13 August 2009

K+S Presents its Half-Year Figures

Demand for Fertilizers Remains Low

At just under € 739 million, quarterly revenues down 38% year on year
Q2 operating earnings reach about € 18 million
Non-recurrent charge on financial result leads to adjusted earnings per share of € (0.27) in Q2 (Q2/08: € 1.40)
H1 revenues down 24% and operating earnings down 65% year on year
Continued difficult market environment as well as sharp decline in earnings expected for H2

In the second quarter of 2009, the K+S fertilizer business was also characterised by continued weak global demand. Against a backdrop that saw agreements yet to be concluded with India and China in the second quarter and continued uncertainty in agriculture over its future earnings situation, demand for potash fertilizers remained exceptionally weak. While trade sector inventories continued to decline, pro¬ducers – according to their statements – have reduced output once again to prevent inven¬tories from increasing further. The limited room for manoeuvre for financing resulting from the financial crisis still had a negative impact.

“Agriculture is continuing to display restraint with respect to the purchase and use of fertilizers, especially in Europe. Even if there is no sign yet of the normalisation of demand, fundamental trends, for example, the rising global population, changes in dietary patterns in emerging market countries as well as the increasing importance of renewable raw materials remain intact. These facts speak in favour of fertilizer consumption to rise again over the medium and long term," says Norbert Steiner, chairman of the Board of Executive Directors of K+S Aktiengesellschaft.

Salt Business Segment

Primarily because of strains in public finances, the early procurement of de-icing salt in Western Europe – despite low inventories on the customer side due to the severe and prolonged winter weather conditions at the beginning of the year – went only at normal level. On the other hand, the early procurement business in North America began very promisingly.

Q2 revenues down significantly year on year

Revenues for the second quarter fell by 38% to € 738.7 million primarily due to volume factors. Positive price and currency effects could not offset this. The decline was mainly attributable to revenue decreases in the Potash and Magnesium Products and Nitrogen Fertilizers business segments. Revenues for the first half of the year fell by 24% to € 1,814.4 million. In the first half of the year, just under 60% of Group revenues were generated in Europe, with about 40%, the Potash and Magnesium Products business segment accounting for the largest share of revenues, followed by Nitrogen Fertilizers as well as Salt.

Q2 operating earnings reach € 18.1 million

EBIT I for the second quarter reached € 18.1 million, compared with € 326.4 million a year ago. Earnings fell sharply in the fertilizer business above all. In the Nitrogen Fertilizers business segment, negative non-recurrent effects resulting from additional payments in respect of 2008 input costs made to the key European supplier had an impact of about € 19 million. EBIT I for the first half of the year amounted to € 192.1 million and was down 65% on the figure for the same period last year.

Non-recurrent effect due to hedging of Morton Salt’s purchase price

In order to hedge the Morton Salt purchase price, which will be payable in US dollars, hedging transactions were concluded in April 2009 on the basis of the US dollar exchange rate applicable at that time. Owing to the weaker US dollar as of 30 June 2009, the market value of these futures transactions still outstanding declined and reduced the financial result by a non-cash effect of € 69.5 million. Consequently, at just under € (76.6) million, the financial result for the second quarter was down significantly on the same period last year (Q2/08: € (11.9) million).

Including this extraordinary effect, adjusted earnings before taxes for the second quarter amounted to € (58.5) million (Q2/08: € 314.5 million). For the first half of the year, it amounted to € 107.1 million, which corresponds to a decrease of 80%. Adjusted Group earnings after taxes for the second quarter amounted to € (44.3) million (Q2/08: € 231.1 million) including the described extraordinary effect. For the first half of the year, the figure was € 78.2 million (down 80% on the same period last year).The financial result also caused adjusted earnings per share for the quarter under review to decline to € (0.27) (Q2/08: € 1.40). For the first half of the year, this figure was € 0.47, compared with € 2.39 for the same period last year.

Difficult market environment expected in the second half of the year too

As already stated in the ad hoc press release of June 17, 2009, K+S no longer expects a normalisation of demand for fertilizers in the second half of the year. For 2009 as a whole, the Company expects the volume of sales for the Potash and Magnesium Products business segment to decline to about 4.0 million tonnes of goods (2008: 7.0 million tonnes) as well as moderately declining average prices against the previous year. Even if the agreements concluded by potash exporters with India in the middle of July at USD 460 per tonne of potassium chloride were below industry expectations, it sets an important point of orientation for the world markets and might contribute to dissipating the purchasing restraint still existing on the part of customers.

Given the current extremely difficult and uncertain industry situation in the fertilizer sector, K+S will depart from its customary approach of publishing quantitative ranges for revenues and earnings for the year as a whole in the half-year financial report. K+S will provide a qualitative description of these figures for the time being.

K+S Group revenues for financial year 2009 should fall significantly in relation to the previous year. The significantly higher level of revenues expected for the Salt business segment will not be able to offset the negative development of revenues in the fertilizer sector.

Costs at Group level should fall appreciably in 2009 in comparison with the previous year. K+S expects that short-time working will more than offset the additional costs arising from the latest collective agreement pay increase. The costs of energy, materials and freight are also expected to fall.

EBIT I operating earnings for financial year 2009 will fall sharply in relation to the record result of a year ago. This is primarily due to the already described decreasing level of revenues in the Potash and Magnesium Products business segment. Even a stronger US dollar exchange rate compared with last year and higher earnings from Salt will only be able to check this trend to a limited degree. The adjusted Group earnings after taxes should therefore also be down very sharply for financial year 2009 in line with the development of operating earnings.

Experience growth

The K+S Group is one of the world's leading suppliers of speciality and standard fertilizers, plant care as well as salt products. With its products and brands, K+S offers its customers a range of needs-based goods and services which provides growth opportunities in virtually every sphere of daily life. The K+S Group employs more than 12,000 people and achieved revenues of just under € 5.0 billion in 2008. K+S is quoted on all German stock exchanges (ISIN: DE0007162000, symbol: SDF) and listed on the DAX® share index.