Julia Bock: Ladies and gentlemen, welcome to the K+S First Quarter 2023 Earnings Call. We hope you had a chance to review our posted slides as well as our Q1 documents available on the Web site. After some opening remarks by Dr. Lohr, we will directly jump into Q&A. Some technical notes.

Please refer to our disclaimer on Page 2 of the presentation. Then a note on data privacy. As always, please note that the team session will be recorded, webcasted and be available as a replay on our homepage afterwards. People asking a question in the team session have to be aware that by turning on their camera and microphone, they give content to saving and replaying video and audio sequences. Now, I'd like to turn over to Dr.

Lohr for the opening remarks.

Burkhard Lohr: Thank you, Julia. Good morning, everybody. Morning and welcome to our Q1 earnings session. After brief opening remarks, we will directly start in the Q&A session and all the three of us will answer.

And if you have not seen him so far, on my left side, Dr. Christian Meyer, our new CFO will also be part of the answering team. We had a good start into 2023, with an EBITDA of €454 million and an EBITDA margin of 38% and free cash flow of €130 million. To put the free cash flow into the right perspective, you have to look at our trade receivable volume. This was still unusually high, and so no release from the year-end level of €1.1 billion.

This should happen during the next month. Some words about the potash market. The wait and see attitude of customers has lasted longer than expected. This was partially due to the lengthy Indian negotiations, which were finally done at the beginning of April. In the Northern Hemisphere, this meant that deliveries were not in time for spring application.

We expect demand to pick up in the second half of this year. And this is based for our outlook. We also expect overseas MOP prices to moderately recover from today's level in the second half. And this would translate into a full year average selling price for our product portfolio tangibly below the level we saw in Q1. And now, we are happy to take all your questions.

Julia Bock: If you would like to ask a question, please use the hand signal and write your name and the name of your research house in the Microsoft teams' chat function. We will then call you individually and you can address your question to us live. Please switch on your camera. One more request, as usual. We would like to answer your question one by one.

So if you have multiple questions, please ask one question at a time. And we will answer it first. After that, you will have the opportunity to ask further questions. This brings us to the first question of Christian Faitz.

Christian Faitz: Yes.

Thank you. Good morning, everybody. I have two questions, if I may. First question first, you addressed a higher price level for Brazil from here on, given that we have seen rather volatile prices in the Northern Hemisphere so far with the U.S. sequentially improving stronger, but Europe pretty much doing nothing.

Can you give us an assessment of current market conditions and also your view on where you would see Brazilian prices into H2? Thank you.

Burkhard Lohr: Yes. Thank you for that question. I think that is the key question for this call, because we really had a long way to normalization in the market after this outstanding year 2022. It was good, but also it was the reason for some un-normal behavior in some markets and that differs.

But coming to Brazil, we are not seeing any reason to not believe that Brazil should come to a normal distance to Indian contract. We have no China contract so far. But we know India is 422. This is standard product. We are delivering granulated product into Brazil, and there's a premium for that.

And there is a good reason to believe that in the second half of the year, prices in Brazil should be $30, $40 at least higher than in India. And that by the way is based for our expectations as well. So the regions have reacted differently so far. We saw pick up in North America. We expect similar development in Brazil when I talk about the volumes now.

When the planting season in Brazil is starting, and that means deliveries should pick up by the end of this month and in June. Europe is interesting to see that some farmers have now not applied or applied to short volumes of potash for three seasons, and that means that they are really taking harm to the soils. And we expect there must be a logical behavior in the future, so another reason to believe that the second half could be a good one in Europe as well. But again, we lose volumes due to that behavior in Europe, but at the same time, Europe is the area with the least deliveries out of Belarus and Russia.

Christian Faitz: Okay.

Thank you, Dr. Lohr. Second question and it's actually a rather provocative question. Another fertilizer company OCI, which reported today, it looks like their major shareholders are not exactly happy with their own share price performance also versus peers in other regions, listed regions on Europe. And they seem to be using about a delisting of their shares, at least in Europe.

