智利化工礦業 (SQM) 2005 Q4 法說會逐字稿

Good morning everyone, and welcome to SQM Fourth Quarter and year 2005 Earnings Conference Call. [OPERATOR INSTRUCTIONS] You may follow the online presentation we will be are viewed this morning by accessing the cast and our website,www. SQM.com Joining me this morning as speakers are Mr. Patricio Contesse, Chief Executive Officer, and Patricio de Solminihac, Executive Vice President and Chief Operating Officer.

Before we begin, let me remind you that statements in this conference concerning the company's business outlook together with other statements that are not historical facts are forward-looking statements. Any forward-looking statements are estimates reflecting the best judgment of SQM based on currently available information and involve a number of risks and uncertainties and other factors that could cause actual results to differ materially from those stated in such statements. I now leave with you Mr. Patricio Contesse.

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 define the year 2005.

So going to Slide Number 2, we can see here that in this first slide, you can see the evolution of our revenues and net income in the fourth quarter. In both charts you can clearly appreciate the upward trend that we have achieved. Maintaining the trend of our improving results in the last 19 quarters in relation with the same quarter of the previous year.

Year-over-year, fourth quarter revenues grew approximately $214.9 million, which 18% higher than the fourth quarter of 2004, and net income increased 44% as compared with fourth quarter last year. Next slide. Slide Number 3, you can see the evolution for annual consolidated revenues and net income through the years 2003, 2004, and 2005. We're having increased revenues, 15% and net income by 53% during 2005, as compared with the previous year. We reported consolidated revenues for the year 2005 in the amount of $895.6 million.

In a specialty plant nutrition business, the revenues during the year 2005 are main influenced by the recovery in prices that more an upset slightly lower sales volume. In the iodine and lithium business, revenue are mainly explained by the better price conditions and higher iodine volumes as compared with 2004. Strong net income with an increase of 53% last year, presents an important challenge to us in order to continue with the positive trend during 2006.

On the next slide, Number 4, we can see the operating income and EBITDA evolution 2003 through 2005. As you can see SQM is generating strong operating income, the outcome higher prices, new products and the effort made by SQM to contain the pressure on costs like energy, exchange rate, raw materials, et cetera. Prices in special plant nutrition increased between 15 to 25%. Iodine price increased close to $4 per kilogram, and lithium carbonate prices were significantly higher than 2004.

Year-over-year EBITDA grew approximately 35%. This growing cash generation, which would allow us to final most of the CapEx program over the next two years, obtaining our financial indicators at a healthy level.

At a summary revenue in 2004, 2005, we observed better price condition and growing demand in all our core business, and we expect this [inaudible] to continue during 2006.

Okay, Operator. Now we may go to the Q&A session.

Thank you, sir. [OPERATORS INSTRUCTIONS] Your first question comes from the line of Francisco Errandonea from Santander.

Good morning. I have one question and it'll relate with the position of the DSM operation, Chile, I would like to know if you can give us a little more detail about the economics of the transaction in terms of the total capital with regards for the acquisition, and looking forward, what do you expect to be the impact of this new operation in terms of the capacity that it will use, and do you expect any impact in the topline of the company.

Well, DSM was evaluated in $72 million, [inaudible] company in [inaudible] company Chile, we have [buy some assets they have], receivables, so that put the total amount of transactions slightly more than $100 million. The valuation was done, was unrelated to the $72 million, the assets that they did have. DSM has operations slightly more than 2000 metric ton of volume and we're selling that in the market. So one of the first analysis in the attraction that SQM has bought that part of the market, that should provide us the margins compared to the cost and the pricing of iodine in the market. Of course, we have to reduce, that's the depreciation and interest we had to pay for that money. On the other hand, they had a good, a very good mining side in the second region, called [agorta], that for us is a very important asset for our future program of exploration for pump or [inaudible]

Sir, your next question comes from the line of Ben [Kohnke] from [Stroders].

Good morning. Making a very simple comparison of average prices from specialty fertilizers, between the first half of 2005 and the second half of 2005, it looks like the average price per ton has fallen. Can you explain that?

