K+S AG, Europe’s largest potash supplier, forecast a “significant” profit drop this year as prices for the crop nutrient and some salts remain lower. The stock fell the most in six months.
“We are assuming that we have reached a certain bottoming out of prices internationally that allows us to remain profitable,” Chief Executive Officer Norbert Steiner said of potash today at a press conference in Frankfurt. He forecast a “moderate” sales decline this year.
K+S, based in Kassel, Germany, has started a 500 million- euro ($697 million) savings program and yesterday proposed a dividend cut of 82 percent to counter falling prices. The breakup of an industry cartel in mid-2013 led to a ramp-up in production of the commodity product and prompted a 24 percent price drop within six months.
Earnings before interest, tax and some hedging transactions, or Ebit I, fell 18 percent to 656 million euros last year, the company said yesterday. Analysts are predicting a further 37 percent drop in profit to 411.4 million euros this year and an 8.4 percent decrease in revenue to 3.62 billion euros, according to a Bloomberg survey.
The shares retreated for a second day, declining as much as 7.3 percent, the steepest intraday fall since Sept. 17, after a 2.1 percent slide yesterday. The stock was down 6.2 percent at 22.99 euros as of 2:21 p.m. in Frankfurt. K+S has slumped 36 percent in the last 12 months for a market value of 4.4 billion euros.
Steiner said today a $4 billion development of the Legacy mine in Canada is on schedule, within budget and he doesn’t see the need to raise cash for the project by selling shares. The cash the company saves from cutting dividends will help pay for the development. K+S plans to spend about C$1 billion ($900 million) a year from 2014 to 2016 on the mine, Chief Financial Officer Burkhard Lohr said today.
The company will be forced to abandon its targeted corridor for net debt of 1 to 1.5 times operating profit in order to finance Legacy, Lohr said. K+S plans to return to its targets as soon as the mine starts operations. The first potash will be produced in summer 2016 and production will be ramped up the following year.
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.”
Russian competitor OAO Uralkali exited an export sales venture with Belarus in July and boosted production, sending shares of potash producers down around the world, 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.”
While the planned savings program over three years may result in job losses eventually, they won’t be immediate, Steiner said today. The bulk of the planned spending reductions will stem from material and process costs.
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