K+S braced for full-year earnings slump
K+S braced for full-year earnings slump as potash prices tumble
VIENNA/FRANKFURT, Aug 11 K+S, one of the world’s biggest potash producers, said its full year core profit would collapse by as much as three quarters and warned of further uncertainty and falling dividends on Thursday.
Profits of fertilizer producers have tumbled in recent months because of falling prices, weak currencies in importing countries such as Brazil and excessive supply.
K+S, which is also the world’s biggest salt producer, blamed tumbling European potash prices, production disruptions and weak demand for de-icing salt as it reported a slump in quarterly earnings.
“2016 is a challenging year,” finance chief Burkhard Lohr told analysts during a conference call after the German company’s second-quarter results.
Shares in K+S dropped 8.9 percent to 18.08 euros by 1005 GMT, bucking a 0.7 percent gain in Germany’s mid cap MDAX index , and have now fallen around 50 percent in the past 12 months.
K+S, which last year rejected a takeover approach from Canada’s Potash Corp, the world’s biggest potash producer, also suffered an equipment collapse at its new Legacy mine in Canada which will delay the start of production and reduce output during the ramp-up.
The $3.2 billion Legacy project will be the first new mine in the potash industry in four decades and undermines efforts by Potash Corp and North American export cartel Canpotex to cut output to shore up prices.
K+S now expects the mine to start production in the second quarter of 2017 instead of at the end of 2016 as originally planned. Still, the group expects to reach planned production capacity of 2 million tonnes at the end of next year.
Further weighing on earnings, North American users of de-icing salt are holding back on pre-season purchases because of high inventory levels, and K+S is suffering production outages due to restrictions on waste water disposal in Germany.
While the group is working on measures to mitigate the effects of the German restrictions, CFO Lohr said earnings would probably hit only the lower end of the new profit guidance this year if the group did not receive a permit soon.
K+S now expects full-year earnings before interest and tax, adjusted for currency hedging effects (EBIT I) to fall to between 200 and 300 million euros ($223 mln-$335 mln) from 782 million euros last year.
The target range compares with previous guidance for a significant decline and the average analyst estimate of 300 million euros.
“In our view, the 2016 EBIT I guidance … seems very conservative as K+S already achieved 233 million euros in the first half,” Baader Bank analyst Markus Mayer said in a note to clients.
K+S said its second-quarter operating profit plunged to 15 million euros from 179 million euros over the same period last year on sales of 732 million euros.
It fetched an average price of 279.1 euros per tonne of potash sold in Europe in the second quarter, down 11 percent from a year earlier.
The expected slump in earnings will also lead to a significant drop in the annual dividend payment for this year from last year’s 1.15 euros, K+S said in its financial report. ($1 = 0.8957 euros) (Reporting by Kirsti Knolle and Maria Sheahan; Editing by Joseph Nasr and Susan Fenton)