Berenberg Food Ingredients and Chemicals Conference 2018 Materials Conference K+S Group Martin Heistermann, Senior Investor Relations Manager Laura Schumbera, Junior Investor Relations Manager London, 12 September 2018
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Berenberg Food Ingredients and Chemicals Conference 2018Materials Conference
K+S Group
Martin Heistermann, Senior Investor Relations ManagerLaura Schumbera, Junior Investor Relations Manager
London, 12 September 2018
K+S Group 1
K+S GroupDisclaimer
No reliance may be placed for any purpose whatsoever on the information or opinions contained in the Presentation or on its completeness, accuracy of fairness. No
representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its respective directors, officers, employees, agents or
advisers as to the accuracy, completeness or fairness of the information or opinions contained in the Presentation and no responsibility or liability is accepted by any of
them for any such information or opinions. In particular, no representation or warranty, express or implied, is given as to the achievement or reasonableness of, and no
reliance should be placed on any projections, targets, ambitions, estimates or forecasts contained in this Presentation and nothing in this Presentation is or should be
relied on as a promise or representation as to the future.
This presentation contains facts and forecasts that relate to the future development of the K+S Group and its companies. The forecasts are estimates that we have made
on the basis of all the information available to us at this moment in time. Should the assumptions underlying these forecasts prove not to be correct or should certain
risks – such as those referred to in the Annual Report – materialise, actual developments and events may deviate from current expectations. Given these risks,
uncertainties and other factors, recipients of this document are cautioned not to place undue reliance on these forecasts.
This Presentation is subject to change. In particular, certain financial results presented herein are unaudited, and may still be undergoing review by the Company’s
accountants. The Company may not notify you of changes and disclaims any obligation to update or revise any statements, in particular forward-looking statements, to
reflect future events or developments, save for the making of such disclosures as are required by the provisions of statue. Thus statements contained in this
Presentation should not be unduly relied upon and past events or performance should not be taken as a guarantee or indication of future events or performance.
This presentation has been prepared for information purposes only. It does not constitute an offer, an invitation or a recommendation to purchase or sell securities
issued by K+S Aktiengesellschaft or any company of the K+S Group in any jurisdiction.
Current Trading
K+S Group 3
K+S GroupMarket Update
Market Good demand across all regions prevailing In H1 imports to China up 14%, to India
20%, and to Brazil on last year’s high level Many producers are sold out towards the
end of the year Recovery of MOP prices continued Specialty-prices remain strong
Pota
shSa
lt
De-icing Increase in demand both in NA and EU Biddings underway, supportive indications
for next season Non de-icing Greater share of lower yielding industrial
salt products Negative FX impact*Biddings regionally by percentage of completion
MOP vs SOP Price Development (Source: FMB)
200
300
400
500
600
200
300
400
500
600
2014 2015 2016 2017 2018
SOP Europe
MOP Brazil
2014 2015 2016 2017 2018
USD/t EUR/t
K+S Group 4
K+S GroupA Few Challenges Remain – Solutions on Their Way
VARIOUS ONE-TIME ISSUES
One-time issues
Hardness gran.
Caking
Strike rail-workers, several short shutdows
PRODUCT QUALITY• High K2O content• Hardness granulated product• Caking issues (standard and granular)
• Finetuning additives• Grinder pump (beg. 2019)• Cooling equipment (end 2019)
GUIDANCE• Production 2018:
1.4 to 1.5 million tons• D&A 10 to 15 million Euros/month• Positive EBITDA in 2018 • EBIT break even in 2019• Begin Secondary Mining in 2019
with 100 to 200K tons
- First greenfield mine in Sakskatchewan in 40 years -- Going through a lot of “firsts” and we are learning how to adapt -
- Well experienced and highly motivated staff in place -
K+S Group 5
K+S GroupProduction Issues - Germany
Werra: 100kt of lost production in Q2/18 (again) Lack of staff / Illness rate: open vacancies, high illness, lack of motivation
Achievements so far: management changed, vacancies partly filled, illness rate halvedFurther measures: qualifying new staff, filling remaining vacancies,moving workers from SI, to be resolved by end of 2018
