Handelsblatt Exclusive

Whistling in the Dark

k+s norbert steiner bloomberg getty images
Norbert Steiner, the CEO of K+S, the world's biggest maker of potash, faces a long list of challenges before he steps down next spring.
  • Why it matters

    Why it matters

    The chief executive of K+S will have to work to convince skeptical shareholders next week at the company’s annual meeting that the fertilizer maker will remain profitable, despite its challenges.

  • Facts

    Facts

    • Germany-based K+S is Europe’s largest supplier of potash — the salt containing potassium that is used primarily for fertilizer.
    • The DAX-listed firm is headquartered in Kassel in central Germany, and employs about 14,300 workers.
    • In 2015, the company had sales of €4.2 billion ($4.8 billion) and operating profit rose by 22 percent to €782 million.
  • Audio

    Audio

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Norbert Steiner, the chief executive of German fertilizer producer K+S, has an eventful week ahead of him. On May 11, he’ll face unhappy shareholders at the firm’s annual meeting.

The raw material giant’s share price has been tanking since the company fended off a hostile takeover bid last year from Canadian rival Potash Corp. But K+S faces more legal problems and a shareholder revolt may be brewing.

Thomas Hechtfischer, managing director of DSW, Germany’s oldest and largest private investor rights protection association, summed it up this way: “K+S is under pressure from all sides at the moment. The question is when there will be good news again.”

“Many also often just look at the raw material potash and overlook our salt business, and the strength of our special products. We are much more widely positioned than most of our competitors, and because of our European business, also less strongly dependent on the global potash market. ”

Norbert Steiner, CEO, K+S

The list of problems facing K+S is long.

The world market price for potash, a potassium salt used in fertilizers and one of K+S’s biggest products, is declining. K+S is also fighting to justify a €3 billion investment in the “Legacy” potash mine in Canada. The German company is also suspected of participating in illegal waste disposal in the central state of Thuringia and faces questions from environmental regulators in a neighboring state, Hesse.

Mr. Steiner, 61, who began his career at chemicals maker BASF, was appointed chief executive of K+S in July 2007. He has worked for K+S for more than 20 years. He plans to step down after next year’s annual general meeting. In an interview with Handelsblatt at the company’s headquarters in Kassel in central Germany, the embattled chief executive exuded confidence.

Handelsblatt: Mr. Steiner, K+S’s share price has fallen by half since summer 2015. You’ll have to take a lot of criticism for that at the annual general meeting.

Mr. Steiner: We are prepared for some shareholders to be critical. But they must see that natural resource companies’ stocks have been under particular pressure in recent months. The fertilizer sector has suffered as well on the stock market. We couldn’t escape this trend either. Nevertheless, K+S’s stock price has significantly recovered from its low in February.

Other stockholders are accusing you of doing shareholders a disservice by rejecting the takeover bid from Potash. How do you respond?

I will gladly repeat that we carefully examined that proposal and had to reject it. But in the end, it was Potash that withdrew. So if they want to accuse us of having made a takeover impossible, then I can only say that Potash was the the one taking action, and not us.

 

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But the Canadians said they pulled out for reasons that included your resistance.

We always said we wouldn’t block a takeover. We can’t even do that since Potash basically had the possibility of letting K+S’ shareholders decide with an official takeover bid. They didn’t do that. I believe that the softening market conditions were ultimately the deciding factor in the withdrawal.

Potash’s assessment of €41 per share was too low for you. You recently said that today you would come to a structurally similar estimate — and that with a current price of just under €22 ($25.30).

I deliberately said “structural.” We would also again take a look today at the worth of both our new Legacy potash plant in Canada and the salt business, and to what extent that estimate is contained in the stock value.

And would you then come to a lower evaluation of K+S?

I am not going to speculate now about which value we would come up with.

But does the current stock price reflect the value of Legacy?

That’s right. I am very dissatisfied that most analysts haven’t factored in the value in their long-term analyses. And yet we are making huge strides in the completion of Legacy in Canada. We will make a pinpoint landing in our time-plan and budget. We will produce the first ton of potash there before the year is out. All we can do is continue to stress Legacy’s prospects, but we have some really tough nuts to crack there. K+S will be pushing into a new dimension with Legacy. We are gaining access to top-grade resources for generations and we will significantly reduce our average production costs.

In their assessment of K+S, the financial markets mainly look at the price of potash. It has dropped in the past months with no sign of increase.

