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RSS & PodcastsGlobal growth slowed down to a greater extent than foreseen in the Financial Report 2007, especially toward the end of the third quarter. Thus, taking this development into account, worldwide economic growth of 3.7 % is now expected for the whole of 2008. The effects of the US property crisis have had an increasingly negative impact on global credit and financial markets. With inflation for the year as a whole in the industrialised countries expected to rise to 3.8 %, this has led to a weakening of demand. However, in the emerging market countries the economy expanded strongly, even though signs of a slowdown could be observed there too as a result of the industrialised countries’ weak economy.
The US dollar became much stronger in the third quarter, and at the end of September, the exchange rate was USD/EUR 1.41. By contrast, prices of raw materials clearly fell during the same period: The oil price at the end of September was just under US$ 98 per barrel and thus 30 % less than at the end of June 2008.
The macroeconomic environment had the following impact on the course of business for K+S in the third quarter:
• The economic upturn continued in the emerging market countries, improving the standard of living of the populations in those countries. This increases the global per capita consumption of food, including that of meat, and the pressure on the global agricultural system to meet this challenge. The South American market for industrial salt and salt for chemical use too, which is important for our Chilean subsidiary SPL, grew in line with local economic trends.
• At the end of 2007/beginning of 2008, we had reorganised our US dollar hedging system. Since then, options are used for this and hedge a worst-case scenario for 2008 of about USD/EUR 1.49 including costs, but provide the opportunity to participate in a stronger US dollar. In comparison to the third quarter of 2007, this resulted in a significantly lower average exchange rate of about USD/EUR 1.49 for the Potash and Magnesium Products business segment (Q3/2007: USD/EUR 1.13).
• Due to the energy supply clauses agreed upon with our suppliers, the clear fall in oil prices observed in the third quarter did not yet exert an impact on the K+S Group’s energy costs.
Industry-specific framework conditions
Fertilizer and Plant Care Business Sector
Following a prolonged and latterly almost euphoric upward movement, commodity exchanges have experienced significant profit-taking from the middle of July onwards, causing major adjustments to the prices of virtually all agricultural products. There is no fundamental explanation for this development because the relationship between grain stocks and demand, which determines prices, is still at an all-time low, even though farmers attained above-average yields in 2008 because of ideal weather conditions.
There was a very strong global demand for fertilizers in the third quarter too, and fertilizer prices continued to rise against the background of a shortage of supply.
While high stocks held by customers on the Western European de-icing salt market continued to put pressure on prices in the third quarter too, in the North American de-icing salt business current tenders benefited especially from supply bottlenecks after two consecutive heavy winters in the Midwest. In the food grade and industrial salt segments, European demand remained stable, and sales of salt for chemical use remained at a high level. The South American market for industrial salt and salt for chemical use grew in line with local economic trends once again.
For a comprehensive description of our products and services, please see the relevant passages in our Financial Report and Corporate Report for 2007. Since then, there have been no changes in the range of products and services that have had a significant influence on the business performance of the K+S Group. In the future too, no significant changes are to be expected.
Revenues and Earnings position
| Variance analysis in % | Q3/08 | 9M/08 |
| Change in revenues | + 98.2 | + 56.7 |
| - volume/structure | (4.1) | (4.1) |
| - prices | + 104.6 | + 64.2 |
| - exchange rates | (2.3) | (3.5) |
| - consolidation | – | + 0.1 |
Revenues almost doubled in the third quarter
At € 1,441.4 million, third quarter revenues exceeded the figure for the same period last year by € 714.3 million or 98 %. The increase was attributable to positive price effects that could more than offset moderate currency- and volume-related revenue declines. The Potash and Magnesium Products, fertiva and COMPO business segments attained strong increases in revenues. The Salt business segment also increased its revenues. During the first nine months, revenues rose by 57 % to € 3,838.9 million also due to price factors. About 70 % of Group revenues were generated in Europe, with the Potash and Magnesium Products business segment accounting for 50 % of revenues.
Revenues by business segment
Jan. – Sept. 2008
(in %)
At € 502.2 million, operating earnings increased more than sixfold during the third quarter
EBIT I is free of non-cash changes in the market value of our currency options and other hedging instruments that we use to hedge the US dollar exchange rate and only includes the hedging gains actually achieved in the period under review. The effects of the exercise, expiry and valuation of double-barrier options, which are no longer maintained for the purpose of foreign currency hedging, are not included in the operating earnings either.
In the third quarter of 2008, EBIT I rose by € 422.8 million or 533 % to € 502.2 million compared with a year ago; this was mainly attributable to significant earnings increases in the Potash and Magnesium Products business segment in addition to the positive business development for COMPO, fertiva and Salt. During the first nine months, EBIT I of the K+S Group more than quadrupled to € 1,054.9 million. This too was mainly attributable to the strong rise in earnings in the Potash and Magnesium Products business segment.
EBIT II reaches € 468.1 million (Q3/2007: € (154.1) million)
Under the IFRSs, changes in the market value of our foreign currency options as well as of other hedging instruments used to hedge the US dollar exchange rate have to be reported in the income statement. While the cash gains from options already exercised are included in operating earnings EBIT I, we report non-cash changes in the market value of options that are still outstanding as well as losses from forfeited options with due dates in future periods as a reconciliation to EBIT II.
During the quarter under review, earnings after market value changes, EBIT II, amounted to € 468.1 million and thus rose by € 622.2 million. As of the reporting date, a clearly stronger US dollar and tangibly lower freight rates had a negative impact on the market values of the hedging instruments used in this regard. During the first nine months, earnings after market value changes, EBIT II, reached € 906.3 million (9M/2007: € 30.6 million).
Revenues by region
Jan. – Sept. 2008
(in %)
Financial result in the third quarter slightly above previous year’s level
During the third quarter, the financial result was € (8.1) million and due to improved interest income thus slightly above the level for the same period last year. Under the IFRSs in addition to the interest expense for pension provisions (9M/2008: € (1.8) million), the financial result includes the interest expense for other long-term provisions mainly related to mining obligations (9M/2008: € (12.0) million); both are non-cash. During the first nine months, the financial result improved by € 2.2 million to € (22.3) million; non-recurrent special income from the disposal of financial investments during the first quarter was able to more than compensate for a weaker interest result. Further details of the financial result can be found in the Notes.
