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PotashCorp cuts dividend by 34% after lower-than-expected quarterly profit

28th January 2016

By: Samantha Herbst

Creamer Media Deputy Editor

  

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JOHANNESBURG (miningweekly.com) – TSX- and NYSE-listed potash and fertiliser producer PotashCorp, of Saskatchewan, has decided to cut its quarterly dividend by 34%, owing to the challenging market conditions and emerging market currency weakness relative to the US dollar that continue to weigh on the fertiliser market.

The company’s full-year 2015 report, published on Thursday, reported full-year earnings of R$1.52 a share, or $1.3-billion, trailing the 2014 full-year earnings of $1.82 a share, or $1.5-billion.

Yearly earnings before tax, depreciation and amortisation (Ebitda) of $2.6-billion were also lower than the 2014 Ebitda, as was the cash from operating activities, which drew $2.3-billion for the year, dropping 11% below 2014 results.

Net earnings fell to $201-million, or 24c a share, in the quarter ended December 31, from $407-million, or 49c a share, a year earlier, while revenue decreased nearly 29% to $1.35-billion.

The world's biggest fertiliser company by capacity reported that the average realised price for potash fell by 16% to $238/t in the fourth quarter, while nitrogen prices fell 29% to $288/t. It reported that global potash shipments for the fourth quarter remained relatively flat compared with the same period in 2014, with increased deliveries to China offsetting slightly weaker demand in most other markets.

Potash prices were also under pressure from bloated capacity, soft grain prices and weak currencies in major consumers, such as India and Brazil.

“[Further], weaker fertiliser prizes late in the year reduced our earnings for the quarter, giving rise to a more cautious outlook for all three nutrients as we begin 2015,” said PotashCorp president and CEO Jochen Tilk.

He told shareholders that, while the company remained committed to preserving a strong balance sheet and investment-grade credit rating, it also believed in retaining a competitive dividend, hence the consideration to reduce its quarterly dividend.

“We believe this level – representing a payout ration of close to 100% of 2016 earnings – remains highly competitive and balances the interests of our many stakeholders, including equity and debt holders,” added Tilk.

Tilk also highlighted the company’s decision, earlier in the month, to suspend potash production in New Brunswick to realign the company’s dividend.

“These actions are part of our thoughtful and holistic approach to strategically position the company and to balance the interests of our stakeholders, debt holders, employees and communities who depend on our enduring success,” he added.

Tilk further noted that, in the long term, the company believed that rising global crop production and supportive farmer economics would drive improved market conditions.

2016 Guidance
PotashCorp expected that its 2016 sales volumes would be between 8.3-million tonnes and 9.1-million tonnes. Its yearly forecast potash gross margin of between $0.8-billion and $1.1-billion was significantly down from the 2015 results, as the sharp decline in potash prices through the second half of that year was expected to weigh on 2016 margins.

PotashCorp’s guidance for the year reflected the suspension of its Picadilly operations in mid-January.

The company forecasts full-year 2016 earnings of between $0.90 and $1.20 a share, including first-quarter earnings of between $0.10 and $0.20 a share.

Edited by Creamer Media Reporter

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