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Capital Markets Day 2010 CapitalCapital MarketsMarkets DayDay FertilizerFertilizer PerspectivesPerspectives JoachimJoachim FelkerFelker MemberMember ofof thethe BoardBoard ofof ExecutiveExecutive DirectorsDirectors Berlin,Berlin, 88 DecemberDecember 20102010 Experience growth. K+S Group Content A. Fertilizer Market Environment B. Nitrogen Market Environment - K+S Nitrogen -Compo C. Potash Market Environment - Growth Perspectives - Potash One - Future Potentials in Germany December 2010 K+S Group 1 K+S Group Key Drivers of the Fertilizer Business z Despite decreasing availability of arable farmland, global production of soft commodities has to increase: y steadily increasing world population y changing diets toward higher meat consumption (e.g. 1 kg beef = 8 kg animal feed) y increasing importance of renewable raw materials for the production of bio energy z As a consequence, fertilizing with key nutrients nitrogen (N), phosphate (P) and potash (K), but also increasingly magnesium (Mg) and sulphur (S) is the solution to coping with this challenge z Nutrients cannot be substituted and a balanced fertilization of all nutrients is necessary to achieve optimal yields. Emerging countries, in particular, should still significantly increase the potash proportion of their total fertilizer application z Medium- and long-term increase in global fertilizer consumption (N, P and K) of 2 to 3% p.a. expected (Source: IFA) Î K+S offers its worldwide customers all nutrients in a market-oriented specialised product range December 2010 K+S Group 2 Potash and Magnesium Products Development of Demand – Long-term Trend Global Application Rate for Major Nutrients lb/acre 120 112 Current Application Rate Scientifically recommended 100 Application Rate 80 66 60 59 60 40 24 20 17 0 Nitrogen Phosphate Potash Sources: IFA, IPNI Studies, Ohio State University Studies Current Application Rate Potash inScientifical particular offersRecommended the highest Application growth potential Rate medium to long-term December 2010 K+S Group 3 K+S Group Low Stocks-to-use Ratios of Agricultural Products Production and consumption development vs. stocks-to-use ratio (Wheat and coarse grains) 1,8001.800 40,040.0 Production Consumption Stocks-to-use 35,035.0 1,6001.600 30,030.0 Stocks-to-use ratio Stocks-to-use 25,025.0 1,4001.400 20,020.0 Critical Level 15,015.0 in million tonnes million in 1,2001.200 10,010.0 5,05.0 1,0001.000 0,00.0 1981/82 1986/87 1991/92 1996/97 2001/02 2006/07 2010/11e Source: USDA; as of 9 November 2010 z Over the past thirty years, annual global production of cereals has often fallen short of demand z Despite reasonable harvest levels during the last ten years, these structural supply and demand gaps have resulted in low stocks-to-use ratios on a historical basis z Although ideal weather conditions in 2008 and 2009 resulted in record harvests worldwide, stocks-to-use ratios remained on a relatively low level December 2010 K+S Group 4 K+S Group Crop Prices: Key Fertilizer Demand Driver Potential global cereals* shortfall in 2011/12 1850 z Consecutive years with above-average 1827 yield unlikely (weather conditions driven) High 1800 production deficit - Even more unlikely given past 96 general under-application of fertilizer Stocks-to-use ratio to decline 1750 z Surplus/deficit in crop production key from 19% 1731 to 13%**** price trigger for soft commodities z High crop prices enable and incentivise 1700 farmers to apply fertilizers - Yield and quality game 1650 Forecast Forecast Forecast production consumption shortfall for 2011/12 ** 2011/12*** 2011/12 * Wheat and coarse grains ** Based on last 5 years average of harvested area multiplied by last 5 years’ average yield (531m hectares x 3.3 tonnes per hectare) *** Based on 2010/11 consumption (1,790mt) multiplied by last 5 years’ annual average demand growth rate of 2.1% **** Implied stocks-to-use ratio: ending stock 2010/11 (333mt) less potential shortfall (96mt) divided by potential consumption 2011/12 (1,827t) Note: 2009/10 and 2010/11 USDA estimates December 2010 K+S Group 5 K+S Group Prices for Agricultural Products – Spot vs. Future Prices for Agricultural Products – spot Prices for Agricultural Products – future 400% 130% 350% 120% 300% 110% 250% 100% 200% 90% 150% 100% 80% 50% 70% Dec. Dec. Dec. Dec. Dec. Dec. Nov. Dec. Dec. Dec. May ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘10 ‘11 ‘12 ‘13 Wheat Soybeans Corn Palmoil z Strong increase in prices for agricultural z Future prices of agricultural products products since the middle of the year mirror the capital markets’ expectation of an elevated price level for the next two Sourcee: Bloomberg; as of 26 November 2010 years December 2010 K+S Group 6 Potash and Magnesium Products Profitability of Wheat in Europe 1600 2008 2009 2010e Revenues 1400 Profit potential: Revenues € 231 Costs Profit 