Press conference held on 17 th March 2000 in Frankfurt am Main

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1 Press conference held on 17 th March 2000 in Frankfurt am Main Speech of Dr. Volker Schäfer, Member of the Board of Executive Directors of K+S Aktiengesellschaft, Director of Finance and Waste Management - The spoken word applies -

2 2 Annual Report 1999 of the K + S Group Ladies and Gentlemen: Overall, the K + S Group can - as Dr. Bethke has already explained to you look back on a very successful fiscal year This is also reflected in the financial figures, which I would now like to explain to you. Fig. 2 Changes in sales between 1999 and 1998 All of the business segments contributed to the increase in sales of million DM, even if this was with different growth rates. More than half of the growth is attributable to effects of quantity, which caused an increase of 58.5 million DM. In the Potash and Related Products Segment, different developments led to an overall reduction in quantity. This is compared to a significant increase in sales of de-icing salt during the first months of the year and growth resulting from higher volumes delivered to our underground depositories. In the Services Segment, our North American Sales Company PICC made a particularly high contribution to the increases in quantity with a higher trade business. Prices gave rise to an increase in sales of 15.5 million DM. Here we were able to achieve growth in the Potash and Related Products Segment whilst in the Salt and Waste Management Segments price cuts were unavoidable. Exchange rates improved our sales by 28.8 million DM, which is solely attributable to the Potash and Related Products Segment. These effects resulted from the higher average exchange rate of the US Dollar compared to the German Mark and the Euro in comparison to the corresponding period in the previous year. A large part of our overseas deliveries about 300 million US Dollars a year - is billed in US Dollars, the leading currency in the world potash market.

3 3 Fig. 3 Summary of results The earnings of the K + S Group again significantly improved in the fiscal year The result before interest, taxes, depreciation and amortization (EBITDA) rose by 31.2 million DM to about 403 million DM. As we did not have any significant changes for depreciation as compared to the previous year, this rise is also reflected in the EBIT or the result from operations. Here we were able to achieve a growth of 31.7 million DM to million DM. We achieved this pleasing improvement in the result through improved capacity utilization in the Salt and Waste Management Segments due to increased sales and through strict cost management. Nevertheless, we also had cost increases in several areas. Thus, our personnel costs in 1999 were approx. 10 million DM higher than in the previous year. Here it should be noted that the personnel costs in the previous year had included the one-off effect of the adjustment in the pension provisions to new actuary tables. Without this special effect, we would have had an increase in personnel costs of around 36.6 million DM. This increase is primarily due to higher variable profit-related components of the remuneration for our employees. This profitrelated part of the personnel costs rose by 29 million to 49 million DM and makes up almost 7% of the total personnel costs. The drop in the financial result by 4.2 million DM requires an explanation. Income from interest was 2.4 million DM higher than in the previous year at 35.9 million DM. This was countered by an increased interest cost of about 3 million DM. The interest costs primarily concern the effects of increases in interest in the transfers to the pension provisions and interest for tax payments, i.e. it is not related to the success of our cash and securities investments. Furthermore, we had to carry out write-offs on securities and financial assets of 3.2 million DM. In addition, it must be taken into account that in the previous year we invested part of our former cash investments in special funds. The increases in value achieved by these special funds were only partly paid out in the form of dividends and are therefore not fully reflected in the financial result. In total, the undisclosed reserves in our securities at the closing date had increased by 25.6 million DM.

4 4 The result before taxes (EBT) could be improved to million DM, which corresponds to an increase of 27.5 million DM compared with the previous year. In total, our taxes on earnings show an income of 5.2 million DM. Tax burdens, which mainly result from trade income tax of K + S AG and foreign earnings taxation, are offset by a corporation tax refund of 10.8 million DM. With the corporation tax refund, the higher tax burden on income retained in previous years is reduced to 30 % in the case of dividend pay-outs. However, this positive effect will be significantly reduced in the coming year as K+S AG only has a small residual stock of so-called EK 45. As in the previous year the current result is not subject to corporation tax charges as not only the K + S AG but also Kali und Salz GmbH have tax losses which will be available for setting off for a few years to come. We have increased our result after tax by 29.1 million DM to million DM. This has resulted in a growth in profits of 18%. Fig. 4 EBIT according to business segments A view at the EBIT according to segments shows that we achieved significant profits in all areas of our business. In the Potash and Related Products Segment, we were not able to achieve the high result of the previous year. However, with 85.5 million DM we again accomplished a good result. The main providers of the growth in the results were the Salt and Waste Management Segments. The Salt Segment achieved a growth of 16.9 million DM with a result of 36.9 million DM. This is primarily attributable to additional sales in the de-icing salt business at the beginning of the year. A similar effect has occurred concerning additional depository volumes due to two special projects in the Waste Management Segment. Here we were able to improve our result by 17 million DM to 40.7 million DM. The basic business suffered a slight decrease in the average

