Business Segments of the K+S Group

Potash and Magnesium Products Business Segment

Variance analysis in %	Q3/08	9M/08
Change in revenues	+ 143.5	+ 85.8
- volume/structure	(15.5)	(13.3)
- prices	+ 162.3	+ 103.9
- exchange rates	(3.3)	(4.8)
- consolidation	–	–
Potassium chloride	+ 165.8	+ 94.3
Fertilizer specialities	+ 127.8	+ 75.9
Industrial products	+ 111.1	+ 83.8

€ million	Q3/08	Q3/07	%	9M/08	9M/07	%
Revenues	763.4	313.5	+ 143.5	1,898.7	1,021.7	+ 85.8
Earnings before interest, taxes, depreciation & amortisation (EBITDA)	485.3	84.1	+ 477.1	986.8	229.7	+ 329.6
Operating earnings (EBIT I)	465.6	65.0	+ 616.3	927.9	173.7	+ 434.2
Capital expenditure	31.0	23.9	+ 29.7	66.9	48.9	+ 36.8
Employees as of 30 September (number)	–	–	–	7,778	7,629	+ 2.0

 

Market environment

There was continued strong global demand for potash fertilizers in the third quarter, with prices for potash fertilizers rising further in the face of the supply shortage. Not until the end of the third quarter, the sharp decline in grain prices as a result of the financial crisis lead to concern among farmers as to possible future earnings and the possibility of taking out loans.

Revenues by product group
Jan. – Sept. 2008
(in %)

Revenues

Third quarter revenues rose by almost 144 % to € 763.4 million. The increase is attributable to significant price increases and by far more than made up for volume-related declines as well as a weaker US dollar. In the potassium chloride segment, higher revenues could substantially make up for negative volume and currency effects; revenues rose by about 166 % to € 399.5 million. In the case of fertilizer specialities, revenues amounted to € 264.0 million and for price reasons were thus 128 % higher than during the same period last year. Revenues generated with industrial products increased by 111 % to € 99.9 million due to positive price effects. In the first nine months, revenues of the business segment rose by 86 % to € 1,898.7 million due to price factors.

Development of earnings

In the third quarter, operating earnings amounted to € 465.6 million (Q3/2007: € 65.0 million). Higher average prices for potash and magnesium products were able to clearly more than make up for price-related higher costs, especially in the case of material and energy, as well as reduced volumes. In the first nine months, at € 927.9 million, operating earnings were more than five times higher.

Outlook

The potash fertilizer prices achieved during 2008 are far higher than the average prices of the past year and will result in a significant rise in revenues due to price factors. For 2008, we expect a sales level of about 7.2 million tonnes of goods, assuming that the reduced order volume caused by the financial crisis will continue in the fourth quarter (2007: 8.22 million tonnes of goods). Volume declines will admittedly have a dampening effect, but the expected price effect should far more than make up for this burden and for the increase in operating costs.