Any thoughts on that? Are you happy with your valuation versus your key peers?

Burkhard Lohr: Of course, I'm not happy with the valuation. And when I see the development of the last couple of days, we are facing another very strong year 2023 with free cash flow of 650 to 850. And this is not in the right perspective with the share price from my perspective, but we know that the share price that is true for us and true for our peers linked very much to the potash price development. So a very short-term view on that. We believe that with all our strategic initiatives, Werra 2060 and Ramp-up Bethune and there's a lot of good news to come out Bethune that we can get another spin into it.

And don't forget, we have the AGM tomorrow. And after the AGM starting early next week, we will see a buyback program and it remains to see what the reaction will be on that. But the delisting is nothing we are discussing currently, like OCI.

Christian Faitz: Okay. Thank you very much.

Burkhard Lohr: Thank you.

Julia Bock: Thank you, Christian. The next question is coming from Mubasher Chaudhry from Citi.

Mubasher Chaudhry: Hi. Hopefully, you can hear me.

Just one question, please. Can you talk about your take on why the Indian contract took so long to negotiate? And when they did agree, only agreed for six months? So any thoughts on why the Indians pushed for a six-month contract on that side of things? Thank you.

Burkhard Lohr: Yes. As you know, first of all, thanks for that question. As you know, we are not at the negotiation table.

And that's why we can only guess it took long. But we heard that there was an agreement and that was afterwards. Not both parties stick to that agreement. So they had to come together again. Now we'd have the 422.

I guess the reason for the six months, but that is not the first time by the way that we have a six-month contract, is the expectation of whatever volatility and I don't know which party was the one who was asking for a six-month contract only. I wouldn't read bad news into that. I would rather see we have potential in six months to see a higher price.

Mubasher Chaudhry: Thank you.

Burkhard Lohr: Thank you very much.

Julia Bock: The next question is coming from Andreas Heine from Stifel. Andreas, are you there?

Andreas Heine: Can you hear me?

Julia Bock: Yes.

Burkhard Lohr: Yes, we can hear you but we can't see you. Now we see you as well.

Andreas Heine: Okay.

My question is on the volume side. So you're reducing outlook for the volume by 100 kt. Is that due to production capabilities, or is that a function of slower demand in first quarter and potentially second quarter in Europe? That's the first question.

Burkhard Lohr: That is 100% due to the lower volume in the first quarter. So we have not assumed to make that up in the following quarters.

And we are only talking 100,000 tonnes.

Andreas Heine: Okay. So production capabilities are fine, it's nothing.

Burkhard Lohr: Production capabilities are fine. And there's nothing on the horizon that could cause a significant issue.

Even in a hot summer or dry summer would not lead to any stand stills.

Andreas Heine: And the second question is more on the economics. When you fertilize less in spring, does it mean you have to do more in autumn or is it completely different so that for the next spring season, you always have to come to the acre before you plant, or can you -- what you missed in spring do in autumn to prepare for the next season?

Burkhard Lohr: That's always a function of the quality of the soil. But we are now talking about -- when I talk about Europe, partially three seasons in a row with not enough potash on the soil and that definitely has to lead to a reaction in autumn.

Andreas Heine: And then lastly, we hear a lot from [indiscernible] and from all sources about the supply from Belarus and Russia.

My gut feeling is that the recovery is underestimated. Otherwise, we would not see that the market is well supplied. And that these two players undercut especially overseas prices from Western producers. How do you see this situation going into the second half?

Burkhard Lohr: Yes. I think we all agree that the gap to normal production and normal deliveries of the two companies in 2022 was roughly 15 million.

And the expectation for this year is somewhat between 7 million and 10 million, still meaningful. So what we see or what we saw in the first quarter and might see in the second quarter as well, because we said second half should be a strong one, is more or less still wait and see behavior due to the expectation, prices might come down even more. Fortunately, the North American market has now seen strong development. And again, we expect the same for all the other areas as well. India is also strong after the contract.

