智利化工礦業 (SQM) 2004 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Q1 2004 SQM earnings conference call. (OPERATOR INSTRUCTIONS). I would like to hand the conference over to Patricio Vargas, Head of Investor Relations.

Good morning, everyone, and welcome to SQM's first-quarter earnings announcement conference call. For your information, this conference call will be recorded and webcast live. You may access the webcast for replay at our Website, www.SQM.com approximately half an hour after the conference call is over.

Joining me this morning as speakers are Patricio Contesse, Chief Executive Officer; Patricio De Solminihac, Executive Vice President and Chief Operating Officer, and Ricardo Ramos, Chief Financial Officer and Business Development Senior Vice President. Today we will start by briefly reviewing the main issues of the first quarter. Then we will review the market and operating outlook, and then we will have the Q&A session.

Before we begin, let me remind you that statements in this conference concerning the Company's business outlook, future economic performances, anticipated profitability, revenues, expenses or other financial items, anticipated cost synergies and product or service line growth, together with other statements that are not historical facts, are forward-looking statements as that term is defined under Federal Securities laws.

Any forward-looking statements are estimates reflecting the best judgment of SQM based on currently available information and involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements. Risks, uncertainties and factors that could affect the accuracy of such forward-looking statements are filed in the public filing made with the Securities and Exchange Commission, and forward-looking statements should be considered in light of those factors.

I will now leave you with Ricardo Ramos.

As you can see in the first slide of our presentation, first-quarter 2004 net income was 14 million, higher than the 10.8 million reported for the first quarter of the previous year. SQM has been able to improve its quarterly net income during the last 12 quarter as compared with the same quarter of the respective previous year.

Moving to the next slide. The main factors that affected 2004 first quarter were the following. Higher sales of specialty fertilizers, mainly in North America and Latin America, that were partially offset by sales to China during first quarter 2003, and improvement in pricing conditions in all specialty fertilizers. In the iodine business, we had higher sales volumes, and we continued with the price recovery trend. (inaudible) business, higher sales volumes, and a slight price increase.

Additionally viewed in first quarter this year, SQM increased its fertilizer trading activity, mainly due to the position of tariffs operation in settling Chile in the second quarter 2003. The previous positive effects were partially contracted by the increase of the freight cost and the exchange rate in Chile.

I will try to make some comment on the market outlook as we see on this year and when we can estimate for the next two years. About specialty fertilizer, we have seen the normal trend of growth in the range of 5 percent has continued in the market, and we forecast that this growth for the next few years will be in that range.

Besides that, we think that most of that growth will be picked up by SQM because potential new covers that were strained, there are not any longer there. So we see there a chance for growth of our Company.

Also, because of this (inaudible) and these new opportunities in the market, plus the higher price of potassium chloride worldwide gives us a chance to have also some increment in prices in the potassium nitrate compared to last year, and we think because of this situation that could remain for the next three years that I want to be able or foresee -- we foresee at this stage a chance to further increase some in the next few years.

Regarding the iodine, demand has been quite strong as seen in the last four or five years in the range of 5 percent, and here clearly we see that this trend should remain in the next two or three years that would lead us to recovery of the prices of what we had five or six years ago. So we see here also a chance in terms of increasing our volumes and increasing also our margins because of this operation, and we seem quite strong in the market regarding basically a big demand and also that most of the iodine in new cover has been developed. So not all, but most of that, growth should be picked up by SQM, too.

In the case of lithium, growth has been also in the range of 4 or 5 percent, and that increase should be picked up in the next future by us in the range of one-third of that. And also we see slight price increase to be in this year and in the next few years as a chance or a possibility. Of course, this will depend on the general economic markets as it goes through during this period of time, but if things remain more or less the trend that it is worldwide, we see a big chance that this market outlook will be as we are commanding.

Regarding the outlook for 2004, because of the comment I made before of improving prices, environment and higher sales volume in our three main core businesses, we see there a better scenario that would permit us to have a better year than 2003. Here we see a stable exchange rate scenario that (inaudible) people command and the market commands a volume increase.

Interest rate that happened we would have some threat from that. We have some negative effect also in the higher oil costs, also the freight costs compared to last year. Even though we have seen some weakness in pricing and the cost of freight but still will be much higher than what they were last year.