Machinery/Equipment: extensive maintenance breaks led to downtimes in productionCountermeasure: prioritized maintenance and replacement-> ongoing improvement, 50% to be fixed by end of 2018
Extraordinary low nutrient content (K2O): Crossing field with lower content at Unterbreizbach (UB)-> Effect resolved by the end of 2019
Neuhof: 50Kt of lost production in Q2/18 Geology issue: low roof stability -> additional safety measures needed Countermeasures: new production technologies to be installed (by end Q3 2018)
K+S Group 6
K+S GroupNutrient content in Germany is diminishing
In Germany we operate mature potash mines Nutrient content (K2O) is diminishing Overall impact 2018: 100Kt of product (annualized)
Countermeasures: Operational Excellence (OpsEx) Starting Operational Excellence program with a consultant Site-by-site investigation with management and consultants We have identified many opportunities to increase efficiency across all sites Start of implementation in 2019 to stabilize current production in Germany
K+S Group 7
K+S Group
Expected production 2018: Germany: 6.4 to 6.5mt Bethune: 1.4 to 1.5mt Huludao 0.1mt
Expected Production 2019: Germany: 6.4 to 6.5mt Sigmundshall - 0.6mt K2O-Content - 0.1mt Improvement against 2018 + 0.3mt KCF + 0.1mt
6.1 to 6.2 mt Bethune: 1.7 to 1.9mt Huludao 0.1mt
=> OpsEx Program to compensate declining nutrient content after 2020
7.9 to 8.1mt
7.9 to 8.2mt
Expected development of our Potash Production
Shaping 2030 Strategy
K+S Group 9
K+S Group
Tapping the full potential of our existing assets... and establish the most value-creating portfolio combination
Exploring new adjacent growth areas... pursuing growth by venturing into new markets where we can use our existing capabilities
Increasing the share of our specialties business... to ensure an overall stabilized performance and reduce our dependency on standard products and weather
'One Company' ... thinking and acting as 'One Company' and realizing synergies between our businesses
We will be the most customer-focused, independent minerals company and grow our EBITDA to €3bn in 2030 by ...
Our vision for 2030
IndustryAgriculture
ConsumersCommunities
K+S Group 10
K+S Group
Phase 2: Growth
203020202017
Phase 1: Transformation
Realize synergies
Advance corporate culture
Net debt/ halvedEBITDA vs. H1/2017
Synergies > €150m
EBITDA-Ambition €3bn
ROCE > 15%
Revenue growthbeyond 2030 > 4%
Increased share of specialties
Tapping the full potential of our existing assets
Exploring new adjacent growth areas
Shaping the organizationand focusing towards our clients
Reduce indebtedness
Investment grade ratingachieved in 2023
We will implement our strategy in two phases
Phase I
K+S Group 12
K+S GroupPhase I: Building a basis for our growth options
Matrix
Operating Unit Function
Agriculture
Industries
Consumers
Communities
Customer Segments
Operations
IndustryAgriculture
ConsumersCommunities
Board of Executive Directors
COO Group CFO GroupCEO Group
CEO Americas
Head of Human Resources
Head of Corporate Communications
Head of Corporate Development
Head of Corporate Controlling
Matrix
Executive Committee
Head of Marketing,Sales & Supply Chain
Excellence
Marketing & SalesCommittee
Operations Excellence Committee
Head of Operations Excellence
CEO Europe & Agriculture
Board of Executive Directors
Divisional Silos
K+S Group 13
K+S GroupChange of management culture
Bring management and employees closer together by… Implementing Town Hall Meetings and
Board meetings on site Pushing internal communication channels
”Innovation can‘t just be triggered by the Board and also not from those who work in corporate development – It has to come from the basis!”
Our principles of cooperation
K+S Group 14
K+S Group
SHAPING 2030
Lift synergies
Operations
Procurement
Supply Chain and Logistics
Commercial Excellence
SG&A Optimization
> €50m
Net synergies YE 2020 (vs. 2017)
> €30m
> €20m
> €20m
~ €30m
COO
Sponsor
CFO
COO
COO
CEO
∑ > €150m
Synergies: Breakdown by program
K+S Group 15
K+S GroupSG&A Optimization
Overall, about 50 SG&A initiatives were defined leading to a good 10% headcount and cost reduction (~ €30m)
Our Strategy Committee and Supervisory Board have approved our SG&A initiatives
The implementation will start in October 2018
main focus on bundling and merging of business activities
K+S Group 16
K+S Group
Merging administrative, logistics and production functions in the new customer segments Industry and Consumer in the Europe and Agriculture operating unit
Headquarters in Hanover office will be closed
Communities: Active customer support for the Community business remains
