K+S Group, Kassel, posted a surge in EBITDA for the first quarter to €524.1 million, up from the previous year’s €126.0 million. Revenues increased by 65%, to €1.21 billion versus the year-ago €733.3 million.
EBITDA beat the Bloomberg Consensus, the average estimate of major analysts, which was €515.9 million.
The company cited higher average prices in both its Agriculture customer segment and its Industry+ customer segment, as well as positive currency effects. This more than offset lower volumes and increased costs for energy, logistics, and materials in the quarter.
“We have again translated our continued strong operating performance and favorable market conditions into increased earnings and higher cash flows,” said K+S Chairman of the Board of Executive Directors and CEO Burkhard Lohr.
K+S still sees full-year EBITDA at €2.3-€2.6 billion, which was raised in April for the second time this year (GM April 15, p. 1).
K+S has reduced debt to €520 million, compared with €3.2 billion at the end of 2020.
“Our target is clear, we want to get back to K+S being an investment-grade rated company, although the rating is not there yet,” Lohr told analysts at a company earnings call on May 11.
Adjusted free cash flow (FCF) increased to €103 million in the first quarter, versus minus €15.1 million in first-quarter 2021.
However, the company’s first-quarter FCF was hit by more than €80 million cash outs for CO2 certificates, and a €106 million negative factoring effect.
K+S shares were down as much as 7% immediately following the news of the adverse impact on first-quarter FCF, Baader Bank AG Markus Mayer noted, as cited by a Bloomberg report.
Excluding the repayment of the factoring volume and the purchase of CO2 certificates in the first quarter of 2022, K+S said the adjusted FCF would have been €291.0 million.
Excluding the special effect from the almost complete repayment of factoring and the purchase of CO2 certificates totaling around €230 million, and assuming a good €400 million in capital expenditure, K+S expects adjusted FCF to range between €1.0-1.2 billion for full-year 2022.
It reminded the outlook is based on the assumption of uninterrupted production for the rest of the year. Possible interruptions to production caused by potential disruptions to energy or gas supplies at the company’s German sites have not been taken into account.
The increase in outlook is mainly based on further higher average prices in the Agriculture customer segment, and these will “significantly exceed” expected cost increases, particularly for energy, logistics, and materials, the company said.
In the K+S Agriculture customer segment, first-quarter revenues more than doubled, to €944.1 million, up from €469 million. The company attributed the increase to significantly higher average selling prices and positive currency effects.
At the same time, sales volumes were 11% lower year-over-year, at 1.79 million mt versus the prior year 2.01 million mt. K+S cited “occasional logistical shifts” and lower inventories at the end of 2021.
In terms of logistical issues in the quarter, the company cited the CP rail strike, as well as some issues in Germany, with some shipments that had been scheduled for the first quarter slipping into the second quarter. The company also said for sanction reasons it stopped its deliveries to EuroChem Group.
It said this was accompanied by NPK customers not being able to take their usual potash volumes in the first quarter as a result of their production restrictions due to nitrogen shortages.
Europe sales volumes were down 22% year-on-year, at 0.76 million mt, from the prior-year 0.97 million mt. Overseas sales volumes were marginally off, at 1.03 million mt versus 1.04 million mt a year ago.
Agriculture Customer Segment
| 1Q-2022 | 1Q-2021 | % change | |
| Revenues € million | 944.1 | 469.0 | +100 |
| Europe | 349.9 | 250.6 | +40 |
| Overseas | 666.5 | 263.1 | +153 |
| Sales volumes mt | 1.79 | 2.01 | (11) |
| Europe | 0.76 | 0.97 | (22) |
| Overseas | 1.03 | 1.04 | (1) |
| Average price €/mt | 527.0 | 233.3 | |
| Europe €/m | 462.1 | 258.4 | |
| Overseas $/mt | 644.3 | 253.0 |
In the Industry+ customer segment, revenues rose by 1.5% in the quarter, to €268.2 million versus the year-ago €264.3 million, which K+S attributed to mainly higher average prices and volumes for products containing potassium chloride. This more than offset lower sales volumes caused by weather-related conditions compared with the above-average de-icing salt business in the same prior-year quarter.
K+S noted the higher prices had a positive impact in particular on industrial products and products for the chemical industry.
Industry+ customer segment sales volumes were 25 off year-over-year at 1.83 million mt, down from 2.43 million mt. Of this total, de-icing salt volumes fell 55%, to 0.61 million mt from the year-ago 1.35 million mt.
Looking ahead for the remaining months of 2022, K+S said as a result of the severely restricted supplies from Belarus and Russia, the company expects that the record world potash sales of up to 77 million mt (including just under 5 million mt of potassium sulfate and potash grades with lower mineral contents) from 2020 and 2021 cannot be achieved and will be lower in 2022 due to availability (2021: about 77 million mt; previous outlook: up to 77 million mt).
For its Agriculture customer segment, assuming uninterrupted production for the remainder of this year – i.e., no natural gas shortages – K+S expects sales volume of all products in the customer segment, likely to be “a good 7.7 million mt” (2021: 7.62 million mt), in particular due to the further ramp-up of production in Bethune.
The company noted that particularly from the end of the first quarter, the tighter sanctions against Russia and Belarus and the resulting uncertainty in the market regarding the availability of fertilizers caused prices for potassium chloride both overseas and in Europe to rise further from the already high level at the end of the previous year.
K+S said consequently it now assumes an even stronger increase in potassium chloride prices on an annual average than before. It therefore also expects fertilizer specialties to increase more significantly on average over the year.
Lohr noted that with “the untypical price development on the MOP side,” the company is seeing a significantly lower premium for SOP, and that as long as MOP prices are on the current high level, the premium is not going to grow further.
“That is a mechanism that is only working in normal price environments,” he said.
It expects the strong increase in average prices in the Agriculture customer segment to “significantly exceed” expected cost increases, in particular for energy, logistics, and materials, “assuming that there are no production restrictions in Germany due to bottlenecks in the availability of natural gas.”
K+S said a cutback in the supply of natural gas would immediately lead to supply bottlenecks in Germany, as, like almost all industrial operations in the country, the company depends on a reliable supply of natural gas. It said the processing of crude sold, as well as the generation of heat and electricity at its German production sites, is based entirely on natural gas.
It said in Europe only its Wintershall site, which one of three sites on the Werra plant, is supplied mainly with energy from a waste-to-energy incineration plant. The Bethune potash plant in Saskatchewan is of course independent of natural gas availability in Europe.
“If our gas requirement cannot be covered, this will lead to production restrictions,” K+S said.
However, Lohr emphasized to company earnings call analysts that K+S would not lose full production in the event of gas supply issues. The company needs gas for energy and heat, not the production process itself. However, Lohr conceded that if, for example, the company has only 20-30% less gas available, it still would be “very tricky for us.”
K+S said it is “working at full speed” on various scenarios and deriving the necessary measures from them in order to be best prepared for changed framework conditions. This includes, among other things, changing the mode of operation at its plants.
Lohr said the company could substitute the gas, but that would take time, and the most probable route would be using oil. The company said it is making preparations to do this; some of its production sites used to run on oil years ago, while other sites would take longer to convert.
Responding to an analyst’s question about K+S’ energy, logistics and materials costs for 2022, Lohr said K+S already has secured prices for 92% of its natural gas demand for this year and also prices for more than 70% for 2023 and 2024, but not all.
He said the company expects more than €100 million higher energy costs this year than in 2021, and an additional €100 million each on logistics and materials in 2022 compared to last year.