K+S report Q1 2016

This report from K+S was a bomb drop that I did not expect at all. The response from the market has been more or less nothing which should mean that they anticipated it while I did not. This is not something that change my opinion about the company it is only interesting to observe how things are playing out.

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 annual report 2015 and to find out more about them then please click on analysis of K+S 2016.

On the front page they are bragging about how the two pillar strategy, which means the salt and potash, is paying off. When I read the report I do not understand what they mean. To me a two pillar system "works" when one pillar increase or at the very minimum remains the same when the second pillar falter. When BOTH pillars falter at the same time, which is the case for K+S in Q1 2016, then I would NOT claim that to be a working system.

Looking at the financial "highlight" below we see that the overall revenue is down by -30%. This is then dividend into pillar one: Potash being almost -25% and pillar two: Salt being -18%. The reason for the crash of pillar one was due to less volumes as well as over -30% decreased prices to their customers in the Asian market! I guess the contracts have run out and here we now see the prices they get with the new contracts... this is very bad. For salt the mild winter meant that much, much less salt was needed for de-icing above -30% if I remember correctly which is the reason for the overall -18% on that pillar. So yeah... It is indeed good news, like the management claim, to have both these faltering pillars. I mean... I agree fully on having two pillars and I fully understand that both will falter every now and then also at the same time but as a manager to then run out and claim that the strategy is working is just stupid. Why even make such a claim?

At the moment the debts are also building up in K+S due to the Legacy project and we will continue to see increased costs before that project starts to being back money to us.

Conclusion: K+S had a disaster of a first quarter. Very little seemed to have gone their way with mild winter and pushed down volumes and prices. In Europe... even to the winter was mild it was still so bad weather conditions that the farmers spread out the fertilizer later on their fields. I will remain a shareholder in K+S but I will start to be more observant on the management.