HanoverCentral bundling of business activities, including Logistics, Controlling, Production, Order Processing by K+S Kali, esco and Waste Management into the OU Europe and Agriculture
Industry: Merging with existing activities administrative functions in Kassel
Consumers: Centralizing brand development and marketing activities across Europe
Agriculture: Not affected by relocation
Kassel
Closing central functions in Hanover
Bundling of strengths in order to boost customer orientation
K+S Group 17
K+S GroupExamples Operations – Increase wrench time
Key to efficient execution of work is increasing wrench time based on activities that eliminate time wastage
K+S Group 18
K+S GroupExamples Procurement
ExamplesMobile Mining Equipment Valves Bearings
Multi-year bundling approach Representing potential savings of
€2-4m
Qualify alternative suppliers Standardize product portfolio Savings of > €200k/year
Optimized manufacturer portfolio Savings potential up to
€1.1m/year
K+S Group 19
K+S GroupExamples Supply Chain and Logistics
Some Key Examples
New Transport Management System: Implementing a new TMS and outsourcing
certain parts of the order processing (i.e. carrier allocation) ensures higher route
guide compliance and improved customer service
Distribution Network Optimization: Consistent utilization of robust modeling tool to
identify and subsequently implement low-cost warehouse network
Supply Chain Planning: Improve maturity level and consistent application of the
S&OP process
Tender Process EU: Optimize and standardize truck tendering process
K+S Group 20
K+S GroupExamples Commercial Excellence
Some Key Examples
Pricing & Margin Management: Revisit pricing strategies, improve pricing
tools, and explore price potential
Market & Customer Insights: Explore white spaces / untapped market
potential across K+S
Lead & Opp. Management: Better & consistent use of CRM system to
identify, pursue and win “non-customers”
Market Strategy: Review existing market segment strategies
K+S Group 21
K+S GroupShaping 2030 EBITDA impact
Costs Synergies > €150m
Total costs for synergy program: ~ €150m (2020 year end)
2018e 2019e 2020e
K+S Group 22
K+S GroupAs
sum
ptio
ns
Current purchase conditions for gas reflected Modified ramp-up curve taken into consideration
WACC (before taxes) = 8.5% USD/EUR = 1.15 EUR/CAD = 1.55
View on the 2019 - 2070 period MOP gran. Brazil: 2019 - 23 = 330-370 USD/t
We have updated our valuation for Bethune
Net Present Value (NPV) Bethune (1)
K+S Group 23
K+S Group
This NPV equals an EV per share of 25 EUR
Variation NPV change
MOP gran. Brazil +/- 10 USD/t +/- €200 million
“We create value for our stakeholders!”
Net Present Value (NPV) Bethune (2)Se
nsiti
vitie
s
NPV for Bethune EUR 4.8 bn
Phase II
K+S Group 25
K+S Group
Implications for K+S
Arable land shrinking
Yield needs to be improved
Higher efficiency of fertilizationand irrigation needed
Plants have to be more stressresistent
Infrastructure needs to beimproved focus on renewable energy
Growing population, especiallyin Asia, needs more salt forvarious purposes
Today: 7.3bn
8.5bnGlobal population in 2030
Per decade
0.2Average global warming (ºC)
70% of water used for agriculture
40%of population suffer from water shortage by 2030
2015: 3.0bn
5.4bnpeople belong to the middle-class by 2030
Our strategy has incorporated important megatrends
K+S Group 26
K+S GroupAs
sum
ptio
ns
Realizing of synergies as well as organic and inorganic growth options will significantly contribute to the closure of the gap and the achievement of the ambition!
Growth options Ambition2030
> 3
Realizing synergiesExisting business2030
EBITDA (€ bn)
Forecast existing business based on sales growth,
price development (updated potash price
model), inflation, production capacity,
environmental costs, etc.
At least €150 million through realization
of synergies by 2020
Realization of organic as well as inorganic growth
options
~ 1.8
13% >15%
Our steps to achieve the financial ambitionRO
CE
K+S Group 27
K+S Group
Geo-expansion Fertilizer Industry
Africa
Asia
Increase of fertilizer specialties
Ramp of low cost commodities
Expand Pharma & Food portfolio
Chemical applications
Growth areas and ideas cover the full growth landscape
K+S Growth Landscape
Growth areas and ideas cover core and adjacent businesses
Financials
K+S Group 29
K+S Group
Actual2017
Price Volume/Mix Currency Othereffects(net)
2018e
577
€ million
€ 660 – 740m
Main effects:+ Potash prices
Main effects:+ Bethune+ Potash volumes
(weather related)+ Tangibly higher salt
volumes
Main effects:- Planning
assumption:1.21 EUR/USD
Main effects:+/- Sigmundshall- Production