1200 potential: Revenues € 325 Year Fertilizer share of total costs Costs Costs 1000 366 Profit 2008 30% fertilizer costs (4% K) potential: 181 €71 174 2009 18% fertilizer costs (4% K) 800 70 77 77 2010e 17% fertilizer costs (2.5% K) 110 119 113 600 183 157 165 Fertilization Other costs 400 (e.g. insurance, water) Seeds/plants 459 459 459 200 Plant protection agents Variable costs Fixed costs (incl. lease) 0 Wheat price: 180 €/t Wheat price: 135 €/t Wheat price (e): 190 €/t Yield: 8 t/ha Yield: 8 t/ha Yield (e): 7.0 t/ha The latest increase of the wheat price should enable farmers to realize a profit potential of around € 325 per hectare (excl. subsidies) in 2010 compared to € 231 per hectare in 2008 and € 71 per hectare in 2009. Assumptions: without agricultural subsidies, incl. interest expenses for pre-financing costs, 100% use of mineral fertilizers (no organic fertilizing), straw stays in the field (straw fertilizing); fertilizer use for 8 t/ha yield: 80 kg/ha MOP, 536 kg/ha KAS and 139 kg/ha TSP; for lower yields, lower fertilizer requirement adjusted accordingly; Sources: costs (20 ha) according to Kuratorium für Technik und Bauwesen in der Landwirtschaft e. V. (KTBL), LAND & Forst, yield according to Agrarstatistik Destatis, nutrient extractions according to Guidelines for Fertilizer Use in German Federal States; fertilizer prices: Retail prices 2010 taken from LAND & Forst: KAS 208 €/t, MOP 335 €/t, TS P 357 €/t. Wheat price estimate follows the development of Euronext price less transportation cost assumption. December 2010 K+S Group 7 K+S Group Content A. Fertilizer Market Environment B. Nitrogen Market Environment - K+S Nitrogen -Compo C. Potash Market Environment - Growth Perspectives - Potash One - Future Potentials in Germany December 2010 K+S Group 8 Nitrogen Fertilizers K+S Nitrogen – Strong Production Partners BASF Antwerp BASF Ludwigshafen NPK (MOP, SOP) ENTEC-NPK ass / ENTEC 26 KAS AN AS Lanxess Antwerp BASF PEC Rhin Ottmarsheim AS Standard Granammon KAS AN Business Model: z Trading Business z Contractual agreements with BASF for the exclusive marketing of their fertilizers with limited chances and risks for K+S z One of the leading suppliers of ammonium sulphate December 2010 K+S Group 9 Nitrogen Fertilizers K+S Nitrogen – Sales Volumes by Region Major Product Groups Sales Volumes by Region 2010e 1.800 1.600 Sales volume: 4.7 million tonnes 1.400 Germany 1.200 15% Overseas 1.000 32% Overseas kt 800 Europe (ex Germany) Germany Europe (ex Germany) 600 53% 400 200 0 AS KAS/AN ASS ENTEC NPK NPK S ENTEC 26 C/NP SCl NPK/NP Ammonium Straight Nitrogen Fertilizers Complex Fertilizers Sulphate December 2010 K+S Group 10 Nitrogen Fertilizers Premium for N in KAS vs. Urea €/kg 1,41.4 300% 1,21.2 250% 1.01 200% 0,80.8 150% 0,60.6 100% 0,40.4 50% 30% 0,20.2 0% 0 -50% Jul-05 Jan-06 Jul-06 Jan-07 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 N Urea €/kg N Premium for KAS €/kg Premium in % December 2010 K+S Group 11 Nitrogen Fertilizers Compo Consumer – Market Environment Demand z Heterogeneous European market Competition z Moderate growth to be expected Customers in segment z Poor earnings position of z Concentration process all competitors z Internationalisation z Many suppliers present z Powerplay in purchase themselves as full-range z Assortment reduction providers - Fewer brands - Expansion of private labels z Shelf place being bought aggressively in individual z Trend towards introducing countries bio-/eco-products z Competitive pressure on price z Conditions, rebates in kind Climate / laws are widely used z z Influence of weather on demand Oversupply of shelf space situation z Mid-price ranges under pressure z More strict guidelines in Europe (fertilizers and plant protection) December 2010 K+S Group 12 Nitrogen Fertilizers K+S is Considering the Sale of COMPO z COMPO is a leading provider in a market that requires consolidation z In compliance with our growth strategy, we will focus our financial and management resources in particular on the Potash and Magnesium Products and Salt business segments z On the other hand, appropriate capacity to act is important for COMPO, especially at present Î Therefore, we announced in June 2010 that we are considering the sale of COMPO. A result of the process is expected within one year December 2010 K+S Group 13 Nitrogen Fertilizers Project Status z Concept worked out for a possible corporate and business carve-out of COMPO from the K+S Group All COMPO interfaces within the K+S Group identified Concept worked out to separate the sales platforms in Asia, Europe and North/Central/South America Preparing global IT separation Creation of a Financial Factbook z Potential interested parties to be spoken to at end of 2010 / beginning of 2011 z A result of the process is expected by mid-2011 December 2010 K+S Group 14 K+S Group Content A.
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