K+S cites rising potash prices in upbeat guidance
13 Aug 2015
German fertilizer and salt producer K+S AG expects a "tangible increase" in potash prices this year, as it spells out hopes for rising full year revenues and profits.
The board restated its conviction that a recent takeover bid from PotashCorp undervalued the company.K+S issued full-year earnings guidance of E780m-E860m, compared with E641m last year, and revenues of E4.35bn-E4.55bn, compared to E3.82bn last year, as potash prices remain above the the low levels seen in 2014.Price recovery
In the three months to June 30, K+S saw post-tax profits rose 46% to E118.7m, compared to the same period last year. Revenues grew by 16% to E914.4m."This improvement in earnings is due primarily to higher prices for de-icing salt in North America and the recovery of average prices in the potash and magnesium products business unit," K+S said.The company also gained from exchange rate effects, increasing the euro-denominated value of dollar earning.K+S noted that the earnings guidance "includes an initial estimate of the significant costs that K+S Aktiengesellschaft could incur as expenses in the current year on account of the unsolicited takeover proposal from PotashCorp".Takeover rebuffed
The board of K+S last week rebuffed a $9bn takeover bid from Canadian group PotashCorp, the world's largest potash miner.The K+S repeated its assertion that shareholders disagreed with the valuation placed on the company by PotashCorp.The merged business would have controlled up to 30% of the global potash market, and bought production from K+S's Legacy project in Canada, currently under development, under control of the North American potash cartel Canpotex, of which PotashCorp is the largest member. Along with two former Soviet Union miners, Canpotex is instrumental in setting world potash prices through supply contracts with Indian and Chinese buyers, which are used as a benchmark for other deals. Government oppositionHostile reaction
K+S shares soared when PotashCorp first made overtures in June, but the move was rejected by the board, who conducted a shareholder survey which indicated investors were unhappy with a second offer of E41 a share. The prospect of a Canadian takeover attracted a hostile reaction from the regional government of the German state of Hesse, and strong opposition was also reported from the federal German government. K+S' German mines have higher costs of operation, and lower profit margins than mines in North America and the former Soviet Union, and there were fears in some quarters that PotashCorp was more interested in pulling the legacy project into Canpotex, rather than maintaining the German operations. Cautious note
Last month PotashCorp struck a more cautious note for potash prices, noting that fertilizer prices were "not immune" to the global commodity slowdown.PotashCorp Jochen Tilk warned that "increased supply and ongoing competitive pressure have created headwinds most visible in spot markets like the US where prices have fallen by more than 10% since the beginning of the year". K+S shares were up 0.4% at E36.12 a share in early afternoon deals in Frankfurt.