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RSS & PodcastsThe 2009 economic downturn forecast in the 2008 Financial Report also persisted in the second quarter. The early indicators published towards the end of the first half of the year do, however, point to stabilisation on a low level; nevertheless, this is not sufficient to signal a reversal in the decline in growth worldwide. Although central banks have cut interest rates to historically low levels in some cases, the ability of the financial sector to function remains limited, which continues to make it difficult for many companies to borrow, and this too, is an obstacle to recovery.
At the end of June, the US currency was quoted at 1.40 USD/EUR and was thus weaker than at the end of the first quarter (31 March 2009: 1.33 USD/EUR), but significantly stronger than a year ago (30 June 2008: 1.58 USD/EUR). The price of crude oil rose in the second quarter, with a barrel costing an average of US$ 60 (Q1/09: US$ 46), which is, nevertheless, one half of the price of oil compared against the same period a year ago. Prices for agricultural raw materials recovered appreciably until the middle of June, but came under renewed pressure in the final weeks of the quarter because of positive harvest forecasts prompted by weather conditions.
The changes in the macroeconomic environment during the second quarter impacted on the course of business for K+S as follows:
• Price volatility for agricultural products continued to give rise to tangible uncertainty in agriculture about the future earnings situation. Against a background of continued weak demand, K+S already reacted in the first half of the year by cutting output and introducing short-time working and by reducing output of potash and magnesium products by 2 million tonnes. Given that there were still no signs of demand picking up significantly, it was decided to reduce potash output in the second half of the year too, by up to 2 million tonnes of goods. Consequently, we also reduced our estimated sales volume for all of 2009 to about 4 million tonnes of goods.
• Energy prices fell sharply at the end of last year. However, since, on the basis of existing supply agreements, changes are only reflected in our costs after a delay of six to nine months, an easing of energy costs is not to be expected until the second half of 2009.
• At an average of 1.43 USD/EUR including hedging costs, the Potash and Magnesium Products business segment saw a somewhat better exchange rate compared with the same quarter a year ago (Q2/08: 1.50 USD/EUR). Should the US dollar exchange rate weaken further over the course of the year, the options we use provide hedging for a worst-case scenario of about 1.46 USD/EUR including costs.
Industry-specific Framework Conditions
Continued very low demand for fertilizers on almost all markets characterized the second quarter: Agriculture still saw restraint despite prices for agricultural products stabilising until the end of May. In the case of straight nitrogen fertilizers, however, severe price cuts towards the end of the quarter invigorated demand. Demand for potash fertilizers remained exceptionally weak nevertheless and against a backdrop that saw agreements yet to be concluded with India and China. While trade sector inventories continued to decline, producers report that they are reducing output once again to prevent their inventories from increasing further. In addition, during the course of June, it transpired that a price level of US$ 735 to US$ 750 per tonne of potassium chloride was unsustainable for larger volumes on important overseas markets. In view of this situation and the upcoming autumn fertilizing season, K+S introduced a corresponding reduction in the price per tonne of granulated potassium chloride in Europe, from the level of € 555 that applied since April to € 435.
In Western Europe, the early procurement of de-icing salt produced no more than a normal level – despite low inventories on the customer side as a result of the severe and prolonged winter weather conditions at the beginning of the year. This is mainly attributable to the strains in public finances. On the other hand, however, the early procurement business in North America began very promisingly. While business in the food grade and industrial salt segments both in Europe as well as in South America was largely stable, demand for salt for chemical use remained weak because of the economic crisis.
Changes in the Board of Executive Directors
The term of office of Norbert Steiner as chairman of the Board of Executive Directors, which expires on 11 May 2010, was extended by a further five years at the Supervisory Board meeting held on 12 May 2009. Moreover, the Supervisory Board appointed Jan Peter Nonnenkamp as a new member of the Board of Executive Directors of K+S Aktiengesellschaft. Since 1 June 2009, he has taken over responsibility for financial matters, which was previously held in personal union by the chairman of the Board of Executive Directors. Furthermore, he will be responsible for the tax, audit, insurance and procurement departments.
Business Segments and Organisational Structure
On 2 April 2009, we signed an agreement on the acquisition of Morton International Inc. (Morton Salt) with Rohm and Haas, a subsidiary of The Dow Chemical Company. Morton Salt is one of the leading producers of consumer, industrial and de-icing salts in North America. The closing of the transaction, which has a value of US$ 1.675 billion, is expected to take place towards the end of the third quarter of 2009 and still requires the approval of the responsible anti-trust authorities. As a result of the acquisition of Morton Salt, K+S will become the largest salt producer worldwide and will occupy a leading position in North America. The impact of the intended acquisition has hitherto not been taken into account in the forecasts for the current business year; this will only become possible following the closing of the transaction.
Since 1 January 2009, COMPO and fertiva have been grouped together in reporting as the “Nitrogen Fertilizers business segment”. Since 1 July 2009, the nitrogenous fertilizers previously distributed by fertiva have been combined with the ENTEC® and the sulphur-containing NITROPHOSKA® products hitherto distributed by COMPO under the “K+S Nitrogen” umbrella. COMPO and its units in Germany and abroad continue to distribute consumer products as well as slow-release fertilizers, coated fertilizers, NPK specialities and nutrient salts for sport and leisure facilities, golf, gardening and landscaping, nurseries and ornamental plants in the expert segment. Shifts arising from the reorganisation that came into force on 1 July 2009 will only occur within the Nitrogen Fertilizers business segment from the third quarter onwards.
There will be no other changes in the business segments nor in the organisational structure.
For a comprehensive overview of our products and services, please see the relevant sections of the Financial Report and the Corporate/Sustainability Report 2008.
