K+S Post-Takeover

The Best Defense is a Good Offense

mark roberts k + s mgmt board member
Mark Roberts, a management board member at K + S, can smile again after the company fought off a hostile takeover.
  • Why it matters

    Why it matters

    After fending off a hostile takeover attempt from rival Potash Corp. of Canada, German salt and potash maker K + S wants to double its operating profit by 2020 through organic growth and acquisitions.

  • Facts


    • K + S is a German company that has been mining and processing mineral such as salt and potash for 125 years.
    • In October, K + S fended off a hostile takeover from rival PotashCorp.
    • K + S said Potash’s offer was too low; its own shareholders agreed.
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Mark Roberts is a member of the management board of K+S, the world’s largest maker of salt and Europe’s largest supplier of potash, which is used in fertilizers. American-born Mr. Roberts was chief executive of Morton Salt in Chicago when it was acquired by K+S in 2012. Mr. Roberts’ responsibilities include K+S’s salt businesses.

Handelsblatt: Are you the first one to look out the window to see if it’s snowing? How is the business in de-icing salt shaping up?

Mr. Roberts: I’m always the first one in the gym in the morning. It doesn’t make me nervous if it’s not very winter-like outside. After all, the season has just begun. We just had two very good winters in North America.

The prices for de-icing salt are at a level very favorable for us, and the demand has been above average this fall. Besides, two snowstorms are enough to change the picture in the United States. And, as here in Europe, we have had a couple of days of winter weather in some regions. Overall, we are well prepared and stocked up with de-icing salt to fully meet the demands of our customers when needed.

Naturally, the de-icing salt business is important to us. However, such sales in 2014 made up less than 50 percent of the overall salt business division, so most of the revenues come from other market segments.

K+S’ salt division plans to double earnings before interest and taxes by 2020. You have said more than 400 employees are working on the effort. What measures are being planned?

“In North America, we want to boost efficiency sustainably at 13 Morton Salt locations and, in that way, make a significantly positive contribution to our operating profit.”

Mark Roberts, Board Member, K+S

The focus of our “Salt 2020” strategy lies in three areas: growth, efficiency and culture. They contain numerous strategic initiatives that we have developed internally and from the bottom-up. A very important part is that each of these initiatives has been given an exact financial target that is being checked constantly. All together, we want to reach an operating profit of more than €250 million ($272.9 million) in 2020, adjusted for seasonal effects.

Two examples: Together with customers and a university in Chile, we have developed a new process to extract copper by using salt. This increases the margins of the producers, lowers the impact on the environment and opens up new market opportunities for the coming years.

In North America, we want to boost efficiency sustainably at 13 Morton Salt locations and, in that way, make a significantly positive contribution to our operating profit.

Will the plans have an impact on the number of workers in the salt division?

In isolated cases, it already has or can lead to job reductions. However, a fast and non-sustainable increase in profits by reducing jobs is not at all the goal. The clear purpose of our Salt 2020 strategy is a fundamental improvement in our approach to production and marketing, which we want to use to sustainably increase profit.

You have said that the doubling of EBIT by 2020 is planned primarily on the basis of organic growth. What role do acquisitions play in your strategy?

In fact, we mainly want to reach our goals for 2020 through organic growth. As the world’s largest salt producer — over 30 locations on three continents — we are already better positioned than any other competitor. We are very close to the customer. This is our crucial competitive advantage in the salt business, which can have very high freight costs. All the same, we still see a very great potential in Asia, for instance. The Asian market will grow significantly in the next couple of years. By 2018 at the latest, close to half of the worldwide demand for salt will be coming from there. Asia is not only very interesting for us in the field of table salt but also in salts for the pharmaceutical and chemical industries. At the moment, we are considering several options so we can have a permanent involvement in this growth in the future.


159 K+S-01 WTB 2014 resume


Will there be antitrust issues in the United States and in Europe from larger acquisitions?

That would depend on the individual case, but I’m not going to speculate.

You plan to expand your position not only in Asia and China but also in the Pacific. Are you thinking primarily of acquiring marketing companies, or do you have your sights on buying new storage facilities?

As I said, we are considering several projects for this region at the moment. We are looking at all options.

Specifically, what growth prospects do you see for K+S in China?

