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K+S raises potash outlook, as overseas sales soar
21:29 UK, 14th Aug 2012, by Agrimoney.com


K+S lifted hopes for fertilizer division profits as the potash-to-salt group revealed it had crossed the line into becoming mainly an exporter of the nutrient, with sales to its home European market falling below 50%.

The German-based group - confirming that its operating profits in the April-to-June quarter soared 21% to E219.8m, as trailed two weeks ago - highlighted the contribution from its potash business, which achieved 31% growth thanks to improved market conditions.

After a "cautious" start to the year, "demand for potash and magnesium products developed positively during the second quarter", K+S said.

"The relatively high price level for agricultural raw materials offered attractive income prospects for farmers and therefore an incentive to increase yields per hectare also through the optimal use of fertilizers."

The improvement - also boosted by the sealing in late March of industry export deals to China, the top potash buyer – was reflected in a return by North American and Russian producers to running mines "almost completely" at full tilt, after capacity cuts early in 2012 to match subdued demand.

'Slightly rising earnings'

Norbert Steiner, the K+S chief executive - flagging "strong" overseas business and "good early stocking-up in Europe" ahead of the important autumn sowing period - said that "current demand development for potash and magnesium products in the markets relevant to us should continue in the coming months".

This "should cause this business segment to show even slightly rising operating earnings" this year.

Previously, the group had forecast operating earnings "that could again approach" the 2011 result.

'Higher sales volumes'

The potash division achieved operating earnings of E240.7m in the latest quarter, in contrast to a loss in the salt division, on revenues up 33% to E669.5m.

"In addition to a significant increase in sales volumes, higher prices and positive foreign currency effects led to this increase," the group said.

Indeed, the group, which increased its overseas presence last year with the purchase of an early-stage mine site in Canada, flagged "higher sales volumes overseas" of potash which enhanced its ability to cash in on a weak euro.

By revenues, the proportion of group potash sales to Europe in the first half of the year fell to 47.3%, from 56.9% in the same period of 2011.

Meanwhile, South America raised its share of K+S revenues by 5.2 points to 25.6%, and Asia by 4.6 points to 20.9%.

Dividend rise?

The group also flagged "opportunities for a higher dividend" after the sale of its nitrogen business earlier in the year.

K+S, which last year paid out E1.30 per share, has a policy of paying out 40-50% of its annual adjusted earnings in dividends.

The group's shares closed 1.0% higher at E39.775 in Frankfurt.