review the financial statements of K + S. The point in time and the amount of the value adjustment at that time was examined.
Top jobs of the day
Find the best jobs now and
be notified by email.
As K + S announced on Thursday, the FREP is of the opinion, among other things, that at that time the value in use of the potash business unit was not determined reliably and was significantly too high and that the intrinsic value had not been proven. It is likely to be about the new Bethune potash mine in Canada.
K + S does not share the position of the FREP and is of the opinion that the recoverability has been correctly determined and proven by the value in use calculation carried out within the scope of discretion. The proceedings are ongoing. Lohr did not want to make any further comments to the Handelsblatt. Auditor Deloitte had certified the 2020 annual financial statements of K + S.
The K + S share has risen by more than 160 percent within a year
In operational business, things are currently going well for K + S: In the third quarter, sales rose by 32 percent to 746 million euros. The operating earnings before interest, taxes, depreciation and amortization (Ebitda) increased by 50 percent to 121 million euros and thus almost met the analysts’ expectations. The K + S share has risen by more than 160 percent within a year after losing value over the years.
Lohr attributes the fact that potash prices have risen sharply within a few months for various reasons. “Farmers are getting decent prices for their products again and are asking a lot of fertilizer. Countries that reduced their stocks last year now have to buy more. And virtually no new capacities have come onto the market on the part of the providers, ”he says.
In the Brazilian market, which is very important for K + S, for example, the price of the standard product potassium chloride has tripled within a few months to currently almost 800 dollars per ton. This significantly improves the profit situation at K + S: For 2021, the group now expects an operating result (Ebitda) of 630 million euros, after the group raised its forecast to 500 to 600 million euros just three weeks ago. For the entire financial year, K + S expects a balanced free cash flow, after having assumed minus 180 million euros up to October.
The head of the company is also optimistic for the new financial year. “Our forecast shows that we expect a good fourth quarter. And we have already secured deliveries for the next year at the higher price level. 2022 will be a good year, ”says CEO Lohr, who has been in office since 2017.
However, the head of the company cautiously comments on the further development of the potash price: “Although we are convinced that the current market situation will carry us well into 2022, we are cautious and do not assume any further price increases for our planning for the time being. We also do not extrapolate the current price level for the entire year 2022. ”
At the end of April, K + S sold its American salt division for 2.6 billion euros. The separation had become necessary so that the group could reduce its high debts, which had arisen with the construction of a new potash mine in Canada. The gain on the sale of the salt activities acquired in 2009 amounted to 742 million euros.
Concentration on the potash business
With the sale of the US salt division, K + S has not only become significantly smaller, it has also become more dependent on the volatile potash market. In good years with high prices, K + S had achieved Ebitda margins of 30 percent and more in the potash business, in bad years like 2020 it was less than half.
The K + S management has decided to set up the company in such a way that by 2023 at the latest, even with low potash prices, it will not lose any money and that each location will generate a positive free cash flow. “We want to earn our cost of capital and achieve an average annual Ebitda margin of over 20 percent, calculated over a five-year potash cycle,” says Lohr.
By concentrating on the potash business, the group has developed a new strategy. In the future, the focus will be on agriculture, with which around two thirds of sales are made. Here the main focus of management is on optimizing the existing business – i.e. the potash mines. Targeted potassium chloride and fertilizer specialties are to be mined from the mining sites in Germany – also with the help of computer-aided geodata analysis – in order to achieve a higher yield with less salt waste. The production costs are to be further improved.
In addition, K + S wants to expand its core business, in which the farmers are offered additional fertilizers and supplementary products, which the people from Kassel want to buy. New business areas, such as the cooperation with the Remondis waste disposal company, are the third part of the strategy. In the future, K + S intends to offer decommissioned caverns for disposal and, in the future, also for storage of CO2, for example.
K + S intends to continue the salt business in Europe, which ranges from de-icing salt and table salt to salts for industrial applications. However, it is no longer a core business into which large strategic investments should flow. Lohr: “We have to focus. We do not have unlimited resources to invest and we do not have unlimited management capacity. And of the ideas we have developed, the most economical are all in the field of agriculture. “
K + S currently has no plans to buy. The strategy is initially to grow organically or through partnerships. “We don’t want to jeopardize the freedom we have gained. If the liquidity situation continues to develop positively in the next few years, you can think about it again, ”says Lohr.
More: K + S balance receives an unqualified certificate – but the Bafin examination is ongoing