Julia Bock: Ladies and gentlemen, welcome to the K+S Third Quarter 2023 Earnings Call. We hope you had a chance to review our posted slides as well as our Q3 documents available on the website. 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. Please note that the Teams session will be recorded, webcast, and available as a replay on our home page afterwards. People asking a question in the Teams session, have to be aware that by turning on the camera and microphone, they give consent to saving and replaying video and audio sequences. Now, I would like to turn over to Dr.

Lohr for the opening remarks.

Burkhard Lohr: Thank you, Julia. Good morning, and welcome to our Q3 earnings discussion. After my opening remarks, we will directly start with the Q&A, and I will answer your questions together with my colleague, Christian Meyer, our CFO. Overall, Q3 was a solid quarter that performed somewhat better than initially expected.

We saw a significant increase in demand and this enabled a significant volume increase in our agriculture customer segment and finally, resulted in the expected price recovery in the important overseas market of Brazil. In Europe, price have even stabilized on a more attractive level. For 2023, as a whole, we confirm our forecast for EBITDA and free cash flow. That means we continue to expect the EBITDA to be between €600 million and €800 million and the free cash flow to range between €300 million and €450 million. I want to provide you with some details around our new distribution strategy.

Shareholder participation will be linked to the free cash flow and we want to return 30% to 50% of that figure to our owners. This will be done via dividend, which can be combined with a share buyback, if appropriate. The possible combination of both instruments should also reduce dividend volatility. During the last weeks, there was some fuss about the supply/demand situation of the world potash market in the upcoming years. Therefore, I would like to share our view on this.

You should see a slide now to illustrate these thoughts. It shows that if you apply an annual demand growth of 2.5%, which is the current IFR forecast, the market will need substantial volume additions to the upcoming years to supply this growth. Even if Phase 1 and 2 of BHP Jansen will come on stream in time and assuming half of the 11 million tonnes of capacity extension that Russia and Belarus has announced before the war will be seen, there will be an attractive capacity utilization on the world potash market. And this assumes no capacity will have disappeared from the market until then. You see, we are talking about the balanced situation.

Thank you. A -

Julia Bock: Thank you very much, Dr. Lohr. Now, we would like to start the Q&A session. [Operator Instructions] The first question comes from Alexander Jones from Bank of America.

Alexander Jones: Great. Good morning. Thank you very much for taking my questions. Two, if I may, but I'll start with the first, as you requested on demand trends. You talked a little bit about a significant increase in demand during the quarter.

Could you perhaps give us a bit more of an idea what you're seeing now in each of the important demand regions of the world? Thank you.

Burkhard Lohr: Yes, thank you for that question. We have seen in almost all areas in the world, strong demand. And in Europe, it's not on the level that we have seen before the war, but that if we would have the same level that could not be met the demand due to the sanction, as we all know, we have seen a little bit more volumes from Eastern Europe and Brazil. That is, for us, the answer on the question, why is the Brazilian price flat, more or less, although the demand is strong, but we see that that helps in other regions of the world.

Europe is on a higher level than we have expected, and it looks like this will continue, and we also expect the European demand coming back step-by-step. And the weakest area, Southeast Asia is also back to more or less normal. So, we are quite happy that you have learned -- we all have learned that our competitors are more or less sold out. Same is true for us. Now, Q4 is more a question of delivery than a question of new contracts.

Alexander Jones: Excellent. And then the second question, just on the guidance for this year. The ranges for both earnings and cash flow is still fairly wide, given we've only got one and a months left. Could you talk a little bit about why you've decided to keep them so wide and perhaps where within those ranges you'd be expecting to fall as of today? Thank you.

Burkhard Lohr: Yes, good question because in the past, we have always ranged -- narrowed the range.

But this year, we are seeing so many -- not so many, but some items which are quite volatile. Let's take the gas price. This goes up and down and up and down. As you know, we have still a portion that we have to buy on spot. And as I said, volumes, we have to deliver more than 2 million tonnes, and there might be hiccups.

We are closed in front of the winter season. Price will not have such a dominating impact, but still a small one, and we decided to keep the range as it is, but there is no message behind.

Alexander Jones: Great. Thank you.

Burkhard Lohr: You're welcome.

Julia Bock: Thank you. The next question comes from Christian Faitz from Kepler Chevreux.

Christian Faitz: Yes, good morning. Thank you very much. One question, please, and then I have a second one.

If my math is correct, nominal sales for Latin America in Q3 are down some 72%. Can you tell us a bit more about current dynamics in the southern hemisphere markets? I mean, obviously, I understand the pricing dynamics. But have you also seen that like other -- let's say, agricultural peers are seeing that higher interest rates are causing obviously, the pharma branded financing to slow down a bit? That would be my first question.

