K+S, for the third time in seven years, slashed its dividend, to save cash for a $3.7bn mine expansion in Canada in a sign of the continued hardship that the tumble in potash prices is causing to producers.

The German-based potash and salt group cut to E0.25 a share its proposed dividend for 2013, down from the E1.40 a share distributed for 2012.

While investors had forecast a reduction in the dividend, in part thanks to an expected fall in earnings, the planned payout is lower than the E0.54 a share that they had expected.

Indeed, it means that K+S will pay out 11% of its adjusted earnings in dividends, below the 40-50% it targets.

Earnings beat forecasts

In fact K+S, which will unveil details of its 2013 performance on Thursday, revealed that its adjusted earnings for 2013 had hit E435m last year, down 32% but ahead of market expectations.

Revenues, flat at E3.95bn, were also ahead of forecasts of a figure of E3.86bn, while operating profits, down 18% at E656m, beat expectations o f a E635m result.

Potash groups including K+S have struggled since the break-up in July of the Belarusian Potash Company cartel, which controlled more than 40% of world volumes, prompting a slump of some 25% in prices of the fertilizer.

'Market uncertainties'

However, K+S said that "uncertainties" in the potash market were "not yet overcome", and highlighted its need to save cash to pay for projects including the Can$4.1bn ($3.7bn) Legacy potash mine it is building in Canada, which some investors have thought might be shelved because of the drop in prices.

The group said it had planned "considerable capital expenditure… which will require substantial financial resources over the coming years to strengthen the company long-term".

Approval by shareholders, at the K+S annual meeting, of the dividend reduction "would constitute a contribution on the part of the shareholders to the further growth of the K+S Group from which everybody would benefit".

Not the first time…

The cut in the dividend follows reductions in 2009, when the fertilizer market collapse amid the world economic crisis prompted a reduction to E0.20 per share from E2.40 per share in 2008.

In 2007, the dividend was slashed to E0.02 per share from E0.47 per share the year before.

K+S said that it intended to return "as soon as possible" to its policy of paying out 40-50% of earnings in dividends.

K+S shares closed down 2.1% at E24.52 in Frankfurt.

agrimoney