K+S Group's Q2 adjusted earnings up more than fivefold year-over-year to €150.8M, as revenues rise 21% to €996.5M, driven by strong performance from potash, magnesium products

KASSEL, Germany , August 14, 2012 (press release) – Very good business performance for potash and magnesium products As expected, weak early stocking-up in salt business Quarterly revenues up 21 % to € 996.5 million Operating earnings EBIT I reach € 219.8 million (+ 21 %) Adjusted earnings per share from continued operations increase by 17.5 % to € 0.74 Outlook for financial year 2012 confirmed:

  • revenues between € 3.9 billion and € 4.2 billion expected (2011: € 4.0 billion)
  • Operating earnings EBIT I should reach between € 820 million and € 900 million (2011: € 906.2 million)
  • Adjusted earnings per share from continued operations expected to be between € 2.85 and € 3.15 (2011: € 3.77/share)

In the Potash and Magnesium Products business segment of the K+S Group, a strong overseas business and good early stocking-up in Europe at the end of the reporting period have led to significant rates of increase for revenues and earnings in the second quarter, in comparison to the same period of the previous year.

“The current demand development for potash and magnesium products in the markets relevant to us should therefore continue in the coming months and should cause this business segment to show even slightly rising operating earnings”, says Norbert Steiner, Chairman of the Board of Executive Directors of K+S Aktiengesellschaft. “Against this backdrop we should therefore remain able to significantly mitigate the weather-related strong decline of the operating earnings in our Salt business segment on the Group level this year and are confirming our forecasts for 2012 as a whole”, Steiner continues.

Positive development of potash fertilizer demand in the second quarter

After there was still cautious early stocking-up of fertilizers at the start of the year, the demand for potash and magnesium products developed positively during the second quarter of 2012. The relatively high price level for agricultural raw materials offered attractive income prospects for farmers and therefore an incentive to increase yields per hectare also through the optimal use of fertilizers. After the production cuts by North American and Russian producers at the start of the year, global capacities were again almost completely utilised in the course of the second quarter. Moreover, after the conclusion of the potash supply contracts with China at unchanged terms at the end of the first quarter, international prices for potassium chloride tended to be firmer and, in the second quarter of 2012, were tangibly above the level of the previous year’s quarter.
As expected, early stocking-up in salt sector weak

As a result of the very mild and partly dry weather conditions in Western Europe at the start of the year, stocks on both the producer and customer sides are well filled. Consequently, in comparison to the same period of the previous year, a price decline in the early stocking-up business of the second quarter of 2012 was observed. While prices for the tenders for the winter season 2012/13 decreased, overall volumes in the contracts concluded to date stood at a relatively good level.

The de-icing salt regions on the East Coast of the United States and in Canada were also characterised by relatively high stocks due to the exceptionally mild winter at the start of the year. Most producers reacted to this situation with cutting back production. In the de-icing salt regions of the United States, both in the early stocking-up business in the second quarter and in the tenders for the winter season 2012/13, there were declines in prices and volumes, particularly in the Midwest.
K+S Nitrogen stated as discontinued operation due to its sale

The description of the earnings, financial and asset position relates, if not stated otherwise, to the continued operations of the K+S Group. Since the reporting on the second quarter of 2011, the COMPO business and, with the Half-yearly Financial Report H1/12, also K+S Nitrogen are stated as a “discontinued operation” in accordance with IFRS. Detailed information can be found in the Notes to the Half-yearly Financial Report on page 33. The income statement and the cash flow statement were adjusted accordingly. The balance sheet stayed unchanged.

Second quarter revenues rise by 21 %

At € 996.5 million, second quarter revenues were up € 174.8 million or 21 % in comparison to the previous year. This can be attributed in particular to a volume-related increase in the Potash and Magnesium Products business segment. Revenues in the Salt business segment were slightly up on the figure for the previous year due to currency effects. In the first half of the year, revenues of the K+S Group fell slightly by 2 % to € 2,077.1 million against the background of lower revenues in the Salt business segment in the first quarter due to weather conditions.

In the first six months of the year, 60 % of revenues were generated in the Potash and Magnesium Products business segment, followed by Salt (36 %) and the Complementary Business Segments (4 %). In Europe, we generated a share in revenues of approximately 40 %, followed by North America (26 %), South America (19 %) and Asia (13 %).
Operating earnings in the second quarter above last year’s figures

During the second quarter of 2012, earnings before interest, taxes, depreciation and amortisation (EBITDA) rose by 16 % to € 275.8 million (Q2/11: € 237.0 million). In the first half of the year, EBITDA reached € 580.0 million, representing a decrease of 8 % (H1/11: € 627.6 million).

In the second quarter of 2012, operating earnings EBIT I reached € 219.8 million and thus increased by € 37.9 million or 21 % in comparison to the same quarter of the previous year. At € 56.0 million, depreciation and amortisation taken into account in EBIT I were at about the level of the same quarter of the previous year (Q2/11: € 55.1 million). The Potash and Magnesium Products business segment managed to significantly improve its earnings in particular thanks to higher overseas volumes, while the earnings of the Salt business segment decreased against the backdrop of a weaker early stocking-up business for de-icing salt. In the first half of 2012, the K+S Group achieved operating earnings of € 468.6 million. This was 9 % below the previous year’s figure (H1/11: € 516.6 million). At € 111.4 million, depreciation and amortisation taken into account in EBIT I in the first half of the year were at the level of the same quarter of the previous year (H1/11: € 111.0 million).

