14 August 2014

Business development in the second quarter of 2014

Good demand for potash and magnesium products

  • Potash prices stabilise on a low level
  • Improved earnings for salt business
  • At € 786 million, quarterly revenues down tangibly on a year ago
  • EBIT I at € 157 million; special item of approx. € 30 million
  • Further progress on “Fit for the Future”
  • Outlook for 2014: EBIT I of between € 490 million and € 570 million expected

Continued good demand for potash and magnesium products, the further stabilisation of potash prices on a low level and a positive special item of about € 30 million characterised the business development of the K+S Group from April to June 2014. EBIT I for the quarter was only slightly below the figure of a year ago, but down significantly when adjusted for the extraordinary effect.

“Giving the starting position on global potash markets, we had a solid first half of the year”, says Norbert Steiner, chairman of the Board of Executive Directors of K+S Aktiengesellschaft. “The good salt business in North America and the positive development of our fertilizer specialties were particularly pleasing. We are making good progress on “Fit for the Future” and our Legacy Project.”

In the first half of the year, the K+S Group saw revenues fall by about 8% to € 1.97 billion. Higher sales volumes in the Salt business unit in the wake of the severe winter in North America could only partially offset price declines in the Potash and Magnesium Products business unit.

At € 968.5 million, half-year revenues for the Potash and Magnesium Products business unit were down significantly on the figure for the same period a year ago as a result of the lower price level and unfavourable exchange rate effects in the overseas business. Sales volumes decreased to 3.66 million tonnes (- 4%) compared with the above-average good first half of 2013; the first months of 2014 were adversely affected by the suspension of operations at the Unterbreizbach site following the tragic accident that occurred there on 1 October 2013.

In the Salt business unit, revenues for the first six months increased by 3.2% to € 928.2 million. The weather-related revenue decrease in central Europe could be more than offset by volume increases in North America. Thus, the presence of salt activities on three continents paid off for K+S once again.

Operating earnings EBIT I at € 376.9 million

For the first half of 2014, the K+S Group achieved operating earnings of € 376.9 million, which thus corresponds to a decrease of about 14% on the figure for the same period a year ago. In the second quarter, EBIT I was favourably impacted by a special item consisting in an anticipated insurance payment connected with the suspension of operations at the Unterbreizbach site. A reimbursement claim of about € 30 million was taken into account on the basis of an initial, cautious estimate. Although the price of potassium chloride continued to stabilise and, in addition, good demand was registered in the core regions, the lower price level overall compared with the same period a year ago resulted in lower earnings for the Potash and Magnesium Products business unit. EBIT I for the Salt business unit rose compared with a year ago, when it had been adversely affected by one-time effects.

The “Fit for the Future” programme for cutting costs and enhancing efficiency is working

The aim of the programme initiated in November 2013 is to increase the efficiency of production as well as of the administrative and sales functions. K+S is striving to save a total of some € 500 million from 2014 until 2016 in comparison with the previous cost planning for the same period. Half of the good € 150 million sought for 2014 has already been achieved. Cost savings could be realised in the areas of material costs and maintenance in particular, which had a positive impact on EBIT I.

Construction work for the new potash plant in Canada is proceeding on schedule

Our “Legacy” greenfield project in the Canadian province of Saskatchewan, which is to see investment of a good € 800 million in the current year, also made good progress in the second quarter. In the middle of April, a long-term exclusive contract was signed with Pacific Coast Terminals Co. Ltd. (PCT) for the construction and operation of a new cargo terminal and storage facility in the port of Vancouver. This will make it possible to transport our potash products from the Legacy site to customers all over the world. In addition, a camp was opened at the future plant site to provide food and accommodation to the more than 1,400 workers deployed there to develop the cavern field and to build production facilities. K+S continues to expect the new potash plant to become operational in the summer of 2016, with the total capital expenditure involved amounting to CAN$ 4.1 billion.

Capital expenditure

In the first half of 2014, the capital expenditure incurred by the K+S Group came to € 436.2 million, over 40% more than in the same period a year ago. There was a comparable increase in capital expenditure for the second quarter (€ 271.6 million) too. The majority of the capital expenditure was accounted for by the Potash and Magnesium Products business unit, with the Legacy Project and the package of measures on water protection in the Hesse-Thuringia potash district being the focal points. In the Salt business unit, the volume of capital expenditure was almost unchanged.

Outlook 2014

Even if the price trend for potash products should have bottomed out in the meantime, the tangible decline in average prices compared with the previous year should nevertheless result in lower revenues for the Potash and Magnesium Products business unit. Solid sales volumes in the Salt business unit should not be able to make up for this effect. For financial year 2014, the revenues of the K+S Group should amount to between € 3.65 billion and € 3.85 billion (2013: € 3.95 billion). K+S expects EBIT I of between € 490 million and € 570 million (2013: € 655.9 million). This includes the special item consisting in an expected insurance payment connected with the suspension of operations at the Unterbreizbach site.

About K+S

K+S is an international resources company. We have been mining and processing mineral raw materials for 125 years. The products we produce from them are used worldwide in agriculture, food and road safety and are important elements in numerous industrial processes. The nutrients potash and salt are accompanying the megatrend for the future: A constantly growing global population is becoming increasingly prosperous and striving for a more modern standard of living, which results in an increasing consumption of mineral raw materials. We serve the resulting growth in demand from production sites in Europe, North America and South America as well as through a global distribution network. K+S is the world’s largest salt producer and one of the top potash providers worldwide. With more than 14,000 employees, K+S achieved revenues in financial year 2013 of about € 4 billion and an EBIT of € 656 million. K+S is the commodities stock on the German DAX index. Learn more about K+S at www.k-plus-s.com.

Note to editors:

The half-yearly financial report (H1/2014), a video webcast by Dr. Burkhard Lohr, the chief financial officer of K+S Aktiengesellschaft, and up-to-date press photos around the K+S Group are available at www.k-plus-s.com/2014q2en.

We are offering a conference call for analysts in English today at 3 p.m. Dr. Burkhard Lohr, member of the Board of Executive Directors, will participate in the conference call. Investors, representatives of the press and all other interested parties are invited to follow the conference via a live webcast (www.k-plus-s.com/2014q2en) or by phone on +49-69-71044-5598. The conference is being recorded and will then also be available as a podcast.

Michael Wudonig

Spokesman

Phone: +49 561 9301 1262
michael.wudonig@k-plus-s.com

Michael Wudonig
Spokesman

Bertha-von-Suttner Str. 7
34131 Kassel
Germany

Phone: +49 561 9301 1262
Fax: +49 561 9301 1666
michael.wudonig@k-plus-s.com

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Thorsten Boeckers

Board of Executive Directors

Thorsten Boeckers
Board of Executive Directors

Bertha-von-Suttner Str. 7
34131 Kassel
Germany

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