Frequently asked questions on the market, development of the business and outlook

The K+S Group occupies strong market positions in all those areas in which it is active. We are:

The K+S Group posted revenues of about € 5,150.9 million for 2011. 

The revenue split by business segment as of 31 December 2011 was as follows:

All  business segments were profitable in 2011. The Potash and Magnesium Products business segment made the largest contribution to earnings for the year 2011 and was followed by the Salt business segment.

The EBIT I split by business segment as of 31 December 2011 was as follows:

We generate part of our total revenues and earnings overseas respectively in the US dollar area. However, most of our sales and earnings arise in Europe. Given this focus as well as the selective use of hedging transactions, the impact of the US dollar on group revenues has been limited.

Exchange rate fluctuations can lead to the value of the service performed not matching the value of the consideration, because income and expenditure arise at different times in different currencies (transaction risks). Exchange rate fluctuations, especially in relation to the US dollar, play a particular role for the Potash and Magnesium Products business segment, in relation to the levels of its proceeds and receivables. Within the framework of transaction hedging, key net positions per currency are hedged through derivatives, normally options and futures. Furthermore, currency effects arise at subsidiaries whose functional currency is not the euro (translation risks), since on the one hand the earnings of these companies determined in a foreign currency are translated into euros at average rates and recognised in profit or loss, and on the other, its net assets are translated into euros at spot rates and can result in currencyrelated fluctuations in the equity of the K+S Group.

Currently, translation effects from the conversion of US dollars mainly appear in the Salt business segment. The planned earnings are hedged against translation risks, insofar as these are of material significance.

Options and futures are utilised to hedge the worst case, but at the same time the opportunity is created for part of the hedging transactions to participate in a better price performance.

As in the previous year, in 2011, the price realised by the Potash and Magnesium Products business segment was 1.35 USD/EUR including costs, and the realised price for the Salt business segment was 1.37 USD/EUR after 1.39 USD/EUR in the previous year. The hedging measures therefore led to a more favourable exchange rate in comparison to the average USD/EUR spot rate after premiums.

For the construction of the new potash plant in Canada (Legacy Project), during the primary investment phase until 2016, payments will mainly be made in Canadian dollar (CAD) with a smaller portion being made in US dollar. The Canadian dollar investment is partly aided by a natural cash flow hedge arising from surplus in the salt business in Canada. With regard to the remaining CAD net position, it is intended to hedge this in accordance with the aforementioned general exchange rate hedging strategy. The US dollar investments are posted under the USD net position of the Potash and Magnesium Products business segment; during the investment phase, this leads to a reduction of the total US dollar volume requiring hedging. In the subsequent operating phase, the hedge volume will increase given the anticipated additional USD revenues.

Q1 revenues reach € 1,438.1 million
Revenues in the first quarter amounted to € 1,438.1 million, a decrease of € 188.8 million or 12% relative to the figure for the previous year. This decrease is attributable exclusively to lower revenues in the Salt business segment due to weather conditions. Revenues in the Potash and Magnesium Products business segment were up slightly, revenues in the Nitrogen Fertilizers business segment increased by approximately 10%.

In the first three months of the year, 40% of revenues were generated in the Potash and Magnesium Products business segment, followed by Salt (32%) and Nitrogen Fertilizers (25%). In Europe, we generated a share in revenues of approximately 50%, followed by North America (25%), South America (12%) and Asia (11%).

Q1 EBITDA at € 337.0 million 
In the first quarter of 2012, earnings before interest, taxes, depreciation and amortisation (EBITD A) fell by 21% to € 337.0 million (Q1/11: € 424.9 million).

Operating earnings reach € 281.1 million
In the first quarter of 2012, operating earnings EBIT I reached € 281.1 million and were thus € 87.3 million or 24% lower than in the same quarter of the previous year. Depreciation taken into account in EBIT I amounted to € 55.9 million and was roughly at the level as in the same quarter of the previous year (Q1/11: € 56.5 million). The Potash and Magnesium Products business segment could slightly improve its result. By contrast, in the Nitrogen Fertilizers business segment, it was slightly below the figure for the previous year. As a result of the weak de-icing salt business, operating earnings of the Salt business segment decreased very sharply relative to the extraordinarily good result for the same quarter of the previous year.

Stable financial result in Q1
In the first quarter, the financial result was € (15.0) million, compared to € (15.2) million in the same period of the previous year. In addition to the interest expenses for pension provisions (Q1/12: € (1.7) million), the financial result also includes the interest expenses for other non-current provisions, mainly provisions for mining obligations (Q1/12: € (6.3) million); both are non-cash.

(Adjusted) earnings before income taxes lower than in the previous year 
In the quarter under review, earnings before income taxes reached € 292.4 million (Q1/11: € 383.4 million). If the earnings are adjusted for the effects from operating forecast hedges which were not yet recorded in operating earnings EBIT I (€ 26.3 million), this results in adjusted earnings before income taxes of € 266.1 million, € 87.1 million or 25% lower than the figure for the previous year.

(Adjusted) Group earnings also lower 

Group earnings after taxes in the first quarter reached € 212.2 million (Q1/11: € 283.3 million). In the quarter under review, tax expenses totalling € 80.0 million were incurred. These include deferred, i. e. non-cash tax income of € 10.5 million (Q1/11: tax expenses of € 100.0 million, of which € 11.3 million were deferred tax expenses). Adjusted Group earnings decreased in the first quarter by € 68.2 million or 26% to € 193.4 million.

Adjusted earnings per share in the first quarter at € 1.01 (Q1/11: € 1.37)
For the quarter under review, adjusted earnings per share amounted to € 1.01 and were therefore approximately 26% lower than the figure for the previous year of € 1. 37. They were computed on the basis of 191.40 million no-par value shares, being the average number of shares outstanding (Q1/11: 191.20 million no-par value shares).

We held no shares of our own as of 31 March 2012. At the end of March, the total number of shares outstanding of the K+S Group was 191.40 million no-par value shares.

The average domestic Group tax rate was 28.4% in the first quarter (Q1/11: 28.3%), and the adjusted Group tax rate from continued operations amounted to 27.3%, compared to 25.9% in the same quarter of the previous year.

Undiluted, adjusted earnings per share are computed by dividing adjusted Group earnings after taxes and minority interests by the weighted average number of shares outstanding. As none of the conditions resulting in the dilution of earnings per share exist in the case of K+S at the present time, undiluted earnings per share correspond to diluted earnings per share.

The current outlook of the K+S Group can be found here.