So it's not all weak. And it's not a flooding of the market of Belarus and Uralkali. And by the way, you know that Belarus is still sanctioned in Europe and Uralkali is not using its headroom, so Europe definitely is not impacted by it too high deliveries from these two companies.

Andreas Heine: Thanks.

Burkhard Lohr: Welcome.

Julia Bock: The next question is coming from Alexander Jones from Bank of America.

Alexander Jones: Great. Thanks very much. My first question just following up on the India contract. I think on the call last time you talked about that as a catalyst for demand.

And it'd be interesting to hear your sort of comments on how customers reacted to that and whether it's just too late in the season for them to then show any interest whether it has led to even a minor pickup in buying interest in your conversations?

Burkhard Lohr: Yes. That is what I mentioned earlier, it's more or less -- it was so late that buying and shipping into the running season in the Northern Hemisphere was not possible anymore. And that's why the entire market has lost quite a volume. And that's the reason for the whole story. And again, as this happened and it has negative impacts on the farmers, on the soils, we expect a strong second half of 2023.

Alexander Jones: Great. Thanks. And second question is on cost. You reduced it from mid triple digit million inflation to low to mid triple digit. Can you talk about what's changed there and maybe give us some quantification in terms of the different buckets at energy, personnel, logistics materials?

Burkhard Lohr: Yes, we have seen different developments.

As you know, the gas price is for us the easiest to calculate because we have this 90% hedge, but the unhedged volume went down significantly. Now we're talking in the spot about €35. This is extraordinary cheap compared to what we saw last year. We also saw some freight items coming down, especially containers that was not only a high price issue, it was also a question of availability that has changed entirely. And some materials are also less expensive than we expected.

And that's why we only see roughly 100 million inflation compared to last year.

Julia Bock: This is price related.

Burkhard Lohr: Only price related, of course, yes.

Alexander Jones: Great. Thanks.

Burkhard Lohr: Thank you.

Julia Bock: The next question comes from Michael Schäfer from ODDO.

Michael Schäfer: Yes. Thanks for taking my questions. The first one is also on your outlook into the second half.

You referred to MOP overseas pricing improving in the second half. So I wonder whether you can shed some more light on your underlying assumptions on the specialties products, which has been still up I think pricing plus 9% year-over-year in the first quarter, and maybe also on the industrial product side? So how should we think about lower MOP pricing filtering through all those specialties and industrial products throughout 2023?

Burkhard Lohr: Yes. Thank you for the question. One part of the answer is already known. So we expect the Brazilian prices to come back to a normal distance to the Indian prices.

On the other hand, we expect the European prices to come down a bit, because they are still the highest prices in the markets. And we should see a comparable development to some of our specialties, especially SOP which are still on a very high level. So that is the normalization we are talking about. And that is with the normal volume the base for our guidance. And talking about that upper end and the lower end, so if this happens quicker, then we are at the upper end.

And if we don't see that development that I just described, we step more or less on the current pricing, then we are closer to the lower end.

Michael Schäfer: Okay. Thanks. Then my second question is on your trade receivables collection. So this was hardly unchanged number in the first quarter compared to Q4.

So I wonder how should we think about this money flowing into your cash flow statement throughout the year '23. So what's the quarter when we see the most of the collection kicking in?

Burkhard Lohr: With regard to this question, that's based on the materiality mix of our accounts receivables. And we expect the most of them to be collected in the second quarter, and some in the third quarter, but you will see a big effect in the next month. That's based on the maturity mix.

Michael Schäfer: Thanks.

That's all.

Burkhard Lohr: Thank you.

Julia Bock: The next question, and that's I think a follow-up question, comes from -- no, we had that already. We continue with Thomas Swoboda. And I guess Andreas Heine is ready.

Otherwise, just give me a signal via the chat.