No, we think the pricing are going in the right direction, we think that prices really prices [inaudible] were higher than first half of the year. It's important to consider that we report average prices of different products and what change from second half, if you compare it with first half, is the product mix, it means you sell different products that are pricing differently, but prices for the same products are higher during the second half as compared with first half and we think the positive trend continues during fourth quarter. That's why we feel comfortable about pricing conditions for 2006.

So what you're saying is that in the second half, there was a poorer mix than the first half?

We don't say -- we prefer not to say that, we say it's a different mix.

The first [inaudible] is always more volume is located in Europe, value or mix are more sophisticated, but at once, and also in the second half of the year, there are some [places ] in Canada, but clearly that market represent the low values of our products. But if we compare the product to product in terms of quality, the trend of pricing has continued to be positive.

So as we look into 2006, and bearing in mind your -- the mix issues that you're talking about, we should still see average prices moving upwards from the second half levels and from the full-year levels?

We think from 2006,we can see the pricing scenarios on average would be higher than 2005, but even though we think the increase will be much more than the rate that they were last year.

Okay. Great. Thank you very much.

Sir, your next question comes from the line of David [Kasias] from Business North America.

Yes, good morning. I understand SQM plans to increase production 30% over the next three years, I was wanted to know if you had an update CapEx figure for this period or the short-medium term?

Yes. We are working in the new CapEx, when you say 30%, let me remind you that we did increase iodine to 30%, we are finishing investment in order to reach the 30% increase, but we are going to do it during the next 2 1/2 years is the nitrogen increase close to 30%, we expect to be at the end of 2005, seven, beginning in 2008 with a 30% increase in capacity for nitrates, we expect increase our capacity lithium carbonates from 2008 onward. Our CapEx during the year 2005 was close to $190 million, for the year 2006, we expect the CapEx close to 210, $220 million, 2006, plus DSM acquisition, and for the year 2007, 2009 and the next three years after 2006, we expect an average CapEx program close to $200 million per year.

Okay, great. Just one other question. I know that SQM submitted a project to Region 1 environment authority [Crema] last month for an expansion project. Should this get approval in this half or this year, when would construction or planned operations begin?

It is according to our original schedule, we don't expect to have any delays regarding this environmental approval. And considering the environmental approval that we expect to get approval during this year, we expect is to be producing the nitrates as I explained to you before, at the end of 2007, beginning 2008.

Okay, great. Thank you very much.

Sir, your next question comes from the line of Victor [La Havederil] from Celfin Capital.

Hello, this is Victor from Celfin Capital. I'm just wondering about your new lithium carbonate induction plan, how much you can expect to produce this year?

Lithium carbonate production rate will be in the range of 27, 28,000 tons. Excuse me, lithium carbonate , lithium hydroxide will be in the range of 4,000 tons.

When do you expect to reach the 6,000 ton?

That would depend on the market. We designed a plan according to optimizing the investment for the size, but we expect to continue with the growth of the market.

Okay. Thank you very much.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of Cristian Ramirez from Larrain Vial.

Hi, good morning gentlemen, and congratulations on last year's results. I've got a couple of questions. The first one is a simple one, related to the short-term debt. I see that you have a short-term debt position of almost $290 million. And the considering the cash and equivalents position that you have at the end of the year, last year expected the [double-digit] would say you would be able to cover that position. My question is, are you planning to refinance that short-term debt position or that's not in your plans?

Yes, it is in our plan. As you may know we issued a long-term debt during January, we issued $100 million long-term debt in the Chilean market, very successful, was a very successful offering, and we expect to refinance the other $200 million that is mainly the long-term bond in the U.S., maturity December 2006, as expected, we expect to refinance these $200 million during this year.

But you're currently working on that?

Yes, we are looking for different alternatives now.

Okay. And the second question is related to the CapEx plan. You said that you were going to disclose the CapEx Plan from 2008 and on after this conference call. Do you have any schedule for disclosing the new CapEx plan?

Yes, Cristian, during next week I can give you or we can give more details about the CapEx framework for the period 2006 through 2009.

Okay. Thank you very much.

You're welcome.

[OPERATOR INSTRUCTIONS] Sir, at this time we have no more questions. I'd like to turn the call back to you for any closing remarks.

Okay, thank you everybody, and I expect having in the next conference call that we will have for the first quarter, 2006. Thank you.

Ladies and gentlemen, thank you for participating in this conference, this concludes the call. You may disconnect.