Burkhard Lohr: Yes. Thank you, Mr.

Faitz. Of course, that has an impact, but there are many other indicators who impact the demand situation. And as I said in the earlier answers, the demand is almost everywhere quite strong. And our regional footprint is impacted, for example, by the European situation. We have the highest netbacks here now.

There is not much competition. That's why we focus on Europe first. And as we see, Brazil is strong in demand, but prices are flat. We have also reallocated some volumes into other regions. That is more or less the answer on why our regional split has changed.

Christian Faitz: Okay, great. Thank you very much. And my second question on your consensus range, which you have left unchanged. I mean, there's six weeks to go in the year. Why is it still so relatively wide? What would be the factors influencing that €200 million delta?

Burkhard Lohr: Yes.

Again, the gas price isn't -- was at least the cause for us to discuss how wide do we want to have the range because it doubled in a couple of days. We've seen that in the past and we still have a portion that we have buy on spot. We do not know if there are any hiccups in our logistics, for example, Deutsche Bahn might do something crazy. But we just feel much better with a wider range. But again, there's no message behind the most -- the highest probability is the midpoint of that range.

Christian Faitz: Okay. Thank you very much.

Burkhard Lohr: thank you.

Julia Bock: Currently, I'm not seeing further questions. Are there any further questions? Christian has another one.

Christian Faitz: Yes, thank you. Can you -- I mean, obviously, we've seen a rather mild start to the fall/winter this season, and I know you gave an indication on volumes in de-icing just under €2 million. But can you confirm that so far, weather conditions in Europe or de-icing have been, let's say, to say the least, dismal?

Burkhard Lohr: Yes, that's true. We -- it's in almost all de-icing sold regions quite mild. Some years ago, we had nice winter weather in November, then mild December, and it came back in January, but our forecast more or less are based on the Q1.

We are not expecting much in November and December. We're seeing some stocking by meant, pre-stocking volumes, but not no application on the roads so far.

Christian Faitz: Thank you very much, Burkhard and Christian, and Julia.

Burkhard Lohr: Thanks.

Julia Bock: We have one written question by Michael Schaefer from ODDO because he has problems with a technical system, I guess.

He is asking you reported declining costs in Q3 price-wise for the first time over recent years. How should we think about Q4 costs and outlook on costs into 2024?

Christian Meyer: Yes. With regards to the decline of the price/costs, these are especially what already mentioned, the lower spot prices for energy costs on the one hand, then lower freight costs that already -- was realized in Q3. With regard to Q4, as Burkhard already mentioned, that will be dependent on the final spot rates and the freights will be lower, but we will see what finally happens in Q4 due to other impacts that we are not able to forward right now.

Julia Bock: And for 2024?

Christian Meyer: With regard to 2024, our expectation is that we are able to reduce once more, the cost, especially with regard to also to the energy cost due to our hedging strategy so that we will be at least -a little bit for the gas price below €40 per megawatt-hour, and we will also see lower freight costs.

So, our expectation is with regard to these two positions in total there will be a reduction up to €100 million for the next year.

Julia Bock: Okay. Thank you. And then we have one hand signal from a phone number, and we had some problems in the past. So, I hope it works.

It's a London phone number. So, if you have dialed in via phone and want to ask your question, it's your chance now.

Charlie Bentley: Hello, can you hear me?

Julia Bock: Yes.

Charlie Bentley: Great. Sorry, I missed the beginning of the call.

I couldn't get on the system. It's Charlie from Jefferies. Just in terms of this point around what maximum leverage could be? I mean like if I take Q3 multiplied by four, it would get me to a number, which would tell me that leverage couldn't be kind of higher than kind of €300 million or so. Is that -- how should I be thinking about what you would think about as the kind of minimum EBITDA you'd be using in that calculation? And then secondly, just if I think about your net realizations on specialties, should I be thinking about kind of the 60% level versus kind of SOP prices going forward? Is that kind of a reasonable level? Thanks.

Burkhard Lohr: Yes.

Let's start with the first one. And frankly, the Q3 is not the perfect quarter to multiple it with -- by four. Just for one single reason, we have almost all maintenance breaks in Q3. So, the volumes are not representative for the rest of the year. And it's -- again, then you end up with a number which is fully easily too small.

But the question behind this is, of course, how serious do you take a 1.5 times, and I have to say very serious. And that shows that we are planning to be financially disciplined. And on a net base, we have no debt at all, but you know that Standard & Poor's, for example, also calculates our non-current provisions, mostly mining provisions only a little bit of pensions into that calculation. And that drives this number. But again, we are expecting higher EBITDAs than four times Q3, and we are going to be financially disciplined to stick to the 1.5 times.

