K + S sells American salt business to reduce debt

The mountain of debt is high, business is sluggish: Now the Kassel-based company has found a way to put fresh money in the till for now. Is this the desired release?

Kassel (dpa) - The heavily indebted fertilizer and salt producer K + S wants to drive forward the debt reduction with the sale of the American salt business.

"After an intensive examination, this is the best option to achieve the company's mandatory debt relief," said CEO Burkhard Lohr, said on Wednesday. Investors hope for a relief: The share price, which has been badly shaken in recent years, has risen.

Due to the construction of a potash plant in Canada worth billions, the people of Kassel had accumulated a high mountain of debt, the reduction of which also stalled due to sluggish business. The sale of the Americas operating unit, which bundles the North and South American salt business, is intended to reduce debt by significantly more than EUR 2 billion by the end of 2021.

The partial sale of the Europe + division, which also includes the new Canadian potash plant in Bethune, was also taken into account when comprehensive measures were announced in December.

CEO Lohr expects a sales agreement for the American salt business this year. The sale should lead to the loss of jobs at the group headquarters, since the administration should then be adapted to the smaller company size. No information has yet been given on the extent of the impending job losses. Subsequently, Lohr wants to concentrate on expanding "the profitable business with fertilizer specialties".

The shareholders of K + S honored the planned horse cure. The shares rose at the top of the MDax on Wednesday afternoon by around 15 percent to EUR 6.70. However, the price had dropped to the lowest level since 2004 at EUR 5.74 a few days ago.

The reasons for the price decline in recent months were debt concerns and fear of weak business development, and recently also the coronavirus crisis, which pulled down the entire stock market. For comparison: from the record high of the shares above the mark of 97 euros during the fertilizer boom shortly before the financial crisis 2008, less than a tenth is left.

In the past year, the group was particularly troubled by the fertilizer business, especially in the second half. Weak potash demand depressed prices. Hessen, like other industry participants, had therefore significantly reduced production. The hope was that if the offer was reduced, the customers' warehouses would empty more quickly and then higher sales prices could be implemented.

At first, none of this helped. With almost stable sales of around EUR 4 billion, earnings before interest, taxes, depreciation and amortization (Ebitda) in 2019 rose by only 6 percent to EUR 640 million compared to the exceptionally weak previous year. The dividend for 2019 is expected to drop by 10 cents to 15 cents per share.

With a view to the cost reductions planned as part of the long-term corporate goals, Manager Lohr emphasized the progress. In 2019, synergies of more than 100 million euros were achieved in purchasing, production, logistics and sales. That is two thirds of the permanent savings of more than 150 million euros per year planned as part of the "Shaping 2030" strategy from the end of 2020.

There was also progress in the new Canadian potash plant in Bethune. Thanks to further improvements in the manufacturing process, the product quality has now reached the level expected by the customers, the group said. K + S had to struggle with start-up problems for a long time: fertilizer was sometimes clumped, especially when it was transported overseas, and then had to be ground up again at an expensive price or sold at a discount. That is why K + S had repeatedly improved the systems and processes.

The group plans to present detailed figures and further details on March 12.