5 income and was at the previous year s level. The Services and Other Activities Segment also achieved a significantly improved result of 10 million DM. 5 Fig. 5 Return on equity The good earnings achieved by the K + S Group is also reflected in improved returns. With a return on equity of 18.4 %, we clearly exceeded the corresponding value from the previous year of 14.9%. A higher result after taxes and a reduced equity contributed to this positive development. The reduction in equity is due to a set-off of the goodwill arising from the acquisition of COMPO against reserves. Fig. 6 Return on total investment Our return on total investment also continued to improve to 8.0 % as compared to 7.3 % in the previous year. Here it must be taken into account that we still have a high stock of cash and cash equivalents generating yields which are below our operating returns. A part of these liquid funds is needed to cover our long-term obligations for pensions and mining charges. We place these funds in investments that have assessable risks and promise reasonable yields. At the same time, we continue to look for attractive acquisitions in order to increase the return on total investment. The decision to withdraw the own shares held by K + S AG will also contribute to an increase in returns on total investment as well as on equity. Fig. 7 Cash flow statement In the fiscal year 1999, we achieved a cash flow of million DM and hence exceeded the previous year s value by 42.6 million DM. The cash flow from operating activities fully covered the investments in fixed assets and the outflow of funds for the COMPO companies acquired in In addition, the cash outflow from investing activities also includes a transfer of long-term securities to the financial assets at a level of 76 million DM. These serve to cover pension obligations. Overall, our fund of cash and cash equivalents was reduced by million DM following significant outflows for investments, acquisitions and dividends. The remaining funds also include, to an amount of 128 million DM, own shares which

6 K + S AG bought back. Therefore, the liquid funds will be reduced by this amount with the retraction of the shares. 6 Fig. 8 Dividend proposal Dr. Bethke has already dealt with the significantly increased proposed dividends. Fig. 9 Reconciliation of the DVFA Result As you know, last year new recommendations were published for determining the DVFA result. These new rules have far-reaching consequences on the level of our DFVA result: instead of a correction upward, there will now be a significant reduction in our result. This is primarily attributable to the recognition of deferred tax charges at a level of 74.3 million DM on our result. We have recognized deferred tax costs as we still have significant loss carry forwards. The recognition of deferred taxes presents the company fictitiously as if the loss carry forwards did not exist. Furthermore, the DVFA result is reduced by the elimination of the income from the reversal of the credit balance arising from capital consolidation. These charges fall a long way short of being offset by the increases in income due to adjustments equal to special write-downs, changes in provisions and other measures. After making adjustments of a total of minus 68.9 million DM a DFVA result of million DM is reached which is 9.2 million DM higher than the result calculated according to the same rules for the previous year. Based on an average level of outstanding shares, i.e. not held by K + S AG, of about 48.2 million we achieved a result per share of 1,32 Euros in Compared to the previous year s result of 1.18 Euros, this is an increase of 12 %. Despite the conservative assessment of the DFVA result, the K + S share therefore reaches a price-earnings ratio of approximately ten. Although they are therefore no longer the cheapest shares in the world, even in comparison to the moderately valued MDAX they are still traded at a very low price.

7 7 Of course, we are looking for possibilities to achieve a higher valuation of our share appropriate to the earnings of the K + S Group. Apart from active communications with the capital market, the quality of the external accounting certainly plays an important role. To this end, the increased use of international, primarily US-American accounting principles has been propagated in recent times. We have deliberately decided against the opportunity provided by the legislature to prepare the consolidated group accounts according to international principles. As we do not actually intend to list the K + S shares in the U.S.A., we see no reason to convert our group accounting to US GAAP. What is more, we tend to be skeptical regarding the usefulness of the additional information provided by US GAAP accounting the same applies to the IAS. As the rules for determining the DVFA result are oriented to these international principles, the DVFA result is very close to a result calculated according to US GAAP anyway. We have roughly calculated our result according to US GAAP and found out that this is only approx. 10% more than the DFVA result, as already explained. Fig. 10 COMPO / agricultural fertilizers: Effects on results and cash flow Finally, I would like to present the main financial effects of the COMPO acquisition and the takeover of the sales and marketing of BASF agricultural fertilizers. As already mentioned, we paid the purchase prices for the COMPO companies acquired as of out of our own funds. In the balance sheet of the K + S Group, the companies taken over have been consolidated as per However, this did not have any effects on the result for 1999 as the purchase was not made until the end of the year. From the year 2000, there will be a positive result arising from the difference between the COMPO result and the lower interest income due to the outflow of the purchase price sum. Apart from possible synergy effects in sales or logistics, there will be no effects on the results for the years 2000 and 2001 and from 2002 only a limited participation in the results arising from the sales of the agricultural fertilizers. Thus it

8 8 can be ascertained that cash flow, EBITDA, EBIT and net income of the K + S Group will increase in the near future. These improvements to the results should also have a positive effect on the returns on total investment and on equity of the K + S Group. The acquisition leads to a significant increase in the return on equity as the higher result is countered by an equity reduced by the amount of the offset goodwill. On the other hand, the balance total will tend to increase so that the return on total investment will increase less sharply. However, the positive effect on the results should also lead to an improvement here too. Overall, the earnings and financial situation and the returns of the K + S Group in the previous fiscal year have continued to improve. Not only the shareholder have profited from this in the form of a higher share price and an increased dividend, but also our employees. At the same time, our acquisitions and investments have strengthened the business base of the K + S Group and therefore have created good prerequisites for a positive development in the future too.

K+S Aktiengesellschaft. Analysts Conference. on 15 November in Frankfurt. Speech by Norbert Steiner, Member of the Board of Executive Directors

K+S Aktiengesellschaft. Analysts Conference. on 15 November in Frankfurt. Speech by Norbert Steiner, Member of the Board of Executive Directors - 1 - K+S Aktiengesellschaft Analysts Conference on in Frankfurt Speech by Norbert Steiner, Member of the Board of Executive Directors The spoken word applies - 2 - Ladies and Gentlemen, Following this