Second, I'm not sure if I got that. You talked about specialties and SOP, 60%?

Julia Bock: So, the question was, is it right to assume for the full ASP of the specialty, 60% of the SOP price? Is that a good way to look at the ASP of the specialties?

Burkhard Lohr: No, that's too much because, of course, we have some products with a very nice premium. Although they are produced to the same costs and MOP, that's why a cost-to-cost comparison to our competitors is comparing apple-to-peaches. But we also have some products with a lower K2O content and lower pricing. So, by heart, I cannot give you a percentage, but 60% is too high.

But one thing is, I think that gives me the chance to mention one thing. If you compare our average ASP to the ASPs of the competition, we had a real good quarter. That's true.

Charlie Bentley: Okay. I guess just on that first question, I was just trying to get back down to essentially what kind of the trough EBITDA you're basing that one and a half times on.

Thank you.

Julia Bock: Okay. Thank you. The next question comes from Oliver Schwarz from Warburg.

Oliver Schwarz: Yes.

Ladies and gentlemen, thank you for taking my questions. Two of them, please. Firstly, free cash flow generation in Q4. Can you just shed some light on the bits and pieces here? I guess we'll see -- well, that might not be free cash flow relevant, but anyways, we might see a reassessment of the long-term mining provisions. That will have an EBITDA impact eventually, but there's also the issue of cash taxes.

Can you flesh out whether you expect cash taxes in Q4 to be more or less, I guess, in line with P&L taxes or whether there will be an overshooting or undershooting to that number? And also in regards to working capital, obviously, with the 2 -- more than 2 million tonnes you would like to ship in the last quarter, that will result in a major inventory drawdown, I guess. So, could you also shed some light on the working capital movements, please? That would be my first question.

Christian Meyer: Okay. Maybe first, starting with the tax cash out that could be expected for Q4. As I mentioned at the beginning, there was a -- based on the high expectation for the whole year, there were a lot of prepayments for taxes then we reduced our expectation for the year.

So, there were tax refunds in Q3, especially due to the fact that the European business was pretty good that the tax will increase again. So, there, we will expect some tax payments in Q4 based on the results for the whole year. And with regard to the working capital, there we have a reduction of the working capital, as you see in our numbers. With regard to Q4, that mainly depends on the structure of our sales regions. The maturity in the European business is much shorter.

So, that's possible to collect finally the sales price already in Q4 if you -- for the selling that goes to overseas, there the maturities are much longer. So, that finally will depend mainly on the combination of the regions where we are going to sell the product.

Oliver Schwarz: Okay. That's the receivable part of things. Any idea about inventory shifts?

Christian Meyer: Yes, that mainly depends if the shipments are still in Q4 or in Q1 of the next year.

So, there are some uncertainties with regard to the inventories. But at present, it looks pretty good that the shipments we are expected will be done. But as Burkhard already mentioned, there are some uncertainties, especially with regard to the Deutsche Bahn, what they -- what we expect for the next weeks if there will be some delays with shipments to our parts in Germany. So, there are some risks at the end.

Oliver Schwarz: Yes.

And that basically brings me perfectly to my second question, I guess, and that is the viability of your logistics in the light of your plans to ship more than 2 million tonnes in Q4, that seems to me personally, I might be wrong here, but that seems to be a bit of a stretch. Have you ever -- at least in the current structure of the mines you're operating, have you ever been able to ship that amount and you already alluded to some bottlenecks probably by Deutsche Bahn? And maybe other factors might have an impact here, how -- let's say, how viable [ph] from your point of view, is it that you might be able to ship more than 2 million tonnes in Q4 alone? Thank you.

Burkhard Lohr: Yes, good question. It's really more than 2 million in the stretch, but we have proven that. We have done in the past.

I think the record was close to 2.2 million tonnes. And when we talk about risks, there's only one real potential risk. We have -- as we know, we have enough water in the rivers or dryness in this quarter, anyway, it's not an issue. We have in Canada, strike situation anymore. There might be a strike coming up in Germany.

It remains to be seen, but most probably more at the end of this quarter. Besides that, we only talk about slipping vessels from Q4 into Q1. So, it can happen if you miss the loading date by one day instead of 31st of December, it's 1st of January, then you -- all in a sudden, have the volumes in the next quarter, but that is not really a risk. And we are not talking about big volumes. So, the 2 million should be doable and hopefully more.

And then, of course, coming back to your initial question, then the free cash flow will also have a tailwind from the inventory situation.

Oliver Schwarz: Thank you much I've got -- sorry.

Burkhard Lohr: Go ahead.

