Thank you, everyone, and welcome to the K+S Second Quarter 2025 Earnings Call. My name is Lucy, and I will be your call webinar host. Please note that all attendees are currently in a listen-only mode until the Q&A portion of the call, at which point you'll have an opportunity to ask your questions. I will now hand over to Julia from K+S for some technical notes.
Ladies and gentlemen . Also from my side, welcome to our call. We hope you've had a chance to review our corporate slides as well as our Q2 documents available on the website. After the opening remarks by Christian Meyer, we will jump directly into the Q&A session, our technical note as always. Please refer to our display on page two of the presentation. A note on data privacy: please be aware that the team session will be recorded, webcasted, and available as an audio replay on our homepage. People who ask a question in the team session should be clear that by switching on their camera headphones, they're free to the recording and replay of video and audio feedback. Now, I'd like to hand over to Christian Meyer, our CEO, for the opening remarks.
Thank you, Julia, and welcome from my side as well. I would like to start with some explanations about our two ad hocs in context with our Q2 earnings, really. Starting with the first ad hoc. On July 14, we had to publish an ad hoc on an impairment of assets. This impairment negatively impacted our Q2 group earnings and rosters. According to IFRS, we must compare our book value, which is the CapEx spent on assets minus regular depreciation, to our DCF value. If the DCF value is above the book value, our maximum asset value is the book value. This leaves room to cope with changing estimates and prices to change rate or rate. If the DCF value falls below the book value due to an estimate change, our assets value will be regulated by the DCF value, which likely fluctuates every quarter.
Therefore, our annual reports always include sensitivities for the impact of changes in the different estimates. The last time our DCF value temporarily fell below the book value was in Q3 2020. At that time, we had to write off EUR 2 billion. Already nine months later, the DCF value exceeded the book value. This required us to write back our assets to the book value. Our competitors' reporting is very different. According to U.S. GAAP, our competitors must write off assets but not write back. These fluctuations won't be visible in their financial reports once they've been written off. Our impairment was mainly caused by the weaker U.S. dollar, with the biggest impact on the DCF value now falling below the book value. We now use a rate of 1.20 per euro in our 150-year DCF model, up from 1.10 U.S. dollars per euro.
The future reaction of potash producers and customers to the weak U.S. dollar against most currencies remains to be seen. These effects were not yet reflected in the external potash price studies for Argus, used for the impairment test. Additionally, BHP's announcement of their delayed production start came after our ad hoc and is therefore not reflected in Argus price curves. Once we have decided on the long-term exchange rate, applying it to a DCF is faster than analyzing water and updating the forecast. The good news is that this impairment on group level will not have a significant impact on K+S 's action desire, individual financial statements according to HCV as of December 31, 2025. Therefore, from today's perspective, our ability to pay dividends is not at risk. Now, some details on the second ad hoc.
On July 29, we published an ad hoc with details on Q2, full-year EBITDA, and free cash flow. Despite missing Q2 and having a weaker U.S. dollar-euro estimate, an analyst assumed we could confirm our full-year outlook. Second quarter EBITDA was below the prior year and your expectations. This was driven by the one-off related to long-term mining provisions, lower sales volumes due to postponed shipments, and the planned earlier start of the school maintenance, and the U.S. dollar-euro exchange rate impacting earnings despite hedging, especially due to steel mills needing to be evaluated with a spot rate on the reporting date. Let's turn to the full-year outlook. We are very happy that since the previous forecast was published, potash prices have continued to rise moderately.
Therefore, we confirmed our previous expectations for the full year, despite a weaker U.S. dollar for the remaining months compared to our previous outlook and your expectations. We still expect EBITDA to range between EUR 560 million and EUR 620 million with a slightly positive free cash flow. For the midpoint of the EBITDA guidance, we assume that the average price level achieved in all regions and for all product groups remains stable during the second half of the year. For the upper end of the range, prices would need to increase further. Just to give you a sense of the phasing of figures for the rest of the year, keep in mind that Q1 and Q4 are our strongest quarters due to seasonality in both business segments. At the maintenance quarter, Q3 typically has the weakest EBITDA contribution. Last year, it contributed EUR 65 million.
We received positive price effects in Q3 year-on-year, but we will also see higher personnel costs due to this collective bargaining agreement, as well as higher energy costs and negative ESG effects. I'm looking forward to answering your questions together with my colleagues, Jens and Julia, and I will now hand over to the operator to start the Q&A session.
