K+S Group, Kassel, reported a 50 percent rise in third-quarter EBITDA, to €120.7 million (approximately $139.3 million at current exchange rates), up from the year-ago €80.6 million, while revenues increased by 32 percent to €746.3 million, up from €566.1 million. Revenues beat the average analyst estimate of €684.6 million, according to a Bloomberg Consensus (range €674.0 million to €697.0 million).

Excluding a one-off gain of €56 million in the third quarter of 2020, EBITDA more than quadrupled.

K+S cited higher average prices and increased volumes in the Agriculture customer segment and higher sales volumes in the industrial business as mainly driving the quarterly performance.

The company also highlighted “the significantly positive impact” on adjusted earnings after taxes in the quarter of a reversal of impairment loss in the amount of about €1.4 billion. The company said this was based on “a significantly more optimistic long-term expectation for the potash business and the associated price trend.” Consequently, the non-cash impairment loss of third-quarter 2020 was fully reversed, it said.

K+S maintained its full-year 2021 EBITDA forecast of around €630 million. It had raised the full-year EBITDA guidance late last month from the previous: €500 million to €600 million, citing a further improvement in expectations for the development of average prices in the Agriculture customer segment as mainly behind the guidance raise. (GM Oct. 29, p. 28). FY 2020 EBITDA was €267 million.

The company noted a Vara Consensus estimate for K+S’ full-year EBITDA of €603 million.

Both forecasts exclude the expected one-off gain of about €200 million from the REKs joint venture waste management transaction, which K+S last month warned may not granted in 2021, as previously assumed.

Third-quarter revenues in the Agriculture customer segment increased by 42 percent to €529.1 million, up 42 percent from the previous year’s €373.0 million. Sales volumes were up 6 percent, to 1.76 million mt versus 1.66 million mt a year ago. While Europe’s sales volumes were flat year-over-year at 0.69 million mt in the quarter, overseas sales increased 10 percent to 1.07 million mt, up from the year-ago 0.97 million mt.

K+S cited the further ramp-up of production at Bethune site in Saskatchewan, Canada. The company also noted that the strong operational performance of its German mines resulted in higher product availability despite the usual maintenance breaks in the third quarter.

Agriculture customer segment

K+S continues to see “very strong demand” in the Agriculture customer segment in 2021, and expects sales volumes for all products in the customer segment to exceed 7.5 million mt this year, up from 7.3 million mt in 2020. It cited the further ramp-up at Bethune in particular as driving the sales volume expectation.

The company expects global potash sales volumes this year at the 2020 record level of about 76.0 million mt (including just under 5 million mt of potassium sulfate and potash grades with lower recycled content) can only be “slightly exceeded” due to availability.

“After the favorable market conditions in the first nine months led to an increase in potassium chloride prices in all sales regions, we continue to expect a strongly higher overseas price for potassium chloride on average for 2021 compared with 2020, and “a tangibly [previously: moderately] higher potassium chloride price in Europe,” said K+S.

“For fertilizer specialties, we also expect a moderately [previously: slight] increase on average for the year,” it said.

K+S average prices

K+S’ Industry+ customer segment posted a 13 percent increase in third-quarter revenue to €217.2 million, up from the prior year €193.1 million. Sales volumes increased by 28 percent on the year, reaching 1.73 million mt, up from 1.35 million mt. Of these sales, sales of de-icing salt more than doubled year-on-year, to 0.65 million mt versus the year-ago 0.24 million mt.

For the nine-months, K+S posted a 54 percent rise in EBITDA, to €358.1 million on revenue of €2.14 billion, up from the previous year’s €232.6 million and €1.8 billion, respectively. Revenues increased by 19 percent.

K+S expressed its confidence that it can achieve an EBITDA of €1 billion in 2022, and free cash flow “to be significantly positive” next year, according to Lohr at the company’s Capital Markets Day on Nov. 11.

“We believe that the positive market environment will carry us well into the year 2022,” he said. “This will result in a significant base effect for prices in the Agriculture customer segment.”

The forecast excludes the expected about €200 million one-off gain from the REKS transaction.

K+S said while it expects inflation to increase energy, raw material, and personnel costs, the company locked in prices for two-thirds of its gas consumption for the next three years before the recent gas price spike.

K+S Group, Kassel, K+S has received preliminary findings from Germany’s Financial Reporting Enforcement Panel (DPR) in the procedure for the examination of the consolidated financial statements of the company as of Dec. 31, 2019, as well as the abbreviated financial statements as of June 30, 2020, and said it considers the findings to be unfounded, according to a K+S statement on Nov. 11.

The German Federal Financial Supervisory Authority (BaFin) this past February requested for the statements to be examined by the DPR, citing the reason for the probe as assets reported in the financial statements 2– in particular non-current assets – may be overstated. (GM Feb. 19, p. 35).

With regard to the consolidated financial statements as of December 31, 2019, K+S said the DPR has not objected to the long-term potash price assumptions made by the company, but it is, however, of the preliminary opinion that material assumptions underlying the value in use determined for the impairment test of the Potash and Magnesium Products cash generating unit (CGU Potash) “were not appropriate.”

Furthermore, DPR said the changes made to the assumptions compared with the previous year were in part “not plausible,” and the uncertainty associated with the assets was not sufficiently taken into account.

In the opinion of the DPR, the value in use of the CGU Potash had therefore not been “reliably determined and had been significantly overstated,” and therefore the recoverability had not been demonstrated. In detail, this relates to assumptions regarding the quantity framework (annual production capacity, mineable quantities, the life of the mines, capacity utilization, and the related disclosures in the notes).

K+S said it does not share the position of the DPR and is of the opinion the recoverability has been appropriately determined and demonstrated by the value in use calculation within the scope of discretion.

With regard to the abbreviated consolidated financial statements as of June 30, 2020, the company reported the DPR is of the preliminary opinion that the recoverability of the net assets of the CGU Potash has not been demonstrated, and despite negative potash price development, no impairment test had been carried out.

K+S said it is of the opinion that no impairment test was necessary for the CGU Potash as of this reporting date. It said the price development has been adequately taken into account.

Furthermore, K+S said the company and the DPR disagree on the presentation of material events and their effects in the interim management report.

K+S has provided the DPR with further information, and the proceedings are ongoing.

The company said it received the preliminary results from the DPR on Sept. 6 and 14, but for the protection of ongoing proceedings with DPR, it decided to delay their publication. But with the regular reporting of financial results for the third quarter, it was obliged to make this announcement.