According to our observations, we currently have a stable price situation in Europe and it has been similar in Brazil now for weeks. So we don’t see prices dropping further at the moment. The bottom has most likely been reached. Unfortunately, many also often just look at the raw material potash and overlook our salt business, and the strength of our special products. We are much more widely positioned than most of our competitors, and because of our European business, also less strongly dependent on the global potash market.

And yet there is the opinion in the market that Legacy’s new capacity will cause the price of potash to drop. After all, there is already overcapacity.

One of the biggest fantasies we are hearing at the moment is that we will be the straw that breaks the camel’s back. In point of fact, we have already rolled back our production in the last couple of years by almost a million tons of goods and are expecting to close down our Sigmundshall works near Hanover around 2020 because the resources are exhausted there. With Legacy, we will then be producing a bit more than 4 million tons of standard potash in the next couple of years instead of the current level around 3 million. Potash, for example, has a capacity of around 15 million tons. We remain a small player on the market. All of the other suppliers have built up far greater capacities in comparison to us.

 

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A takeover of K+S remains an issue. Why don’t you look for an anchor shareholder to protect you?

We are looking around and are also holding talks. But we aren’t just looking for an anchor shareholder. It’s not a trivial matter. And the interests do have to match.

And whom are you considering?

In our business, we think in long-term cycles. An anchor shareholder must therefore also have long-term prospects.

The two-pillar strategy as well as the Legacy mine in Canada are your pet projects. When you depart next year, you won’t be able to watch them flower. Have you considered extending your contract?  

Mining is not a one-man thing. For us, decisions are and always have been a joint effort. We acquired the Legacy project because our potash production here in Germany is finite. We can and want to produce on the Werra until about 2060. Legacy opens a window for us that goes beyond 2060. In 2015, I decided in favor of extending my contract for only two years, until Legacy is up and running. If I wanted to experience it coming to flower, to stay with your term, I would have to keep working for K+S until I was a great-grandfather.

What must your successor bring to the table?

He must be a good and authentic manager.

Would K+S’s chief financial officer, Burkhard Lohr, be a choice you would welcome?

That decision is a matter for the supervisory board.

Charges have been filed against you and other managers for allegedly depositing saline wastewater illegally. What do you say to that?

We remain convinced that the permits we were given by the authorities to inject saline wastewater in the Gerstungen Trough in Thuringia were and are lawful. The ongoing investigation by an outside law firm commissioned by the company has confirmed this.

So in your opinion there is no threat of penalty payments?

There is no indication of criminal conduct. That is why, given that context, we see no need to make financial provisions such as setting aside earmarked funds.

According to media reports, K+S allegedly influenced administrative files in another licensing process. What do you say to this accusation?

You can safely assume that the authorities have full control over their own files. If we say in an individual case that files with company secrets should not be made public, then that would certainly also only be understandable. The fact that internal communications have come into the hands of the media via crooked means, and that they also quote from them, is plainly indecent because it has violated our company’s protective space. And when all of that is fed to the public in bite-size portions, without the whole context, it really is a bit rich in my opinion.

But the reports about the internal memos do raise questions about whether those involved were behaving correctly.

We will not say anything more publicly on this subject but rather state our position where it belongs, in the regional court in Meiningen. We are currently working on our response to the charge. Based on the evidence, the court will decide whether it will go to trial.

If it does go to trial, how will you then react personally?

Now let’s just wait and see what the court decides. I prefer to stick to the facts than to speculations.

Good. Then let’s take a look at the facts of restricted injection permission in Hesse. If the restrictions aren’t lifted again, how much will that negatively affect your profits?

We have already had a couple of days of short-time work because of it. It’s possible that too little water will be flowing in the Werra again at times in the next couple of months so that we will again have to roll back production. We are only able to dispose of all of the saline wastewater in the Weser when there is a sufficient flow of water since we have to comply with regulatory limits. At the moment we are trying to produce as much as possible in advance to then be able to deliver from what we have in stock. In that way, we want to keep the impact as minimal as possible and are hoping for an expanded injection permit in the summer.

Are you sticking to your target of earning an EBITDA of €1.6 billion in 2020?

Yes, even if it has become more ambitious. But all of us at K+S are working toward that goal, and I am confident that we will succeed. With Legacy, our “Salt 2020” growth strategy and our sustained cost discipline, we are making K+S Group more robust in international competition and strengthening our company’s viability for the future. K+S remains a company with very good prospects.

 

Maike Telgheder is an editor at Handelsblatt covering the health economy, pharmaceutical companies and chemistry. Bert-Friedrich Fröndhoff leads a team of reporters that covers the chemicals, healthcare and services industries, To reach the authors: telgheder@handelsblatt.com and froendhoff@handelsblatt.com 

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