Thank you, Christian. At this time, we'll conduct the question and answer session. If you would like to ask a question, please click the raise-hand icon at the top of your screen to enter the queue. Please state your company affiliation when asking your question. Additionally, K+S would like you to answer your questions one by one. If you have multiple questions, please ask your question at a time, and K+S will answer it first. After that, you will have the opportunity to ask further questions. This brings us to the first question of Christian's line.
Yes. Good morning, Julia and team, an d Christian, I hope you can hear me.
Yeah.
Yeah. Yeah. Good. Perfect. Two questions. First, I noticed that in Q2, sales in Latin America were some - 10% down year-on-year. How much of that is FX, and how much of that is lower volumes? In that context, how are volumes at this point developing in Latin America heading into the key application season?
With Latin America, now we have some lower volumes mainly based to optimize our regional needs. That is very important to understand. With regard to the SE defects, on a cash flow basis, we are near the edge, but from the perspective of the residual, there we finally realized some effects. That is very important to keep in mind.
On current trading/demand out of Latin America, how is that developing?
Yeah. The current demand, especially from Latin America, we are currently at the quiet season. We are in between the seasons, but we expect a strong demand also from the second half of the year. That's very positive. We are in between the seasons, but we've stabilized it.
Okay. Perfect. My second question would be on your smaller business. The refill business for de-icing salt was pretty slow in Q2, obviously on the back of a past mild winter.
Yeah.
Do you see this coming back in Q3, or would this rather be a Q4 event with possibly some more winter events kicking in against your low comparison base?
Yeah. With the de-icing salt business, we expect a normal year for this year. As you already mentioned, due to the warm winter last year, the early procurement was a little bit lower. For the rest of the year, we expect a normal sale.
I think it's coming. Yeah. Thank you.
Yeah, absolutely. Q4 is the biggest one, I mean, due to the upcoming winter.
Thanks very much.
Thank you, Christian. Our next question comes from Michael. Please proceed.
Yeah. Thanks for taking my question, Michael Schaefer from ODDO BHF. Hello, everyone. My first question is rather on the supply side, looking into 2026 and what you see also currently for the rest of the year. I mean, we started the year first half discussing on Russian and Belarusian supply curtailments. If my statistics are right, I'm looking at here, we are rather talking 12% up the rail shipments year to date, July. I wonder whether you can shed some more light on how you see the Russian-Belarusian supply evolving second half and also looking into 2026. Maybe also related to that, what are you making out of the, let's say, in the meantime, approved import tariffs on Russian NTK? How this is affecting your European business, looking into also next year, and maybe also related to that on the supply side.
The news from BHP, you mentioned this already, you know, deferring commissioning to mid 2027. In general, the picture for 2026 on the supply side, and for that.
Yeah. Maybe starting with the second half of 2025, we still see a strong demand, and we will see high volumes from the supply side. If there are some challenges from the supply side, then we won't see the business. We won't be able to deliver all volumes that are asked finally from the demand side. With regard to 2026, we will see what happens in 2026, but we expect, especially from Russia and Belarus, that they are very stable compared to the 2024 level. We will see some more volumes from Laos. We won't see any volumes from BHP, as you already mentioned. Additional volumes coming to the markets, more volumes finally will be enough by the increasing of demand. The market in 2026, we also expect that the supply and demand will be in balance, some red flags in the front here from the supply side.
Thanks for that. The second one is on your cost base. Also, looking maybe into next year and the second half, you highlighted rather high energy costs. I think you also reported a significant increase in energy costs, I think roughly 36% first half, $60 million up compared to the first half last year. Now looking into current spot rates, which came down significantly over the recent months in TTF, and also what we have learned from the German government when it comes to gas storage levy, which I think will be abundant starting 2026. Could you give some more color on how you see your cost base, your energy cost base, but maybe also other costs evolving looking into next year? Thanks.
Sure. Maybe for this year, we are at 50% for Q3 and 70% for Q4. That's a price of EUR 40 per megawatt hour. At the moment, we are purchasing from a lower spot price to yours, and I think keep in mind the spot price you see has to be added by a certain charge of EUR 23. This is actually the price we have to pay. With regard to next year, of course, we have already added a portion of 20% at a price slightly below EUR 40 per megawatt hour. We would profit from the needs of the new government with regards to the gas levy. This is a positive effect, but we will remain at a relatively high energy cost level. Some relief, but not very.
