Saturday 14 November 2015

K+S report Q3 2015

K+S, Q3, 2015, front page

Before this report arrived I was thinking to myself, and this will be added to the mistakes for 2015, how stupid was I when I did not sell the shares when they were up at 38 €? If I as a small investor do not benefit from being able to move quickly then I am shooting myself in the foot and quick movements such as what happened back then we should use. I also start to develop an itch or maybe even an allergy towards the word "adjusted"... The market response was as it should be, down and out with the trash.

At a first glance the report looked excellent and all the key figures they presented were looking so good and everything was fine until I read the word adjusted. It would probably have been an interesting video filming me from the start of reading the report until my discovery of the word adjusted. Children should probably not have watched it if they are familiar with Swedish, English, German or French for that matter.

For the report in full please click here and for the previous summary regarding this company with their incompetent trading department please go to K+S report Q2 2015 and to find out more about them then please click on analysis of K+S 2015.

What was then making me go ballistic this time? Well, we have a nice increasing revenue for the running year and the cost of sales are also fully under control but then the idiots have been playing around with hedging and you know what´? They lost -70 million € during the quarter and for the nine months those idiots have gambled away over -100 million €! Have they lost all their braincells? How does it happen that solid, responsible managers allow some idiots to hedge away 100 million € of company earnings? The worst thing, from my point of view, is not that they take it like the men they pretend to be but instead they hide behind "adjusted" earnings. Cowards.

K+S, Q3, 2015, financial statement

So the EPS that should have been around 2.12 € are instead down at 1.92 € so they have already gambled away 20 cents per share or for me in total 43 €. And from what I see the losses have accelerated so let us see what the incompetent monkeys will show us for the full year. Idiots!

Conclusion: K+S that were actually doing pretty well decided, be manager choice, to rotten things up a little. Why contribute with earnings to our shareholders when we can gamble it all away? I take it that no one will be fired over this, or that they will stop it, since they decided to go into the "adjusted" earnings direction but this also means that the confidence for the CEO is now consumed. I am now a grumpy shareholder. Idiots!


Fredrik von Oberhausen said...

I was told off by my mother that I should not use the words idiots and monkeys.

So if you feel that you have been unjustifiably accused of being an idiot or a monkey then I apologize to you.

For future reference... stop gambling with my money and if you do not know how hedging works then please stop doing that and even if you do not how it works... please stop doing that.

Matthias said...

Such Stories always remind me of my first IT Project as Consultant. It was for a mid sized Aluminium Company to optimize their Hedging process.

The costs were enormous and for me it was unbelievable how this should pay off, it the felt like the main purpose of the Company was hedging! But the Costumer is always right.

The Manager in the "hedging" department was a Superstar in the Company, constantly beating the market and opimizing the profits.

2 Years later I read a News article that the Company has lost 40mio on a "hedge" contract and is close to Bankruptcy.

This is what comes out if mid sized companies want to Play with the big Boys from Wallstreet.

Fredrik von Oberhausen said...

Hi Matthias,

Thanks for you interesting comment that broadens my thoughts.

The person making the hedging only wants to do their job, get their salary + bonus. They might not know fully how hedging works, but on the other hand, almost no one does and almost no one knows and can fully calculate the risks so why should not they do that job with the nice salary and bonus? Makes sense.

The managers want to be as cool as the managers of the other companies and for this reason they also want to have their boys doing hedging so they hire people without having any clue of the risks involved. Bad management conducted by alpha (fill-out-on-word).

Hmmm... I see how a reflection article was formed in mind due to this comment.

Thanks you Matthias

Anonymous said...

For me it´s getting suspicious if a company like K&S is actively managing their risks and hedging.

The problem is not that such a "small" company cannot know all the risk. The problem is that their bank counterparts can!

K&S or even smaller caps sitting on one table with J.P.Morgan or GS cannot result in a positive outcome...

Besides that I´m invested in K&S too and believe in their operational business.

Anonymous said...

Yes, I would not doubt if they had meetings with bankers before stepping into Canada that then convinced them of all the benefits and profits that can be made with hedging.

The fear is that they did not learn from this early bad experience.

Anonymous said... Is history repeting itself?
It would make sense that these current hedging costs would come from fx hedging CAD/EUR relation for the Legacy project. Hopefully this will not flush results completely down the drain.

I'm also beating myself for setting a bit too high selling order during the Potashcorp takeover talks. Anyway, if the substance value is around 40 per share, let's hope that the stock is heading towards that.



Fredrik von Oberhausen said...

Hi Wahlroos,

Ah, I did not know about that. Thanks for the link. That means that they did not learn anything from that experience back in 2007. This I do not like.
The disturbing thing for me is that the hedging has obviously always been reported for as long as I have owned them and I have simply not thought about / registered that they have been doing it.

I am thinking more and more that I need to make a tick list like Mr. Pabrai and if companies do not fulfil that list then I would also not be allowed to invest. Hedging I would put on that list as something I would not like to see. I was annoyed in the last Kernel report when they starting talking about considering to hedge. I really hope that they will not start.

Yeah, we did bad Wahlroos. We should have sold. Especially when they arrived the second time with exactly the same offer. My response to that was that I felt offended and definitely did not want to sell to that price which is the wrong response. Sometimes I seem to forget that my money is on the stock market to make money and not to sit around and look pretty.

Anonymous said...

Hi Again,

I wondered why KS stock jumped today and started checking twitter:

google translate: "According to the letter to investors Platow Brief, Potash Corp is preparing to launch a new offer for K + S in the spring."

"The proposal "fully reflect the value (K + S)", had said in a statement Jochen Tilk, German boss Potash Corp."

Maybe this isnt over till its over?


Fredrik von Oberhausen said...

Yeah, I also read those news today.

I guess the old saying concerning Opera still goes... "it ain't over until the fat lady has sung" and I am glad that I picked up some more shares not that long ago.

It feels like a long time until spring though... which price would you accept for your shares this time around?

Anonymous said...


I would like to see a price level at substance value, 41€ per share, I would probably jump immediately on that.


Fredrik von Oberhausen said...

Ok, then it was really close for you last time. Yeah, let us hope that they arrive with something better this time.
Bad for the managers that plenty of shareholders are annoyed with their bad hedging business in Q3 which I think will make more shareholders agree to the deal when it comes.