issues- Logistics costs- Bethune- Shaping 2030
Cash unit cost per ton (2017: 214€/t) likely to be in the range of 205-210€/t in 2018
Full year guidance is not including weather-related outage days
Guidance 2018: EBITDA between € 660 – 740m
K+S Group 30
K+S GroupHousekeeping Items
1 Incl. ̴ 4mt of potassium sulphate and potash grades with lower mineral content
Tax rate: ~26-28% Financial result: ~-110 to -120 million EUR CapEx: below 600 million EUR D&A (incl. Bethune): 380 to 400 million EUR Reconciliation (EBITDA): ~-60 to -70 million EUR
Additional information on Outlook FY 20181
FY 2018 Guidance mainly determined by: Ramp-up at Bethune Capacity utilization at German plants Winter conditions in Q4 FX and potash price development Cash unit cost per ton in PMP between 205-210€/t
K+S Group 31
K+S GroupExtreme weather situation in Germany - Implications
0
5
10
15
20
25
30
0
50
100
150
200
250
May
June July
Augu
st
May
June July
Augu
st
May
June July
Augu
st
May
June July
Augu
st
May
June July
Augu
st
Rainfall Average Temperature
In l/m2 in °C
May – August rainfall vs water temperature on a 5-yr comparison (Werra)
2014 2015 2016 2017 2018
5yr Average
Source: Wetterkontor.de
Impact on K+S
Persistent severe drought led to production being temporarily interrupted at some Werra sites: Wintershall site has been shut down on
Monday, August 27
Hattorf site has been shut down on Tuesday, September 11
Based on current forecasts, the Unterbreizbach site can continue to produce
Additional measures for wastewater disposal are currently being examined Impact on EBITDA of one day of
production standstill for each site is up to € 1.5 million
K+S Group 32
K+S GroupCapEx development 2015-2020
0
200
400
600
800
1.000
1.200
2015 2016 2017 2018e 2019e 2020e
BU Potash (ex Bethune)
Bethune
BU Salt
Complementary Activities
in m€
K+S Group 33
K+S GroupMoving parts Free Cash Flow 2017-2020
-390
Significant improvement
2017
Ope
ratio
ns
Shap
ing
CapE
x
2018
e
Ope
ratio
ns
Shap
ing
CapE
x
2020
e
+ Bethune+ Price– Werra – FX + Bethune
+ Volume= Price= FX– Net Working Capital
K+S Group 34
K+S GroupDeleveraging – Development 2015-2023
2.3
6.97.2
1.3
4.65.2
2015 2016 2017 2018e 2019e 2020e 2021e 2022e 2023e
Net Debt/EBITDA Net Financial Debt/EBITDA
8.1
Halved vs. H1/17
Prerequisitesfor IG-Rating
K+S sustainability KPIs and targets 2030
K+S Group 36
K+S Group
Goal KPI Target until 2030 at the latest
PEO
PLE
Health & Safety Lost time incident rate (LTIR) 0Vision 2030
Diversity & Inclusion
Employees’ favorable perception of inclusive work environment (percent) >90
Human Rights Sites covered by a human rights due diligence process(percent) 100
K+S sustainability KPIs and targets 2030 - People
K+S Group 37
K+S Group
Goal KPI Target until 2030 at the latest
ENVI
RON
MEN
T
Water
Deep well injection of saline waste water in Germany (m³ p.a.) 0 Starting January 2022
Additional reduction of saline process water from potash production in Germany (m³ p.a.)
-500,000 Excluding reduction by KCF facility and end
of production SI
Waste
Amount of residue used for other purposes than tailings or increased amount of raw material yield (milliontonnes p/a)
3
Additional area of tailings piles covered (ha) 155
Energy & Climate
Carbon footprint for power consumed (kg CO2/MWh) (percent) -20
Specific greenhouse gas emissions (CO2) in logistics (percent) -10
K+S sustainability KPIs and targets 2030 - Environment
K+S Group 38
K+S Group
Goal KPI Target until 2030 at the latest
BUSI
NES
S ET
HICS
Sustainable Supply Chains
Critical suppliers aligned with the K+S Group Supplier Code of Conduct (SCOC) (percent)
100by end of 2025
Spend coverage of the K+S Group SCoC (percent) > 90by end of 2025
Compliance & Anti-Corruption
All employees reached by communication measures and trained appropriately in compliance matters (percent)
100by end of 2019
K+S sustainability KPIs and targets 2030 - Business ethics
K+S Group 39
K+S GroupIR Contact Details
E-mail: [email protected]: www.k-plus-s.comIR-website: www.k-plus-s.com/ir
K+S AktiengesellschaftBertha-von-Suttner-Str. 734131 Kassel (Germany)
Laura SchumberaJunior Investor Relations Manager
Phone: +49 561 / 9301-1607Fax: +49 561 / [email protected]
Lutz GrütenHead of Investor Relations
Phone: +49 561 / 9301-1460Fax: +49 561 / [email protected]
Katharina VolkmarRoadshow Management
Phone: +49 561 / 9301-1100Fax: +49 561 / [email protected]
Martin HeistermannSenior Investor Relations Manager
Phone: +49 561 / 9301-1403Fax: +49 561 / [email protected]
Alexander EngeInvestor Relations Manager
Phone: +49 561 / 9301-1885Fax: +49 561 / [email protected]
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