Okay. Other cost items? The personnel. I think we should have seen, I mean, starting April, we have seen the new collective bargaining agreement hitting your P&L. Next year, probably not the same kind of order of magnitude of increase, right?
The bargaining we will focus on. We have an increase of personnel, which is roughly about EUR 10 million per quarter. This is the effect we have already reflected for next year. We will have an increase in energy and a slight decrease for next year in energy costs, but we have stable personnel costs and all other fixed expenses.
Okay, thank you.
At the level of the team.
Thanks. That's all my questions.
Thank you very much, Michael. Our next question comes from the line of Angelina. Please proceed.
Hello. This is Angelina from Tate Morgan. Thank you for taking my questions. I will have two questions, please. The first one is a follow-up on the previous question around the market outlook for 2026. You have commented on your expectations with regards to supply. I want to understand a bit more on demand because it seems that based on what we're seeing year to date, demand has been quite strong and the market has been able to absorb all the extra volume that came out of Russia and Belarus from the year-on-year perspective. We heard from your peers in North America recently upgrading their guidance expectations for demand globally this year. With that in mind, how should we think about demand growth next year? Should it be slower demand growth compared to this year, or do you think it could be in line with this year?
Just to put it in context a bit better, this supply picture you have described.
With regard to the U.S., we see an increase in supply, but also on the demand side, we see the application of the additional volumes. That's very important. With regard to next year, we also expect that the additional supply will be finally eaten up by the additional demand. We expect also for next year an increase of the demand of around 2% that would require around 1.6 million tons in addition from the supply side. For this year and also for next year, as I already mentioned, we expect that the supply and demand will be absolutely with more risk on the supply side.
Understood. Thank you very much. The second question is more around the financials. Could you maybe give us a bit more context about how you think on the dividend right now? Of course, we have the dividend policy, the free cash flow-based payout, and we have your adjusted free cash flow guidance for the year, which is slightly positive. For example, given that you're in quite a significant CapEx cycle, free cash flow numbers can vary quite a bit because it's just slightly above zero. With that in mind, how are you going to think about the dividend payout? For example, given that the market environment is quite good, would you consider maintaining the dividend in absolute terms somewhere close to last year's level? In general, if you could explain how you think around that, it would help.
Okay. Yes, we have a clear dividend policy that we are paying dividends in a range of 30%- 50% of the free cash flow. If you have a look to the condensed free cash flow currently, then you will end up as a dividend between EUR 0.06 and EUR 0.10 per share. The final decision we will make in March next year about the dividends, but we should keep in mind that we have announced that we have a high CapEx program with a 2060 project for the next at least until the end of 2027. That in total will finally be included in our decision.
Understood. Thank you.
Thank you, Angelina. Our next question comes from Oliver. You may now proceed. Oliver, please ensure that your line is unmuted.
Thank you for reminding me. Thank you for taking my questions. A couple of them remain. Can you elaborate about the price of salt, of rock salt? Given that demand is rather sluggish, but still prices seem to hold up rather well, is that something structural? Is that something that may pass? That would be my first question. Any thoughts on the development and future development of the salt price would be helpful. Thank you.
Yeah. Hi, Oliver. We are very happy with our small but very nice salt business. We have finally higher prices compared to previous years and also better net packs in total. We expect with the discussions here with the market also for the next year.
Okay. Second question is about your long-term mining obligations. They have increased, I guess, using different interest rates. Could be the thing that was behind that. They seem to have, I also seem to have not only a balance sheet, but also a P&L impact. You said it was around about EUR 10 million. How does that work? I thought the P&L impact would be like the service cost. Is that still true, or is the EUR 10 million somewhere, let's say, a residue of what happened in the balance sheet?
The effect is twofold with regards to the effects in the ETA and our net society. That is not really operating revenue or the operating expenses for the same. We have different levels, actually, for monitoring and the coordination. This was the smaller part of it within the ETA and some long-term effects. We have a very long-lasting time period we are looking at. It's also with regards to the DCF model. If you change, we have a lot of assumptions in that model. If you change any of those assumptions, it could have an effect. It was, so to say, an effect of different assumptions that have changed and that led to the changes in our guarantee.
To be clear, the EUR 10 million, is that cash relevant in the P&L, or is that a non-cash item?
Non-cash item.