Thomas Swoboda: Yes. Good morning, everybody. I have two questions, please.

Burkhard Lohr: Good morning.

Thomas Swoboda: Good morning. They are rather hypotheticals, still I think worthwhile asking. My first question is on the theoretical breakeven price in the potash market. In the last downturn, I think the prices only bottomed out at roughly $250. I hear you that we are probably not going into this direction.

And we saw a lot of inflation since then. But theoretically, where do you think the current breakeven price for MOP lies today?

Burkhard Lohr: That's a tricky question, because when we're talking about, there's a lot of moving parts, because one thing is for sure and this is what we are seeing currently. When the potash prices would move in such a direction -- and I'm not I'm not expecting that at all. That is totally un-logical with the shortness in supply. Even if we have a further shyness of the customer, this is not going to happen.

But I don't want to shy away from your question. Even if we would see a development in this direction, then we would see also a significant decrease in costs. And if we would take that into account, and you know that we said we want to be free cash flow at least neutral on the price level, which we had back in 2020, so then this is more or less the breakeven point. So now you're gone. I hope it's not due to my answer.

Thomas Swoboda: Thank you.

Burkhard Lohr: You're back.

Thomas Swoboda: I'm back. Yes, it must be my line. Thank you for that.

You implicitly answered my second question. So if I understand you correctly, your cash cost would be already at a level of this 250 or whatever that you could say cash positive in case we should see market prices going to this direction?

Burkhard Lohr: Yes. And as you know, our cash cost position is a moving target, as we ramp up Bethune. And we are getting step by step towards a better position. But you're correct.

With the assumptions I just presented, we should be fine with such a price level, again, what I'm not seeing for years.

Thomas Swoboda: Perfectly understood, very helpful. Thank you.

Burkhard Lohr: Thank you.

Julia Bock: The next question comes from Markus Mayer from Baader.

Markus Mayer: Yes. Good morning, Julia. Good morning, Dr. Lohr. Two questions from my side.

First of all, there are new salt capacities in Eastern European customer and companies plan. Is this right [ph] for you? I understood that this is only 400 kt, but nevertheless it might be as a [ph] salt in new market. Then my second question --

Burkhard Lohr: May I answer one by one?

Markus Mayer: Sure.

Burkhard Lohr: We knew a long time ago that this is going to happen and we have prepared for that. And as you see, currently the salt business is really booming in Europe, although we did not have an extraordinary winter.

So you'll see that is not a threat to us at all.

Markus Mayer: And where do you exactly expect to see the effects of [indiscernible] consumer part?

Burkhard Lohr: That's more in the chemical segment. But that is so big that additional 400,000 tonnes is not really a threat to us.

Markus Mayer: Okay. Thank you for this.

And then second question is, have I understood this correctly that there are changes with the cover or blends of the coverage of Italian facilities in oil. Can you update us on this? And also what is the potential CapEx effect from this?

Burkhard Lohr: Yes. First of all, we are happy that we have an agreement with all parties. Because having a publicly noticed fight is never good. Not everything you read was 100% correct.

We only have agreed that we will look again into the best methodology to cover NaOH [ph], but we will have to cover NaOH because it's an obligation for us. And then we try to be quicker than the originally assumed 100 years. And again, I'm happy that we have calmed down the situation. Now we will meet regularly at a roundtable together with authorities, together with the ministries and we will find the best solution and we will have to cover it, and [indiscernible] will cover it. And it has no impact so far on future CapEx.

Markus Mayer: Thank you.

Burkhard Lohr: Thank you.

Julia Bock: So far, we don't have any further questions. So if you have any further questions, raise your hand. No further questions in the line.

Burkhard Lohr: Yes. Thank you very much. I think that was a very interesting Q&A session with very interesting questions. And, yes, again, I would like to use the opportunity to remember one more time that after the AGM, we start the buyback program and you see an optimistic management team. And I'm looking very forward to see you on the road or where else.

Thank you, and bye-bye.