Also, we will have a higher average value of the Chilean peso compared to last year, and those are the negative, most significant negative effects we see for this year. But anyhow because of the good environment in the market, we estimate that we are going to be able to overcome those negative effects and have a better year than last year. Thank you very much.

We may now go to the Q&A session.

(OPERATOR INSTRUCTIONS). At this time, there are no questions in the queue. I pass it on to you for any closing statements.

We knew there were questions in the market. Are you sure everything is working properly? Could you please check that out?

Yes. Let me do some more checks. (OPERATOR INSTRUCTIONS). Manuel Salazar, Santander.

Good morning. Sorry but apparently it was not working properly. I have two questions actually. One of them is if you could give us a little more color on the distribution of sales? What was the effect in China? What are the sectors that apparently have grown in the U.S. and in Latin America? And the second is, how are you seeing the situation of the gas from Argentina, and what do you think would be the impact on your operations?

Regarding market, I will try to separate. In terms of nitrites, there has been good growth in North America, in Mexico in Brazil, and somewhat also in Europe. We are forecasting to sell less in China this year due that the freight costs there had decreased very significantly. Plus the scenario in pricing, we are forecasting that we are going to sell less in China, but overall we should be selling somewhat more than last year in total, even though the cost generation I have said already about China.

In the case of the lithium, the market is growing in general in the range of 5 percent, so we think we are going to be able to sell that more this year compared to last year. We have a scenario of pricing there of 5 to 7 percent higher in general.

In the case of iodine, demand -- in lithium I think one of the trigger things that has put in the higher demand at the rate of 5 percent is the consumption related to (inaudible). That is going very very fast. In fact, it seems to be influencing significantly the average of 5 percent per year.

In the case of the iodine, the market in general is growing, but there are two areas or two usages that have become very important in terms of growing more than the average, and that is related to the (inaudible), the dollar information that that sector would present nearly the 25 percent of the total consumption is growing at the rate of 7 to 8 percent.

There is a new usage related to the production of the field mobile CD, liquid crystal display related to laptops, related to pharma, related to cellular phones, related to TV sets, and that is a new usage. To produce this film you need to put out some iodine, and that is growing very fast 40, 50 percent (inaudible). Even though it's not a very relevant sort of consumption, but it is gaining revenue rapidly.

Last quarter's scenario of the economics that permit the growth that I was commenting on before.

In terms of (multiple speakers), clearly we have there a scenario that is not compromising our production first of all because we have a chance to use other sources of energy that are more expensive, but clearly it should not affect at all our production. It will not affect our production. We are prepared for that scenario.

We have a chance clearly during this month of May that we can be affected, and we see a scenario that should not be that way anyhow by June or July onwards. But clearly we are at this moment for one time or, let's say, 40, 60 day maximum, are we affected? It should not be significantly, and anyhow this is not affecting our production.

Cesar Perez-Novoa.

Good morning, gentlemen. Revenue growth in the specialty fertilizer section was led by a combination of improved pricing conditions, as well as stronger volumes. However, if you give part of this growth to (inaudible) products, could you provide an estimation of what percentage this represented of the total fertilizer revenues?

15 to 1.

Excuse me, I could not hear that. Sorry.

Give me a second. I have got to point out the tariffs of what we do for (inaudible) in terms of what we sell for them, there is not a big change compared to what we did last year. But only what we are doing in Chile because we require the operation in Chile, and that will clearly affect possibly our sales in Chile last year, at the end of last year, and now we are doing that all the year-round. But in terms of the total economic operation of SQM, it is not really very significant.

Sure. And, gentlemen, if I may on the industrial nitrates sales, they sell roughly more than 23 percent in the quarter. My understanding from lower extraction of sodium sulfate, should we expect the same in the current quarter?

Sodium sulfate, yes. We have there decreased our production. We are basically satisfied in the internal market, so there is a decrease in total volume for the year compared to last year. We have forecasted that way, and that is what we think is going to happen. In the other products, we estimate a stable situation.

Thank you.

(OPERATOR INSTRUCTIONS). At this time, there are no more questions.

Thank you very much, and thank you all very much for joining us this morning. We hope to have you with us on the next conference call. Goodbye, everyone.

Ladies and gentlemen, this concludes your conference. You may now disconnect.