Okay. Thank you for that. Lastly, obviously, the elephant in the room was the EUR 2 billion impairment charge. That was, according to you, triggered mainly by the changes in the FX rate that you used. What specific, I know about the 1.20 because you stated that, but what's the source of that? You use that, obviously, for, let's say, your 150-year DCF. What kind of FX rate? It's not the spot rate, obviously. What kind of assumption goes into that 1.20? How fast can that change and what would trigger a change there?
Yeah. That could change, as you have seen, for example, in 2020 and 2021. That was more price-related, but also there we saw some FX effects. In 2020, we also had the 1.20 in the cash relation. Where is the 1.20 coming from? We look at the spot rate, but mainly on the futures for the U.S. dollar. Then you have to make a decision where the U.S. dollar will end up over the next years, up to the 120 years. That's a rough calculation. That's a clear calculation within our model. We are absolutely in line with the previous calculations. If you, for example, read the 100 plus from yesterday or today, there was a big discussion between the different FX experts. They see the U.S. dollar between 1.13 and 1.25. With our 1.18, 1.20, we are absolutely in the range of the expectations of the capital market.
Finally, we have to, it's not the spot rate. It's more what happens within the next year, what are the expectations. There we are more or less in the midpoint.
Thank you. That's all for my questions. Thank you very much.
Thank you, Oliver.
Thank you very much, Oliver. Our next question comes from Tristan. Tristan, you may now begin.
Hi. Thanks for taking my questions. Here's one. I just wanted to understand better your guidance for EBITDA for 2025. I think you said EUR 330 is your midpoint ASP assumption. In Q2, I think we're already at EUR 336, and we had price rises in the second quarter, which I imagine will hit your P&L with a lag in Q3 and Q4. I just wanted to understand whether you're assuming price decreases in Q3 and Q4 to come to that $330 average that you're talking about, or maybe there's something I'm missing.
Yeah. No. Thanks for this question. What we expect finally for the midpoint is that the price level that we currently achieve will be stable for the second half of the year, as you already mentioned. What's very important, EUR 330 that we expect for the whole year is the basis that we see increasing prices, U.S. dollar prices. Around 50% of our volumes are exported to the U.S. dollar market. The increasing prices will be eaten up by the FX expectations, U.S. dollar FX expectations. The ASP doesn't include finally the hedging decision that will compensate for some of these volumes.
Okay, thank you.
You're welcome.
Thank you, Tristan. We'll now take the next question, which comes from Aaron. Aaron, you may now begin.
Hello. Good morning. I have three questions, please. First, could you provide an update on the current situation at Bethune and explain perhaps if the logistic issues are behind us now?
With regards to Bethune, we are in budget and in time from our current perspective. We are very happy with the additional investments we are now planning. As we explained to Ramp-Up, we want the site to be ramped up to 4 million tons by the end of the 2030s. With 2030, we expect to be able to ramp up until 3 million tons. There is nothing new. We are absolutely.
As you were referring to the shift that was postponed from the end of Q2 in Q3, probably, and the logistics there, that is nothing special. We always have that shift can leave one day later. Yeah. We also were saying that we have logistical challenges in the second quarter, but these were mainly in Germany with regards to low water levels. You know that we are not transporting that much via barges, the low percentage points. If in Germany there are low water levels, you have a higher pressure on the Deutsche Bahn system, and we should sell that. It was not a big thing in Q2.
We didn't hear you mentioning a longer than expected break at Bethune. That's what I was referring to.
No, that was just we started earlier with the maintenance. We saw it already in June and not in July. That depends on the summer holiday seasons in Canada, and we optimize just the time when we are making maintenance. Strangely enough, you won't see any impact on the year on the annual basis.
We always have three weeks of maintenance in Bethune. This year, we did one week in June and two weeks in July. Last year, we did three weeks in July. That was the difference.
That should provide a benefit to Q3 immediately, in fact.
You still have two weeks in Q3. It's still a maintenance quarter, but a little bit expensive.
My second question is on volumes because your Q2 volumes were 100,000 tons lower on a year-over-year basis, but you kept the guidance range of 7.5- 7.7. What factors should enable you to perhaps reach the upper end? We talk about stronger demand. That could perhaps be a benefit. We think about more on the mid to lower end of the guidance today after what happened in Q2.
With our volumes, finally, we see a strong demand. From the demand side, we don't see any risks. That's also why we think that we will be able to catch up with difficult challenges, issues, as Julia just explained, over the total year. We are very happy with the outlook for the volume. It's a realistic outlook, though.