Oliver Schwarz: Okay. Thank you for that.

I've got a third one, which -- let's see whether you might be willing to answer that. It seems like consensus said that -- no, sorry, that 2024 results might be EBITDA-wise more or less on the same level as in 2023. With the Vega [ph] program, ongoing CapEx is likely to rise, probably working capital movements won't be that prominent in 2024. So, what level of free cash flow adjusted, do you imagine you could provide on the basis of, give or take, €700 million EBITDA next year? Just to get a feeling what might be available for distribution?

Burkhard Lohr: Okay. Unfortunately, you are correct.

We are not willing to talk about EBITDA and free cash flow of 2024. It was a real nice try, and I was very close to answering it. But please understand that we want to give you fresh information in March about that.

Oliver Schwarz: I'll try to be even more sneaky next time. Thank you.

Julia Bock: We have another London dial-in number. And yes, please try if the line works. Okay. This doesn't seem to be the case. We try it again.

And now we take another question of Alexander Jones of Bank of America.

Alexander Jones: Great. Sorry for the follow-up. Just on your past comments, Dr. Lohr on a possible strike in Germany.

Could you give us a little more color on that and maybe more generally, the labor cost environment for Germany into next year?

Burkhard Lohr: Yes. One of the many unions working for the Deutsche Bahn has started negotiations with the Deutsche Bahn and they said that they see a high probability for a strike. I know from the Deutsche Bahn that they will do the utmost to avoid that, but you never know. So, -- and that might happen around Christmas because that has the most impact because whole Germany is traveling. That might not have such a big impact on us, but I think it's fair to mention that.

And the second part of the question, we have already done our homework. I think we had a very good result for 2023, and we have a 2% flat increase for 2024. So, we have clear visibility on labor cost.

Alexander Jones: Thank you.

Burkhard Lohr: Thank you.

Julia Bock: The next question comes from Konstantin Wiechert from Baader.

Konstantin Wiechert: Yes, hi also from my side. Thanks for taking my question. I just wanted to follow-up again on the cost expectations for next year, especially in regards to gas prices. Maybe you can update us again on the hedging that you've done now running into 2024? Because if I look at it, I think you had about 70%, if I remember correctly, hedged for this year, which would bring my average gas cost more to around €30 to €32 per megawatt-hour.

And therefore, on the current spot price, it would rather be that -- I see cost increases on the gas prices for next year. So, maybe you can run us through how you expect gas prices or your gas cost to be lower next year?

Christian Meyer: Yes, with regard to this year, we have a level of round about €50 per megawatt hour that is hedged for the next year. There's already around about 80% hedged, and our hedging rate per megawatt-hour is a little bit below €40 at present. So, that's the correct calculation with regard to our hedging strategy.

Julia Bock: The hedging amount of this year was 90%, not 70%, Konstantin.

Konstantin Wiechert: Yes. Okay. And I think the last 20% were hedged in 2022, somewhat around there. And therefore, that's not really hedging on an attractive level anymore. Yes.

Julia Bock: Okay. So, the London number is still dialed in. Maybe it's JPMorgan, but please try. Yes.

Unidentified Analyst: Good morning.

This is Angelina for JPMorgan. Can you hear me?

Burkhard Lohr: We can hear you.

Unidentified Analyst: Yes. Great. Thank you for taking my question.

I just have a quick follow-up on the shareholder distribution policy that was announced today. If you could possibly give us any color on what additional indicators you will be taking into account and maybe what levels of these indicators as you decide between 30% and 50% adjusted free cash flow distribution?

Christian Meyer: Yes. With regard to the distribution policy between 30% and 50% finally, that mainly depends on the outlook for the business, especially on the fact that we have a relative volatile business. So, at the end of the year, we have some more expectations for the next year and especially when the dividend decision is made during March finally and in May on the AGM. So, that will also be reflected in the final decision.

And what you -- what we also wanted to include in our decision is that what are the expectations with regard to the CapEx programs, especially with regard to our 2060 and ramp-up program. You know that we are calculating around about €600 million of CapEx each year for the next years. So, that will be the main indicators.

Unidentified Analyst: Thank you.

Julia Bock: I don't see any further questions.

So last chance.

Burkhard Lohr: Yes. And if this is not the case, I say thank you very much in the name of the whole team. It was a pleasure to have you in this call. It was quite -- it was a quarter with less events compared to the past.

So, still many questions. Thank you very much for that. There was no question to our view on the mid to long-term balance of demand and supply. Obviously, the message was well-received because that's important for us because after another view on that, we have seen a share price reaction, which was overdone from our perspective. We are optimistic.

And I think with these words, I would like to close the call. Thank you very much, and hope to see you soon again.