K+S Says 2014 Profit to Drop Sharply on Low Potash Prices

K+S AG (SDF), Europe’s largest potash supplier, expects a “significant” drop in earnings and a “moderate” decline in sales this year as prices for the crop nutrient and some crystallized salts remain lower.

“Following the conclusion of new contracts between major potash producers and China, prices appeared to bottom out at the start of 2014,” the Kassel, Germany-based company said today in a statement. “Average prices over the course of the year should be tangibly lower than in the preceding year.”

K+S said yesterday that earnings before interest, tax and some hedging transactions, or Ebit I, fell 18 percent to 656 million euros ($914 million) last year. Analysts are predicting a further 37 percent drop in profit to 411.4 million euros and an 8.4 percent decrease in revenue to 3.62 billion euros, according to a Bloomberg survey.

Chief Executive Officer Norbert Steiner said today the $4 billion development of the Legacy mine in Canada is on schedule and within budget. The German company is proposing a 82 percent cut to its dividend to help pay for the mine, which it’s working on even as global prices for the crop nutrient have fallen as much as 24 percent following the breakup of an industry cartel in mid-2013.

Dividend Cut

The company plans a dividend of 25 euro cents a share, a payout ratio of 11 percent based on 2013’s adjusted earnings after tax, the company said yesterday. K+S, which paid 1.40 euros the previous year, plans to return to a dividend policy of paying 40 percent to 50 percent “as soon as possible.”

K+S completed a test cavern at the Legacy mine last month. Russian competitor OAO Uralkali exited an export sales venture with Belarus in July and ramped up production, sending shares of potash producers down, with K+S slumping 32 percent in two consecutive days.

“If I had to describe 2013 in just one word, it would be challenging,” Steiner said in a video on the company’s website. “Particularly July 30 wasn’t easy to handle. It’s with good reason that this day is often called the Black Tuesday of the worldwide potash industry.”

Steiner has started a 500 million-euro savings program over three years in response. The bulk of the planned spending reductions, under a program named Fit for the Future, will stem from material costs, though the company is also considering job cuts, K+S said in November.

To contact the reporter on this story: Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net Tom Lavell, Kim McLaughlin

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