Adjusted earnings before income taxes improve significantly

Taking into account a weaker financial result due to non-cash, extraordinary interest expenses for provisions resulting from the lowering of the discount factor, adjusted earnings before income taxes for the period under review reached € 195.6 million and were thus € 28.8 million or 17 % higher than a year ago. In the first six months, adjusted earnings before income taxes were € 429.3 million (H1/11: € 486.2 million).

Adjusted Group earnings from continued operations up by 17%

In the second quarter, adjusted Group earnings from continued operations rose by € 20.7 million or 17 % to € 141.2 million. Adjusted Group earnings from continued operations of the first six months decreased in comparison to the corresponding period of the previous year by € 46.8 million or 13 % to € 310.3 million.
Adjusted earnings per share from continued operations in the second quarter at € 0.74 (Q2/11: € 0.63)

In the quarter under review, adjusted earnings per share from continued operations reached € 0.74 and were thus about 18 % above the figure for the same period last year of € 0.63. This was computed on the basis of 191.40 million no-par value shares, being the average number of shares outstanding (Q2/11: 191.32 million no-par value shares). In the first six months of 2012, adjusted earnings per share from continued operations reached € 1.62, a decrease of 13 % after having been € 1.87 in the previous year.

Adjusted earnings per share reach € 0.79 (Q2/11: € 0.15)

Adjusted Group earnings (including discontinued operations) in the second quarter reached € 150.8 million (Q2/11: € 29.2 million). Of this, € 9.6 million was attributable to the discontinued operations of K+S Nitrogen. In the first six months, adjusted Group earnings amounted to € 344.2 million (H1/11: € 301.1 million), while € 33.9 million was attributable to the discontinued operations. Adjusted earnings per share (including discontinued operations) in the quarter under review reached € 0.79 (Q2/11: € 0.15). Of this, € 0.05 was attributable to the discontinued operations. Adjusted earnings per share including discontinued operations of the first six months achieved € 1.80 after having been € 1.57 in the same period of the previous year, while € 0.18 was attributable to the discontinued operations.

Outlook 2012: Revenues expected between € 3.9 billion and € 4.2 billion

While in the Potash and Magnesium Products business segment, on the basis of the currently achieved potash price level, a moderately increasing revenue development can be assumed, in the Salt business segment, tangibly lower revenues are expected. Revenues of the K+S Group should reach a value of between € 3.9 billion and € 4.2 billion in financial year 2012 (previous year: € 4.0 billion). The revenue forecast assumes an average US dollar exchange rate of 1.22 USD/EUR for the remaining months. This corresponds to an average annual rate of 1.26 USD/EUR (previous average annual rate: 1.33 USD/EUR; 2011: 1.39 USD/EUR).

Operating earnings EBIT I should reach between € 820 million and € 900 million

EBITDA of the K+S Group should reach a figure of € 1,050 million to € 1,130 million (previous year: € 1,146.0 million) and operating earnings EBIT I between € 820 million and € 900 million (previous year: € 906.2 million). In the Potash and Magnesium Products business segment, slightly rising operating earnings are to be expected (previously: stable). In comparison to last year, which had benefited from above-average volumes of de-icing salt, the operating earnings of the Salt business segment will probably decline strongly.
Group earnings should be in line with the development of operating earnings

Adjusted Group earnings after taxes from continued operations should be in line with the development of operating earnings and reach a value of between € 540 million and € 600 million in 2012 (previous year: € 625.6 million). This would correspond to adjusted earnings per share from continued operations of about € 2.85 to € 3.15 (previous year: € 3.27). Taking into consideration the discontinued operations including the expected accounting profit arising from the divestment of K+S Nitrogen, adjusted Group earnings after taxes of € 630 million to € 690 million are to be assumed (previously: € 581.8 million). This would correspond to adjusted earnings per share of about € 3.30 to € 3.60 (previous year: € 3.04). This estimate is based not only on the effects described for revenues and operating earnings, but also on:
  • the expectation of consistently attractive agricultural prices;
  • the customary, purely technical forecast policy, which maintains the currently achieved potash price level unchanged for the remaining months of 2012;
  • a sales volume in the Potash and Magnesium Products business segment at about the same level as the previous year (2011: 6.9 million tonnes);
  • a sales volume of crystallised salt of 18 to 19 million tonnes (previously: less than 19; 2011: 22.7 million tonnes), of which a good 9 million tonnes was de-icing salt (previously: less than 10; 2011: 13.3 million tonnes). For the fourth quarter, this, as customary, assumes the average of multi-year de-icing salt sales volumes;
  • a tangibly weaker financial result (previously: stable) particularly due to non-cash, extraordinary interest expenses for provisions for mining obligations resulting from the lowering of the discount factor;
  • a slightly higher adjusted Group tax ratio of 27% to 28% (2011: 25.7%).

Future dividend policy

K+S is pursuing an essentially earnings-based dividend policy. According to this, a dividend payout ratio of between 40 % and 50 % of adjusted Group earnings after taxes (including discontinued operations) forms the basis for the amount of future dividend recommendations to be determined by the Board of Executive Directors and the Supervisory Board. For 2012, there are, on the basis of the described earnings expectations, opportunities for a higher dividend (previous year: € 1.30), since the accounting profit from the divestment of K+S Nitrogen and the cessation of the adverse effects from the divestment of the COMPO business should have a positive impact on Group earnings.
Experience growth

The K+S Group is one of the world's leading suppliers of standard and speciality fertilizers. In the salt business, K+S is the world’s leading producer with sites in Europe as well as North and South America. 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 14,000 people. The K+S share – the commodities stock on the German DAX index – is listed on all German stock exchanges (ISIN: DE000KSAG888, symbol: SDF). More information about K+S can be found at www.k-plus-s.com.

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