K+S AG, Europe’s largest potash supplier, plans 500 million euros ($673 million) in cost savings over the next three years to help counter weakened potassium and potash markets and make it more competitive.
The bulk of the planned savings, under a program named “Fit for the Future,” will stem from material costs though the company is also considering job cuts, Kassel, Germany-based K+S said in a statement today. K+S reported operating profit of 115.8 million euros in the third quarter. That compared with analysts median prediction of 106.5 million euros in a survey.
“This is an ambitious target, reflective of the pressures K+S faces,” said Sophie Jourdier, an analyst at Liberum Capital in London. “The challenge for K+S, beyond achieving these savings, will be to hold on to them given the competitive environment we foresee.”
K+S is pushing ahead with the development of its Legacy mineral reserve in Canada at a time when the future structure of the potash market is in flux after OAO Uralkali’s decision to end a cartel that had buoyed prices. The German company, which will invest about 375 million euros on the Legacy project this year alone, said today that the duration of the current phase of “uncertainty” is difficult to assess.
The savings target is at the top-end of estimates, Jourdier said in a note.
“Our objective is to increase the international competitiveness of K+S in a sustainable way,” Chief Executive Officer Norbert Steiner said in the statement. “We are making our company more robust in a changed market environment with larger price fluctuations.”
K+S traded 3.2 percent higher at 21.21 euros as of 9:50 a.m. in Frankfurt. The stock has risen about 12 percent so far this month, compared with a 1.4 percent gain in the Stoxx 600 Chemicals index. Of the 37 analysts covering the company that share their rating with Bloomberg, 20 recommend selling the stock, versus 7 buy ratings, and 10 holds.
Moody’s Corp. this month downgraded K+S’s debt two levels to Ba1, one grade below investment, from Baa2. The credit rating company said the move was triggered by the German producer’s decision to proceed with investment in its greenfield potash mine, Legacy, and the resulting deterioration of the company’s financial profile.