Trouble for the fertilizer group K + S (SDF) stock holders : The Federal Financial Supervisory Authority (Bafin) suspects that a billions in depreciation due to the drop in fertilizer prices may have been too low. The management of K + S is assuming that it will be able to invalidate the Bafin’s indications and has provided the relevant documents to the German Audit Office for Accounting (DPR). The shareholders reacted in shock, however, the share price collapsed in double digits. They fear further write-downs and possibly even a capital increase.
The case concerns depreciation of two billion euros in the “Europe +” operating unit, which the company announced on November 4, 2020. The background was lower assumptions about the long-term development of the potash price and higher assumptions about the cost of capital.
The Bafin refers to evidence that this process was incorrect and could have happened too late, as K + S announced on Wednesday evening. In this context, the supervisory authority commissioned the German Audit Office for Accounting (DPR) to audit the consolidated financial statements as of December 31, 2019 and the abridged financial statements as of June 30, 2020.
The special audit must also be seen against the background of a Bafin that is particularly sensitive to the Wirecard insolvency, “even if in our opinion the situation differs considerably,” explained analyst Sven Diermeier from Independent Research. The expert suggested the shares to investors and now advises them to sell.
Before more detailed information on the topic, one could only speculate about the worst possible consequences, said analyst Markus Mayer from Baader Bank. This included, for example, a postponement of the annual financial statements, further value adjustments and a capital increase to strengthen the balance sheet.
The equity ratio of the MDax group had collapsed to a good 26 percent in the third quarter, when the two billion impairment loss was posted. At the end of September, the balance sheet showed equity of just under 2.1 billion euros.
The sale of the American salt business to the industrial holding company Stone Canyon, which was announced in the fall, is intended to give the highly indebted company financial air. The deal is expected to be concluded in summer 2021 and, thanks to exchange rate hedging, will generate incoming payments of 2.5 billion euros. In this context, the management also expects a book profit in the mid three-digit million range. To what extent this would be sufficient to compensate for possible negative consequences of the balance sheet audit by the FREP is open.
By midday on Thursday, K + S shares fell by around 15% to EUR 8.30 and are thus at their lowest level since the beginning of the year, which had actually started so well. At the beginning of 2021, they had risen by more than a third to 10.44 euros within a few days after the outlook for the agricultural sector brightened significantly and the prices for potash fertilizers continued their recovery.