K+S Group, Kassel, posted a 27 percent increase in first-quarter EBITDA, to €126.0 million (approximately $152.5 million at current exchange rates) on revenues of €733.3 million, up from the year-ago €99.3 million and €647.0 million, respectively.
Revenues increased 13 percent. The company cited higher sales volumes in both of its customer segments (Agriculture and the recently-created the Industry+) (GM April 23, p. 34), particularly of de-icing salt, which it said more than offset negative currency effects, as well as lower average revenues in the Agriculture customer segment.
Both EBITDA and revenue exceeded the average analyst estimates, according to a Bloomberg report. The average estimate for EBITDA was €112.9 million (range €82.6 million to €130.0 million), while the revenue average estimate was €693.3 million (range €610.0 million to €730.0 million).
Adjusted group earnings after taxes from continuing operations for the first quarter were €229.3 million, strongly improved on the year-ago after-tax loss of $40.5 million. The company cited the increase in EBITDA, as well as a €180 million write-up in the quarter of the valuation of its potash assets because of a reversal of impairment losses due to higher potash price assumptions. First-quarter adjusted earnings per share was €1.20 versus the year-ago €-0.21.
K+S has raised its full-year 2021 EBITDA guidance to between €500 million and €600 million, up from the previous forecast of €440 million to €540 million (FY2019: €267 million). The company cited “the rapid recovery” in overseas potassium chloride prices already seen in the first quarter and “the assumption of an improved early fills business with de-icing salt,” as well as its measures to significantly streamline its administration as behind the guidance boost.
The guidance continues to include the one-off gain of around €200 million generated by the closing of the REKS joint waste management venture. K+S reached a deal last December with Remex GmbH to bundle their respective waste management activities into a new joint venture, in which both companies are equal partners with 50 percent each (GM Dec. 31, 2020). The closing is expected this summer, but still remains dependent upon E.U. anti-trust authorities’ approval.
The new guidance has beat the average analyst estimate of €466.9 million, according to a Bloomberg report (range €306.0 million to €584.0 million, Bloomberg Consensus).
K+S completed the closing of the sale of its Americas operating unit to the U.S.-based Stone Canyon Industries Holdings LLC (SCIH), Mark Demetree and partners on April 30 (GM May 7, p. 44). K+S said it will use the entire net proceeds of the sale equivalent to around €2.6 billion to successively reduce company debt.
With the completion of the sale of the Americas operating unit, which comprised K+S’ Americas salt business, the company said it has implemented the most important component of the package of measures announced in December 2019 (GM Dec. 13, 2019), and that it is an important milestone in its planned reduction of its debt.
K+S’ net financial liabilities as of March 31, 2021, stood at €3.185 billion. As of March 31, 2021, the company’s debt-to-EBITDA ratio stood at 7.2x, unchanged from the 7.2x as of Dec. 31, 2020, and versus 5.1x as of March 31, 2020.
Agriculture Customer Segment
| 1Q-2021 | 1Q-2020 | % change | |
| Revenues € million | 469.0 | 453.7 | +3 |
| Europe € million | 250.6 | 263.6 | (5) |
| Overseas US$ | 263.1 | 209.7 | +25 |
| Revenues € million | 469.0 | 453.7 | +3 |
| Potassium chloride | 252.5 | 245.9 | +3 |
| Fertilizer specialties | 216.5 | 207.8 | +4 |
| Sales volumes million mt | 2.01 | 1.90 | +6 |
| Europe | 0.97 | 0.93 | +4 |
| Overseas | 1.04 | 0.97 | +7 |
| Potassium chloride | 1.24 | 1.22 | +2 |
| Fertilizer specialties | 0.77 | 0.68 | +14 |
| Average price €/mt | 233.3 | 239.2 | (2) |
| Europe €/mt | 258.4 | 283.8 | (9) |
| Overseas US$/mt | 253.0 | 216.6 | +17 |
Agriculture customer segment revenues in the first quarter were up 3 percent, at €469.0 million versus the year-ago €453.7 million. The division’s sales volumes rose 6 percent to 2.01 million mt, up from the year-ago 1.9 million mt.
