11 March 2010

K+S looks confidently ahead to 2010

Fertilizer demand picks up tangibly after falling steeply in 2009

• Q4/2009:
- At € 1.1 billion, revenues rise due to consolidation factors
- Continued muted demand for fertilizers
- Operating earnings down due to extraordinary effects
- Adjusted Group earnings reach € 17.5 million or € 0.10/share (Q4/2008: € 227.5 million or € 1.38/share)

• Financial year 2009:
- At just under € 3.6 billion, revenues significantly down on previous year ((26)%)
- Despite difficult market conditions, operating earnings reach € 238 million and adjusted Group earnings reach € 94 million
- Adjusted earnings per share at € 0.56 (2008: € 5.94/share)
- Dividend proposal for 2009: € 0.20; payout ratio of 41% of adjusted Group earnings

• Outlook 2010:
- Fertilizer business rises tangibly; good start in de-icing salt business
- Significant rise in revenues and earnings expected in 2010

Following a difficult 2009, marked by the effects of the global financial and economic crisis, the K+S Group looks confidently ahead to 2010. “There are growing signs that fertilizer demand is normalising and in the current year, our salt business will once again profit from an overall good demand for de-icing salt and from the first-time inclusion of Morton Salt for the entire year,” says Norbert Steiner, Chairman of the Board of Executive Directors of K+S Aktiengesellschaft.

For the 2009 financial year, uncertainty in global agricultural markets resulted in a significantly lower demand for fertilizers. K+S responded to this development with a wide range of measures:

- Sharp reductions in fertilizer output and the use of short-time working to scale back the cost base in the wake of the collapse in demand
- Postponement of capital expenditure project until a future time
- Expansion and securing of the underground infrastructure
- Strengthening of the financial structure through the first-time issuance of a bond and a capital increase

The Salt Business, however, developed positively due to high demand for de-icing salt as well as the first-time inclusion of Morton Salt.

At just under € 3.6 billion, 2009 revenues down significantly

For financial year 2009, K+S achieved revenues of € 3,573.8 million, which was about 26% below previous year’s figure. The decline in revenues can be particularly attributed to volume and price effects in the Fertilizer Sector. Whereas in the Salt Business Segment high sales volumes of de-icing salt during the first and the fourth quarter as well as the first-time inclusion of Morton Salt in the last three months of the year had a positive impact.

With a share of just under 40%, the Potash and Magnesium Products Business Segment was once again the K+S Group segment posting the highest revenues, followed by the Nitrogen Fertilizers and Salt Business Segments, which each held a share of about 28% Also as a result of the Morton Salt acquisition in the United States at just under 47%, K+S attained a significantly higher share of revenues on overseas markets against 2009. Europe accounted roughly for 53% of total revenues.

Despite adverse environment, operating earnings reach € 238 million

At € 238 million, operating earnings EBIT I were down about 82% on last year’s peak figure (2008: € 1,342.7 million). The extreme drop in demand, the resulting lower capacity utilisation as well as the decline in fertilizer prices during the course of the year resulted in sharp declines in earnings in the Fertilizer Sector compared with the record figures for the previous year. While the Potash and Magnesium Products Business Segment, despite the collapse in demand, posted positive earnings of € 231.7 million, the Nitrogen Fertilizers Business Segment posted an operating loss of € 108.1 million due to not only volume and price effects but also high raw material costs for the production of complex fertilizers as well as the adverse impact of extraordinary effects. At € 140.4 million, operating earnings in the Salt Business Segment, however, were significantly above previous year’s figure particularly because of the persistent wintry weather conditions in the first quarter and in the last weeks of the year.

The effect from the first-time inclusion of Morton Salt was € 9.8 million in the fourth quarter. In addition to integration costs, extraordinary effects from the revaluation and consolidation within the framework of the inventory valuation according to IFRSs reduced this earnings contribution. Moreover, write-downs on the value adjustments to be made within the framework of purchase price allocation weighed on earnings. The actual operating earnings of Morton Salt amounted to € 52.0 million.

Adjusted earnings down significantly year on year but in the black

Adjusted earnings before taxes for the past financial year amounted to € 122.6 million (2008: € 1,349.5 million) and adjusted Group earnings after taxes reached € 93.6 million, compared with € 979.3 million for the previous financial year (details of the adjustment procedure can be in found in the Financial Report 2009, pages 98-99).

Q4/2009: Revenues and earnings up on the previous quarter

At just under € 1.1 billion, revenues for the fourth quarter of 2009 were up about 52% on the third quarter of 2009 (€ 698.1 million) and up about 11% on previous year’s figure (€ 955.5 million), which was mainly favoured due to the first-time consolidation of Morton Salt. Operating earnings EBIT I amounted to € 36.5 million and could be increased compared with the third quarter of 2009 (€ 9.4 million), but were down significantly on the figure of € 287.8 million for the same period a year ago. At € 17.5 million, adjusted Group earnings after taxes were positive again in the fourth quarter of 2009 (Q3/2009: € (2.1) million), but were also down significantly on the figure for the same period a year ago (Q4/2008: € 227.5 million).

Dividend of € 0.20 per share proposed

As a result of the marked decrease in the adjusted earnings of the K+S Group in financial year 2009 and in line with our earnings-based dividend policy, the Board of Executive Directors and the Supervisory Board proposes the payment of a dividend of € 0.20 per share to the Annual General Meeting (2008: € 2.40 per share). Assuming that no own shares are held on the date of the Annual General Meeting, this will result in a dividend payout of € 38.3 million; this corresponds to a payout ratio of 41% within the payout corridor of 40% to 50% of the adjusted K+S Group earnings that we are in principle seeking to achieve.

Outlook 2010: Significant rise in revenues and earnings anticipated

Fertilizer demand should rise again significantly in 2010 – especially for potash fertilizers – because of low straight fertilizer stocks in the trade sector and due to the lower potash content of the soil following two very good harvests and lower fertilisation since autumn of 2008. Thus, the global sales volume for potash should rise to about 45 million tonnes in 2010 (2009: about 30 million tonnes) and, at an estimated sales volume of about 55 million tonnes in 2011, almost reach the level from before the financial and economic crisis. As the world’s fourth-largest individual producer, the K+S Group should participate in this to a tangible extent. Thus, the sales volume in the Potash and Magnesium Products business segment this year should rise to just under 6 million tonnes of goods (2009: 4.3 million tonnes), but at expected significantly lower average prices against previous year.

In financial year 2010, revenues of the K+S Group should rise considerably year on year. While a moderate increase in revenues is assumed in the Potash and Magnesium Products business segment and a tangible one in the Nitrogen Fertilizers business segment, a significantly higher level of revenues is expected in the Salt Segment, because of the first-time inclusion of Morton Salt for a whole year.

In financial year 2010, operating earnings EBIT I should also rise significantly year on year. This above all relates to the first-time inclusion of Morton Salt for the entire year as well as to the indications of a turnaround in earnings in the Nitrogen Fertilizers Business Segment.

The adjusted Group earnings after taxes should also thus be significantly higher in 2010 in line with the development of operating earnings.

Experience growth

The K+S Group is one of the world's leading suppliers of standard and speciality fertilizers. In the salt business, measured by production capacity, K+S, with sites in Europe as well as 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. The K+S share – the only commodities stock on the German DAX index – is listed on all German stock exchanges (ISIN: DE0007162000, symbol: SDF).