K&S : K+S Group Expects Tangible Increase in Earnings for 2017

16 March 2017

After Difficult Fiscal Year in 2016

• Revenues in 2016: € 3.5 billion (previous year: € 4.2 billion)
• Operating earnings (EBIT I) 2016: € 229 million (forecast: € 200-260 million / previous year: € 782 million)
• Lower potash prices, production limitations at the Werra plant and a mild winter negatively affected earnings in 2016
• Legacy: First tonne of potash still expected in the 2 quarter of 2017
• Outlook: Tangible increase in EBIT I in 2017
• Medium-term target confirmed: EBITDA of ~ € 1.6 billion in 2020

'Last year, a strong salt business stood in contrast to the considerable challenges in the Potash and Magnesium Products business unit. This proved both the coherence of our two-pillar strategy and the strength of the K+S Group. Despite adverse conditions, we managed to achieve operating earnings of € 229 million,' said Chairman of the K+S Executive Board Norbert Steiner during today's press conference on the company's financial statements.

'This year, production from our important Werra potash plant will still be impacted by the limitations outlined in the deep-well injection permit. Assuming average weather conditions for the rest of the year, the K+S Group's operating earnings should nevertheless increase tangibly this year. From 2018 onwards, the situation at the Werra plant will improve significantly, because we will further decrease the wastewater volume by roughly 20 per cent by commissioning the new KCF facility,' reports Steiner.

Revenues and Earnings Down Significantly

In the 2016 fiscal year, revenues decreased by approximately 17 per cent to € 3.5 billion (2015: € 4.2 billion). The decrease is mainly due to a lower average price level in the Potash and Magnesium Products business unit and the severe production limitations at the Werra potash plant. Furthermore, the Salt business unit experienced lower sales volumes in the de-icing salt business because of mild weather in the winter months.

For the aforementioned reasons, the operating earnings (EBIT I) of the K+S Group decreased significantly to € 229 million from € 782 million compared to the same period in the previous year. Savings from the 'Fit for the Future' program and the strong non de-icing salt business counteracted this development. Adjusted Group earnings after taxes totalled € 131 million in the 2016 fiscal year, as compared to € 542 million in 2015.

The Board of Executive Directors and Supervisory Board intend to propose a dividend of € 0.30 per share at the Annual General Meeting on May 10, 2017 (previous year: € 1.15 per share), which corresponds to a pay-out ratio of 44 per cent (previous year: 41 per cent).

Legacy: Shortly Before the Start of Production

In the meantime, construction work at the new Legacy potash plant in Canada has largely been finished, with the exception of the area affected by the damage in July 2016. The plant is connected to the railway network of Canadian Pacific, and the loading terminal in Vancouver Harbour is almost complete as well. The first tonne of potash is still expected to be produced at Legacy in the second quarter of 2017. K+S still assumes it will be able to achieve a production capacity of two million tonnes by the end of 2017. From the present point of view, the budget of approximately € 3.1 billion planned back in 2013 will be met.

Strengthening of Specialties Business

The acquisition of the activities of Huludao Magpower, a Chinese manufacturer of fertilizers that contain magnesium sulphate was concluded in January 2017. In December 2016, K+S signed a contract to acquire a 30 per cent stake in Saudi Arabian fertilizer manufacturer Al-Biariq, a producer of fully water-soluble potassium sulphate. Both purchases follow the management agenda of K+S, strengthen the Group's competitive position in the area of fertilizer specialties, and serve as important milestones for the expansion in Asia.

'Salt 2020' Strategy on the Right Track

Implementation of the 'Salt 2020' strategy is still on the right track. In connection with this initiative, an increase in operating earnings (EBIT I) to more than € 250 million by 2020 is expected, assuming normalized winter business. This corresponds to EBITDA of over € 400 million.

Saline Wastewater Disposal at the Werra Plant Remains Challenging

The review of the K+S application to continue deep-well injection until 2021 lasted until December 2016, which was longer than expected. Under the terms of the temporary permit, which was applicable until then, only a limited volume of saline wastewater could be injected underground. Throughout 2016, disposal of saline wastewater was therefore conducted primarily via the secondary means of disposal, which is discharge into the Werra river, meaning that it was highly dependent on the river's water flow. Production limitations at individual sites at the Werra plant were unavoidable, especially during months with low precipitation. This resulted in a total production shortfall of around 0.8 million tonnes in 2016.

The permit for deep-well injection of saline wastewater obtained in December 2016 is an important step towards increased production safety. However the permit has not only included a lower injection volume than requested; it also imposes a limit on daily volumes, among other things. This means there may be additional production limitations in the course of the remaining year during longer periods in which the water levels of the Werra are low, as was partially the case in the first few months of 2017. To avoid production limitations as much as possible, K+S is still working intensively to implement additional measures for wastewater disposal (for details, see page 45 of the 2016 Annual Report).

Using Additional Savings Potential

The 'Fit for the Future' program was successfully concluded at the end of 2016. The goal was to make the cost and organizational structure of the Group as a whole even more efficient in an effort to achieve a total cost savings of € 500 million between 2014 and 2016. With a result of around € 600 million, the Group significantly exceeded the goal it set for itself. Even now that the program has ended, the K+S Group is still making use of savings opportunities.

Outlook for 2017: Tangible Increase in Earnings

Revenues (2016: € 3.5 billion), operating earnings EBITDA (2016: € 519 million) and EBIT I (2016: € 229 million) for the K+S Group are expected to increase tangibly in the 2017 fiscal year as compared to the previous year's values. However, possible production limitations during longer low-water periods in the Werra may lead to significant deviations from this assessment.

Assuming average weather conditions for the rest of the year, significantly higher sales volumes in the Potash and Magnesium Products business unit (2016: 6.1 million tonnes) is anticipated, because the first volumes from Legacy in Canada and Magpower in China are also expected. The average price should increase slightly this year (2016: € 253/t).

Sales volumes in the Salt business unit should be moderately higher this year (2016: 19.4 million tonnes) and operating earnings should also increase tangibly.

Medium-Term Target Confirmed

In spite of the numerous challenges, K+S remains optimistic to achieve its Group EBITDA target of around € 1.6 billion in 2020. The 'Salt 2020' strategy is on track to reach the EBITDA target of over € 400 million, assuming a normal winter. In addition to the Legacy Project, the new market strategy in the Potash and Magnesium Products business unit is expected to contribute to an annual EBITDA of € 1.2 billion starting in 2020.

The estimates on which these forecasts are based can be found on pages 114 - 117 of the Annual Report.

Information for Editorial Departments

The 2016 Annual Report and the K+S Q4/16 Facts & Figures are available on our website at www.k-plus-s.com/2016q4en. An interview on business development with CFO Dr. Burkhard Lohr is also available on the website. Starting at 10 am (CET), the presentations by Norbert Steiner, Chairman of the Board of Executive Directors, and Dr. Burkhard Lohr for today's K+S annual press conference in Frankfurt am Main on the company's financial statements will also be available on the website, along with press photos.

A conference call in English for investors and analysts with Dr. Burkhard Lohr will take place today at 1 pm (CET). 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 2016 of about € 3.5 billion and an EBIT of € 229 million. Learn more about K+S at www.k-plus-s.com.

Downloads