K+S Proposes 82% Dividend Cut to Pay for Canada Legacy Mine

K+S AG, Europe’s largest potash supplier, wants to cut the annual dividend by 82 percent, retaining part of the cash to pay for its mine in Canada. The stock fell the most in almost six weeks in Frankfurt trading.

The dividend proposal is 0.25 euro cents a share, a payout ratio of 11 percent based on 2013’s adjusted earnings after tax, the Kassel, Germany-based company said today in a statement. K+S, which paid 1.40 euros the previous year, plans to return to its dividend policy of paying 40 percent to 50 percent “as soon as possible.”

Chief Executive Officer Norbert Steiner is pushing ahead with the $4 billion development of the company’s new Legacy mine in Canada. K+S completed a test cavern last month, even after global potash prices fell as much as 24 percent after Russian competitor OAO Uralkali exited an export sales venture with Belarus.

“Uncertainty in the market for potash and magnesium products as well as major investments planned for the long-term strengthening of the company” are the reasons for deviating from the usual dividend policy, K+S said today.

The shares dropped as much as 3.6 percent, the steepest intraday decline since Jan. 30. The stock was down 2 percent as of 4:15 p.m. in Frankfurt. K+S has gained 10 percent this year for a market value of 4.7 billion euros ($6.5 billion).

Shorted Stock

Earnings before interest, tax and excluding some hedging transactions -- dubbed Ebit I by the company -- declined 18 percent to 656 million euros last year, beating a 633.9 million-euro analyst estimate. Sales were 3.95 billion euros, little changed from a year earlier. Analysts had predicted 3.86 billion euros, according to a Bloomberg survey.

Investors have been betting on K+S’s decline since Uralkali’s announcement at the end of July, with 9.8 percent of the company’s stock shorted, according to data compiled by Bloomberg.

Citadel Europe LLP and Emerging Sovereign Group LLC have increased their short positions, according to filings in February and March. The biggest short position is still held by hedge fund Viking Global Investors LP, which has a negative bet on 1.7 percent of the German company’s shares, the data shows.

Steiner has started a 500 million-euro savings program over three years in response to lower potash prices. 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, K+S said in November.

Potash Corp. of Saskatchewan Inc. forecast 2014 earnings that trailed estimates in January. The Canadian company predicted profit as much as 30 percent lower than predicted in a Bloomberg survey of analysts.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE