智利化工礦業 (SQM) 2005 Q3 法說會逐字稿

Good day ladies and gentlemen. Welcome to the third quarter 2005 Sociedad Quimica y Minera de Chile earnings conference call. My name is Enrique and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of the presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. I would now like to turn this presentation over to your host for today's call, Ms. Carolina Pavez. Please proceed ma'am.

Good morning everyone and welcome to SQM's third quarter 2005 earnings conference call. For your information, this conference call will be recorded and is being Web-cast live. You may follow the online presentation we will review this morning by accessing the Web-cast at our Web site, www.sqm.com.

Joining me this morning, as the speakers are, Patricio Contesse, President and 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.

Before we begin, let me remind you that statements in this conference concerning the Company's business outlook, tools or economic performances, anticipated profitability, revenue, expenses or other financial items, anticipated cost synergies and product or service loan growth, together with other statements that are not historical fact are forward-looking statements, as that term is defined under Federal securities laws. Any forward-looking statements are estimates, reflecting the best judgement 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 identified in the public filing made with the Securities and Exchange Commission. Our forward-looking statements should be considered in light of those factors. I now leave with you Mr. Patricio Contesse. Good morning.

Good morning everyone. I would like to thank you all for taking the time of being here this morning. I want to briefly go over the most important aspect that has defined the third quarter and I want to review the most important issued for SQM behind the outlook for fourth quarter 2005. So, going to slide number 2.

In this slide, you can see the evolution of our net income for the third quarter and the first nine months for the past three years. In both charts, you can clearly appreciate the upward trend that we have achieved in this year, attaining the (technical difficulty) and proving our resolve every quarter in relation with the same quarter of the previous year, as well as the same tendency in our resolve for the nine month period.

The third quarter earnings 2005 increased in the 25% with respect to the third quarter of year 2004 and it's a good news. Still know, if you can see there, that the result of the third quarter of the previous year were 94% better than the third quarter of 2003. Earnings for the first nine months of 2005 reached 88 -- $86.7 million, 56% higher than the 55.6 million reported for the first nine months of the previous year. In this almost final stage of 2005, we are proud to say that this positive result will encourage us to improve continuously our net income during next year.

If you go to slide number 3, you can observe the same three years evolution for our quarterly and first nine months revenues showing a positive trend too. Revenue for the third quarter 2005 totaled $244.9 million, approximately 11% higher than the 220.6 million reported for the same period 2004. Revenues obtained during the first nine months of 2005 reached $681.1 million, approximately 15% higher than the $593.7 million reported for the same period of the previous year. During the year 2005, the debt and price environment decreased in sales of iodine and the specialties and nutrient soluble application are the main drivers for the revenues improvement.

Going to the next slide, number 4, we can see the operating income evolution for the quarterly and the first nine months for the past three years increasing. Operating income for the third quarter 2005 reached $49.2 million, 54% higher than the 39.6 million reported for the period during 2004. Operating income for the first nine months of 2005 reached $138.1 million, 48% higher than the 93.2 million for the first nine months of 2004. This quarter, operating income increased basically in efficiency by water process in our three core business -- specialty plant nutrition, iodine and lithium and an increase in the iodine sales volume. All this was partially offset by higher costs for energy, raw materials and a favorable exchange rate scenario in Chile. Additionally, the operating income was affected by a lower result of our subsidiary, SQMC, in charge of the distribution of fertilizer in the Chilean market.

Finally, moving to slide number 5, I would like to review the most important aspect that explains the fourth quarter 2005 operating income outlook. Even though we are facing few challenging situation, higher cost of energy and raw materials, and of course an unfavorable exchange rate scenario, we have -- which affected negatively operating income, SQM expect that the first quarter of 2005 operating income will be significantly higher than the fourth quarter 2004.

Main drivers are -- first, the specialty brand nutrition water soluble application will continue to increase during the fourth quarter 2005 and we expect that prices of specialty plant nutrition products demand will be higher between 15% and 20% compared with the last quarter 2004. In addition to the increased demand, a change in the product mix, the constrained supply condition and a better worldwide pricing condition for all our potassium-related specialty plant nutrients have also benefited this business line.

Regarding iodine, the higher revenues achieved for segment -- both the increase in volume, as well as the strong recovery of price. So, we expect the fourth quarter of 2005 volumes to be higher than the fourth quarter of 2004 -- between 7 to 10% and prices increase between 4.5 to $5.5 per kilogram. Demand continue to increase, mainly driven by the liquid crystal display and (indiscernible) conscious media and biocides. Regard the lithium, I expect the sales volume for fourth quarter 2005 should be lower than fourth quarter of 2004 and price significantly higher than the fourth quarter 2004. Thank you very much.

Thank you Mr. Contesse. Operator? We may now go to Q&A session.

(OPERATOR INSTRUCTIONS). Francisco Errandonea, Santander.

(indiscernible) regarding the capacity increases? And the first one is related with the CapEx plan. Year-to-date CapEx has went $130 million and in the last quarter (indiscernible) $250 million. Does it means that we are still some of the less in the capacity expansions? Or there will be huge investment in the last quarter of the year?

This is Ricardo Ramos speaking. We expect the fourth quarter total CapEx will be very high. It means that the total investment in portfolio will be higher than the average of the first three quarters of the year, but probably the total investment in the year will be lower than 250 and some of the expenses related to the CapEx will be delayed to the first quarter next year. We are not expecting to delay the projects, but some of the expenses related to the projects will be accounted during first quarter next year. That's why we think it's reasonable to expect that total CapEx for the full year will be something between 210, $230 million and some delay to first quarter next year.

And capacity expansions are on the scheduled plan then?

Yes, yes. And the schedule, as you know, we said we expect to be iodine capacity -- full iodine capacity according to our original schedule at the beginning of next year. We expect to have nitrates capacity in second have 2007 and we expect to move forward to the lithium from 2008 onward.

(OPERATOR INSTRUCTIONS). Cesar Perez-Nova, Celfin Capital.

In the Specialty Plant Nutrition segment, we saw a slight drop in sales volumes, but better revenues as you as you switched from field fertilizers to water-soluble fertilizers. I would like to know if this is something that we should expect going into the next few quarters of the year?

We see, in the last quarter, sound recovery in the volumes. There were some of the volume moved from the third to the fourth quarter. But anyhow, will be slightly lower than we were expect. But, during next year, due to the constraints in production, we see more or less the same volumes, but a change of mixture, in terms of going more to specialty in terms of water-soluble and gradually being less in 50 plus, plus looking forward for market of better returns. And also, we see in a scenario, as we said now rich pricing from next year better than this year.

(OPERATOR INSTRUCTIONS). Ms. Pavez, at this time, you have no additional questions.

Okay, thank you all very much for join us today and we hope to have you with us in the next conference call. Good-bye everyone.

Ladies and gentlemen, thank you participating to this conference. This concludes the presentation. You may now disconnect. Have a good day.