Following the stabilization of potash prices in the important Brazilian market, the fertilizer company K+S is on track to achieve the annual targets it lowered in the summer.
Demand has increased compared to the weaker second quarter, said CEO Burkhard Lohr in an interview published on the K+S website on Tuesday. This helped the prices. However, the forecast range for earnings before interest, taxes, depreciation and amortization (Ebitda) remains large at 600 to 800 million euros despite the advanced course of the year, especially since the operating result has already reached 550 million euros after nine months.
Analysts currently expect, on average, an operating profit of 696 million euros for 2023, according to data provided by the company. In the previous year, K+S achieved a record profit of 2.4 billion euros in a very strong market environment.
The reference from this half-year that the upper end of the range should be reached in 2023 if “the positive demand impulses and price trends observed at that time continue” is now no longer applicable, as is the reference to the lower end if customers in important sales regions hold back again.
In June, the MDAX group once again reduced its annual profit target due to weak potash prices. The port strike in Canada, where K+S had built the large Bethune plant just a few years ago, also had a negative impact.
The share price then fell to almost 14 euros in June, before hopes of better business in the following three months led to prices of up to a good 18 euros again. Since then, things have been going down again – it was only this Monday that the shares fell to a two-year low of just over 14 euros. In the spring of 2022, after Russia’s war against Ukraine began, the share price rose to a good 36 euros due to fears of global fertilizer shortages. Russia and Belarus are important producers.
Analysts had recently given little hope for a stronger business recovery. In a study at the beginning of November, Priyanka Pate from the major Swiss bank UBS saw little scope for a recovery in potash prices into 2024. This is contradicted by the stagnating profitability of corn farmers for the time being – and this is particularly important for the potash price.
In the last third quarter, K+S’s sales fell by around 40 percent to 881 million euros compared to the record level in the same period last year, as the company in Kassel also announced. Operating profit fell by almost 90 percent to 72 million euros.
The adjusted cash inflow, which is important for the dividend, amounted to around 54 million euros in the three months to the end of September. This results in adjusted free cash flow of 328 million euros for the first nine months of the year – after 814 million a year ago. Lohr is still targeting 300 to 450 million for 2023.
K+S changes distribution policy – cash inflow as basis
K+S is adjusting its distribution policy. In the future, the amount of shareholder participation will be based on the free cash flow adjusted for special effects, as the company announced on Tuesday. 30 to 50 percent of the operating free cash flow should go to the shareholders through a dividend, which may be combined with a share buyback. The previous dividend policy provided for a basic dividend of 15 cents per share, which could be increased accordingly if the economic development was good. The company had already announced a revision in the spring as a result of debt reduction.
For the exceptionally strong year 2022 due to high demand for potash fertilizer and high sales prices, K+S distributed one euro in cash and launched a share buyback program for up to 200 million euros.
Since K+S expects an adjusted free cash flow of 300 to 450 million euros for the current year, the new distribution policy for 2023 implies a cash dividend well below or above the median analyst estimate of one euro – and that is assuming that there is no Combination of cash payment and share buyback.
Via XETRA, the K+S shares temporarily gained 4.96 percent to 14.81 euros.
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