K+S presents Q3 figures：weak fertilizer demand weighs on earnings

• At € 698 million, Q3 revenues are down 52% year on year
• Q3 operating earnings reach € 9.4 million
• Extraordinary effects result in Q3 adjusted earnings per share of € (0.01)
• Salt business segment’s operating earnings rise by almost 60%
• 2009 outlook unchanged; higher fertilizer sales volume expected for 2010

The third quarter too was characterised by continued below-average demand for fertilizers. With prices for agricultural products failing to recover until the end of September and with agreements on potash deliveries to China yet to be concluded, agriculture continued to display restraint for fertilizers. In addition, the trade sector has been seeking to keep inventories, which have now been largely depleted, as low as possible and to delay the early stocking-up which is otherwise customary at this time. During the first nine months, the K+S response to continued weak demand has been to reduce output and introduce short-time working in the Potash and Magnesium Products business segment.

"From today’s perspective, as already announced in August, the fertilizer business can still not be expected to normalise in the fourth quarter of the year. From many factors, such as, for example, the low use of fertilizers since the autumn of 2008, low inventories in the trade sector and the possible conclusion of an agreement with China, however, one could expect that the global demand for potash should see a significant recovery next year and thus, our potash sales will rise again,” says Norbert Steiner, Chairman of the Board of Executive Directors. “In addition, the first-time inclusion of Morton Salt for the entire year 2010 will impact positively on both our Group revenues as well as on earnings per share,” Steiner continued.

Revenues also down significantly year on year in Q3

K+S Group revenues for the third quarter fell by about 52% year on year to € 698.1 million, primarily as a result of price and volume factors. This is mainly due to significant revenue decreases in the Potash and Magnesium Products and Nitrogen Fertilizers business segments.

Q3 operating earnings reach € 9.4 million

EBIT I for the third quarter amounted to € 9.4 million, compared with the record quarterly result of € 502.2 million a year ago. Earnings fell sharply in the Fertilizer business sector above all as a result of lower revenues. Moreover, in the case of nitrogen fertilizers, higher raw material costs for the production of complex fertilizers as well as inventory write-downs on such fertilizers weighed on earnings in particular. By contrast, satisfactory early-procurement in the European de-icing salt business coupled with lower energy and freight costs resulted in an increase in operating earnings for the Salt business segment.

At € (11.7) million, the third quarter financial result was down slightly year on year (Q3/08: € (8.1) million) as a result of higher interest expenses, including one-off expenses in connection with the financing of the acquisition of Morton Salt.

The extraordinary effects described above also caused adjusted earnings before taxes for the third quarter to amount to € (2.3) million (Q3/08: € 494.1 million) and adjusted earnings after taxes to amount to € (2.1) million (Q3/08: € 358.1 million). Correspondingly, adjusted earnings per share also decreased against previous year’s period to € (0.01) (Q3/08: € 2.17 per share).

Outlook for financial year 2009 unchanged

K+S continues to estimate that the total sales volume of potash and magnesium products for the year as a whole will amount to about 4 million tonnes, with about 3 million tonnes having been sold in the first nine months.

As already stated in the Half-yearly Financial Report, revenues of the K+S Group in financial year 2009 should decline significantly compared with the previous year. In the Fertilizer business sector, significantly lower volumes as well as tangibly lower average prices will have a negative impact. By contrast, the Salt business sector should report a significantly higher level of revenues as a result of the above-average de-icing salt business in the first quarter 2009 as well as the first-time inclusion of Morton Salt from 1 October 2009. However, the increase will not be able to make up for the negative development of revenues in the fertilizer area.
There is also an unchanged assessment, that K+S Group’ costs in 2009 will decline appreciably against last year. K+S expects that short-term working will more than offset the additional costs arising from the latest collective agreement pay rise. The costs of energy, materials and freight are also expected to cause relief. However, as a result of the customarily high fixed cost component in the mining industry, the total decline in costs will be significantly below the decrease in revenues described above.

K+S still assumes that EBIT I for financial year 2009 will fall sharply compared with previous year’s record result. This is linked primarily to the declining level of earnings in the fertilizer business. Even a stronger US dollar exchange rate on average and higher earnings from salt compared with last year will only be able to cushion this trend to a limited degree.

The financial result will be significantly weaker compared with the previous year due to higher net indebtedness and the extraordinary effects arising from the hedging of the Morton Salt purchase price. Thus, adjusted Group earnings after taxes for 2009 as a whole should fall sharply.

Outlook 2010: Higher sales volume expected for potash products

K+S Group revenues in 2010 will be positively influenced to a significant degree by the first-time inclusion of Morton Salt for the whole year. Fertilizer demand should increase again to about 45 million tonnes (2009: about 30 million tonnes expected) as a result of lower trade sector inventories of straight fertilizers in the meantime, lower soil potash content following two very good harvests and the lower application of fertilizers since autumn 2008 as well as the assumption that an agreement will be concluded with China. In the Fertilizer business sector, K+S therefore expects significantly higher sales volume, especially for potash fertilizers. However, it is very difficult to forecast future potash prices at this moment in time. Should the price level currently attainable on world markets is to continue,  a significant rise in revenues for the fertilizers business and thus for the Group too can be expected in the coming year. Such a scenario would also result in an increase in operating earnings. By contrast, a decline in the global market price for potash fertilizers would, however, have a considerable negative impact on revenues and profitability of the K+S Group.

Experience growth

The K+S Group is one of the worlds leading suppliers of standard and speciality fertilizers. In the salt business, measured against production capacity,  K+S, with locations in Europe and in North and South America, is the world’s leading producer. K+S offers a comprehensive range of goods and services for agriculture, industry and private consumers which provides growth opportunities in virtually every sphere of daily life. The K+S Group employs more than 15,000 people worldwide and achieved revenues of about EUR 5 billion in 2008. The K+S share – the only commodities stock on the German DAX® index – is listed on all German stock exchanges (ISIN: DE0007162000, symbol: SDF).