The company said the higher sales volumes more than offset negative currency effects and slightly lower average selling prices.
K+S highlighted the continued favorable demand for potash being observed in all regions relevant to the company. It said the further rises in potassium chloride prices since the beginning of 2021, especially overseas, should have an increasingly positive impact on the company’s product portfolio, which should also positively impact revenues and EBITDA over the next few quarters.
The company said Agriculture’s lower average European price for the first quarter compared with the same prior-year quarter reflected the product mix.
Going forward, the company said higher freight rates and energy prices could be more than offset by strict cost discipline and positive effect from currency hedging.
K+S CFO Thorsten Boeckers told analysts at a company first-quarter earnings call on May 11 that the company sees roughly €40 million higher freight cost in total in 2021 compared with last year. The CFO confirmed the company does have some mid-term freight contracts, which offer protection from rising freight costs.
The company’s energy costs this year are expected to be €20 million higher than in 2020.
The company sees global potash sales volumes this year reaching a record level of about 74 to 76 million mt (including just under 5 million mt of potassium sulfate and potash types with lower mineral contents). This is up from the company’s previous forecast of 72 million to 73 million mt. The company put 2020 global sales volumes at “a good” 74 million mt.
“We see most of the higher market development and demand coming mostly from MOP, mostly from South America and Asia,” K+S Chairman Burkhard Lohr told analysts.
K+S said it expects demand for fertilizer specialty potassium sulfate to increase slightly this year.
In terms of pricing, the company expects “a significantly higher” average overseas price for potassium chloride for 2021 compared to last year. For fertilizer specialties, it continues to expect a stable price level overall on average for the year.
K+S sees Agriculture customer segment sales volumes for full-year 2021 at >7.5 million mt (FY2020: 7.3 million mt).
Responding to an analyst’s question about Bethune volumes into North America, Boeckers said the company of course is trying to optimize values for product from the Bethune potash operation in Saskatchewan.
“That means we ship whatever we can to areas with high netbacks, whilst respecting our customer relationships,” he said.
“Granulation capacity at Bethune is still in ramp-up and we already are shipping all we have, including to the Brazilian market. We will double the volume into the U.S. this year, coming from close to 100,000 mt in 2020, and will end 2021 with a volume something slightly more than 200,000 mt. That’s the maximum we can do for the time being,” said the CFO.
The 200,000 mt volume expectation is a step-up from the 150,000 mt expectation in March (GM March 12, p. 28). Lohr said at a company’s FY2020 earnings call in March K+S already had used up all the options that it has onsite at Bethune to increase granular production compared to standard production, adding that a limiting factor for shipping to the U.S. market from the site is logistics.
Bethune produced almost 2 million mt of potash last year for the first time. K+S said this week it expects the operation to achieve breakeven on an EBIT basis this year.
First-quarter revenues for the Industry+ customer segment increased 38 percent on the year to €264.3 million, up from €191.9 million, boosted by the above-average de-icing salt business, which continued over the Easter holidays.
Sales volumes of de-icing salt totaled 1.35 million mt versus the prior-year 0.21 million mt, while total Industry+ sales volumes were 2.43 million mt, up from 1.30 million mt a year ago.
Sales volumes of products for chemical and industrial applications increased in the first quarter compared with the year earlier, but sales volumes for products for the pharmaceutical and food industries declined due to covid-19-related lower demand in the quarter.
K+S sees full-year de-icing salt volumes at >2.6 million mt (FY2020:0.9 million mt, but normal year volumes are typically 2-2.25 million mt).
Due to the divestment of the Americas operating unit , K+S has combined the business of its Communities and Consumers business segments into its Industry+ business segment given the ensuing reduction in the Communities and Consumers segments’ business.