With table salt, foreign companies can only operate together with domestic companies. At the moment, we are the only foreign company selling there by way of a joint venture between our North American company, Morton Salt, and Shanghai Salt. We sell table salt in the famous round, blue Morton Salt package. The brand with the umbrella girl that every American child recognizes is also becoming more and more popular in China. This makes it possible for us to charge premium prices compared with the competition. We also see growth potential for the chemistry and pharmaceutical industries, but for us to be competitive, the transportation route can’t be too long due to cost factors.

During your discussions over a potential takeover of K+S by Potash Corp., K + S management stressed that its salt business wasn’t reflected in the stock price. What would be a commensurate value, and on what do you base that?

The current market capitalization of K + S suggests that the salt business is not fully reflected in the stock price. The salt-business unit is already delivering strong cash and income contributions to the K + S Group’s fiscal performance. With the successful implementation of our Salt 2020 strategy, we will boost the division’s (earnings before interest, taxes, depreciation and amortization) in normal winters to more than €400 million. If you were to use the multiples customary in the salt industry, it would correspond to about 70 to 80 percent of the K + S Group’s market capitalization. We will do our best to raise the value of the salt business unit again. It is and remains an indispensable part of the K + S Group.

Do you feel like you and the salt division are standing in the shadow of the potash division? Analysts and the media certainly mainly look at the potash division because of its larger contribution to profits.

It is understandable that the focus is on the potash and magnesium business unit because of its greater contribution to the K + S Group’s earnings. But, on the other hand, it also motivates us to increase the significance of our business unit for the whole company in the future. We also want to convince the capital markets of the bright future of our business unit through the successful implementation of the Salt 2020 strategy.


k+s_salt mine
Working in the salt mine. Source: K+S


You stress that the salt business unit is much more than just de-icing salt. What is the outlook for the development of the other segments (food-grade salt, industrial salt, salt for chemical use) and other impacts?

Normalized for the winter effect, the other product segments already contribute more than half of the salt-business unit’s sales volume – and do it with a healthy margin mix. Business segments like foo- grade salt and industrial salt are far less volatile than the de-icing business, they generate a stable cash flow, and in many segments they provide very attractive margins. Take, for example, our North American table-salt brands Morton Salt and Windsor Salt. They represent enormous capital, not only because people know and like them, but also because they can command premium prices in the market. We also deliver salt in sectors that you certainly wouldn’t expect, for example salt for oil drilling or for the production of plastics, paper, glass and cell phones. Salt is contained in an unbelievable amount of products in our daily lives. With our Salt 2020 strategy, we are taking aim at the possibilities of growth in all our product segments.

Are there regional differences in K+S’s salt business, in the sense that some factories produce more cost-effectively than others, or have a product mix with a larger margin? Can the various locations learn from one another?

With our more than 30 locations on three continents, we are better positioned than any other competitor in the global salt business. Naturally, there are differences between the locations. Our large salt mining operation in Chile for example – the largest of its kind in the world – has extremely low production costs. This enables us to deliver, among other things, de-icing salt from there to the U.S. east coast and industrial salt to China. In particularly harsh winters, we are in a position, if need be, to deliver de-icing salt from Europe to North America or visa versa. Another advantage is that most of our products are produced at more than just one location. As a result, we are able to supply important major customers that otherwise would have to rely on at least two different suppliers to minimize risk. Furthermore, we can transfer knowledge between our salt locations but also between the salt and the potash business units.

How do you assess the outlook for growth in China in concrete terms, given the current low rate of growth of the Chinese national economy?

Even if China’s rate of growth were to slow down, the demand for salt would remain at a very high level. I have already mentioned that soon around half of the worldwide demand for salt will be in Asia. The long-term megatrends will continue and support demand from a continuing increase in industrialization and the growth of major cities; modern lifestyles, rising incomes and the growing appetite for Western brands; and an aging population, more of whom will be provided access to a higher quality of healthcare services. We are convinced that all of this will increase the demand for salt. By the way, we are pursuing longer-term growth objectives in Asia. We see very many opportunities there to advance our business even after 2020.


Maike Telgheder is an editor at Handelsblatt, covering the health economy, pharmaceutical companies and chemistry. telgheder@handelsblatt.com

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