Our outlook for 2019
The medium- to long-term trends for the future industry situation described on pages 126 – 128 of the 2018 Annual Report still largely apply. We also refer to the statements on the future industry situation on page 16 of our 2019 Half-Yearly Financial Report. (Reports are below)
In contrast to this presentation, there was only a change in the industry-specific framework conditions in the Agricultural customer segment: For 2019, we now expect a slight decline in demand on the global potash market compared with the strong previous year to just under 70 million tonnes (previously: stable demand for around 71 million tonnes, including just under 5 million tonnes of potassium sulfate and potash grades with low levels of valuable materials in the previous year). China's import freeze, which has continued since September, has also caused other sales markets to hold back. Against this background, potash producers cut production in the second half of the year.
As early as September 2019, we reported that we would reduce our potassium chloride production by up to 300,000 tonnes by the end of the year against the backdrop of the described weak market. The effect on EBITDA was estimated at up to € 80 million. Parallel to this reduction in production and due to the persistently weak market environment, K+S will carry out additional maintenance measures at German sites in the fourth quarter of 2019. This will reduce potash production by an additional 200,000 tonnes in the current year. The effect on EBITDA amounts to further about € 50 million. Nevertheless, we expect a slight increase in revenues for the K+S Group for 2019 as a whole (2018: € 4.04 billion). Taking these effects into account, an increase to about 650 million is expected for the EBITDA of the K+S Group (2018: € 606.3 million).
In the Europe+ operating unit, positive price effects compared with 2018 as a whole should have a particular impact. Despite the reduction in production, we expect revenue to increase slightly and EBITDA moderately (revenues 2018: € 2.59 billion, EBITDA: € 443.3 million). Meanwhile, we expect sales and earnings of the Americas operating unit to remain almost stable (revenues 2018: € 1.45 billion, EBITDA: € 221.8 million).
Our assessment for full-year 2019 is mainly based on the following assumptions:
- Despite the current weak market environment, which is being further exacerbated by the continuing Chinese
import ban on the standard product potassium chloride, we continue to assume, following the positive development in the first nine months, that the average price for 2019 will rise moderately overall in relation to our product portfolio (2018: € 254/t). At the end of October, Russian, Belarusian and Israeli producers concluded supply agreements with India until March 2020 at a price of 280 USD/tonne (previously 290 USD/tonne). These contracts provide an initial orientation, but have not yet triggered a noticeable revival in
demand against the backdrop of China's continuing import bans.
- The challenges we face at the Werra and Neuhof plants have been tackled and product availability has already improved. Nevertheless, we expect that in 2019 the German sites will still lag behind their technically available capacity. Due to the market-related production cutbacks described, sales volumes of around 6.4 million tonnes for all products (2018: 6.85 million tonnes) are currently anticipated for the Agriculture customer segment.
- In the Communities customer segment we continue to expect sales volumes in the range of 12.5 – 13.0 million tonnes for the 2019 financial year. This forecast assumes that our sales volumes for de-icing salt in the fourth quarter of 2019 will be around the long-term average level.
- An average spot rate of EUR /USD 1.10 (previously: EUR / USD 1.15) is now assumed for the euro-dollar exchange rate for the remaining months of 2019; including the average EUR /USD exchange rate after hedging, this corresponds to an average exchange rate for the year of EUR /USD 1.14 (2018: EUR / USD 1.16).
After the effects described above, adjusted Group earnings after taxes are now expected to remain roughly stable (2018: € 85.4 million).
Although the investment volume of the K+S Group in 2019, in particular as a result of the expansion of our tailings pile capacities in Germany, should, at about € 550 million, be higher than in the previous year (€ 443 million), the adjusted free cash flow should also improve significantly with the aforementioned operating improvement as a result of active working capital management compared with the previous year and should be positive again for the first time since 2013 (2018: € –206.3 million). The return on capital employed (ROCE) is now expected to be roughly stable (2018: 2.6%). While the ROCE of the Europe+ operating unit should remain stable (2018: 2.0%), it is expected to be significantly lower in the Americas than in the previous year (2018: 7.9%).
Our earnings-oriented dividend policy is generally reflected in a payout ratio of 40% to 50% of adjusted Group earnings after taxes. Since, as described above, we have a positive outlook for 2019, the Board of Management and Supervisory Board intend to propose a dividend of €0.25 per share (previous year: €0.35 per share) to the Annual General Meeting on May 15, 2019. Against this backdrop, the payout ratio of 56% (previous year: 46%) of adjusted Group earnings after taxes is slightly above the range of the dividend policy described.