A final one just on the cost. I wanted to follow up what you mentioned before. Am I correct saying so that you expect stable personnel costs in 2026? Energy, you hedge 50% at EUR 40. Energy should be lower on a year-over-year basis if we remain at these levels. You mentioned flat energy costs, which was referring to electricity. Is that correct?
We didn't differentiate between the two or heat, but say that's more or less the effects for next year's reasons.
Thank you. Thank you very much.
Thank you, Aaron. Our next question comes from David. David, your line is open.
Hi. Good morning. Thank you. It's just a quick one on the mining provisions on the balance sheet. It mentions in the release that the interest rates that are used to discount this provision have significantly increased, yet the mining provision itself has also increased. I'm just curious as to what the, what are the moving parts in that, please.
Yeah. As I already explained, there are different assumptions. You are totally right. We, to some extent, benefited from the higher interest rates, with the discounts, actually. It's discussed mainly through the recuperation of our savings files. You have different assumptions, and this reflects to dry breakthrough material, actually, where you cover those savings files. There we had changes. With regards to the long periods, we are looking at they are quite, as we reflect our balance sheet.
Okay. Thank you. There's nothing FX related in there. It's that change to the.
No.
Okay, thank you.
Thank you, David. The team, we have a follow-up from Oliver. Please proceed.
Opening the mic first, I learned. Just another follow-up on, basically, on future potash pricing. When you talked about the impairments, you also reflected on what is happening at your competitors due to the fact that the U.S. dollar is not the currency that's normally used as a cost item in the production of potash because that's located elsewhere. You said the supply will be probably outmatched even by the demand or will be even matched by demand next year. The path should be clear for people raising prices. However, I haven't seen any of that neither in, let's say, spot rates nor in the communication of your competitors yet that they are striving for, let's say, a compensation of what they will be losing due to the adverse changes in FX. I also don't see that, obviously, reflected in your outlook, which was kept stable.
There's no outlook of K+S on 2026 yet, and I understand that. When do you expect those likely price increases that you allude to when talking about a probable reversal of the impairment, probably also only partly? When do you expect them to kick in? That would be my question.
Yeah. It was very important to know that we are currently in between the seasons, but you are absolutely right that finally, also, our competitors are facing challenges with the weaker U.S. dollar. For example, Mosaic also explained that their cost position is higher compared to the prior year. Every competitor is producing outside of the U.S. dollar, not in the U.S., and all of them are finally facing challenges with the weaker U.S. dollar. Currently, we don't see it in the spot rates, but in the long run, we expect that there should be a reaction in the prices. When we will see this, you can't take away directly the switch of the weaker U.S. dollar to the prices. At the end, if you have a look at the earnings of all the competitors, then there's finally a need to increase the prices due to the weaker U.S. dollar.
I think at least if we will stay at this low level of the U.S. dollar, then you should see that at least in the spring season.
Thank you very much.
Thank you, Oliver. We have a question from Axel. Axel, your line is open. Please proceed.
Yeah. Thank you very much. Hi, everyone. I just have a follow-up to the mining provisions. These mining provisions have been relatively constant between 2017 and 2023, almost EUR 0.9 to EUR 1.1 billion. Since then, they've risen by about 40% to now EUR 1.4 billion. The question is, what are the reasons behind that? What is the exact meaning of Algenverwahrung or tailings containment? Where is this provision journey going in the mid to long term?
We're looking at a lot of tailings plants that have to be covered. There you have different contracts to cover those tailings plants. Therefore, you have to conduct application procedures with the authorities, and they give feedback on the material you can bring on, on the way you cover, HP the heat. You have different assumptions because we are looking at very long periods of time.
We made several adoptions, and this is a process that is almost happening every year. Now, the effects are a little bit higher, but you cannot detect from the development you saw now the future increases in the mining provisions. You can also have the opposite effect, which is the fluctuation we see almost every year. This year, it was great, what do you feel?
Okay, thank you very much.
Very important, maybe to add that we still expect such outputs for the next 10 years of around about [EUR 150 billion]. That's because of the long-term projection we finally have over 800, 900 years.
Okay, thank you.
Thank you, Axel. Ladies and gentlemen, once more, if you would like to ask a question, that's through the raise-hand icon at the top of your screen. Excellent. It appears there are currently no further questions. This concludes the Q&A and today's call. Thank you all for joining today, and have a great day.
Thanks to all of you. Thank you very much. Bye-bye.
Thank you. Bye.