智利化工礦業 (SQM) 2006 Q1 法說會逐字稿

Good day ladies and gentlemen, welcome to the first quarter 2006 Sociedad Química y Minera de Chile webinar. My name is [inaudible] and I will be your coordinator for today.

[OPERATOR INSTRUCTIONS]

I would like to turn the presentation over to your host for today's call Mr. Ricardo Ramos, CFO. Please proceed sir.

Thank you. Let me remind you that statements in this presentation on certainly the company's business outlook or future economic performance, anticipated profitability revenues expenses, all the special items, anticipated cost synergies and product or service line growth to then [inaudible] statements that are not historical fact, are forward-looking statements. Our structure is defined on the Federal Securities laws.

Any forward-looking statements are estimates reflecting the best judgment [inaudible] based on currently available information and involve a number of risk, uncertainties and other factors that could cause actual results to defer materially from both the stated subject statements.

Risk uncertainties and other factors that could affect the [inaudible] forward-looking statements are identified in the public filings made with the Securities and Exchange Commission and forward-looking statements should be considered in light of those factors.

Patricio?

In this slide we can see the evolution of [inaudible] in the last few years, as well as the first quarters of the year 2005 and 2006. Year-over-year we have improved our works.

Specifically in view of this first quarter 2006, the 4.5% increase is mainly explained by better price condition in all our three core business.

During this quarter, Specialty Plant Nutrition's business line was mainly affected by lower sales volume and delays in shipments. But the situation was partially offset by better prices condition. We expect the SQM total sales volume for 2006 would be similar to the last year.

Regarding Iodine the higher revenues achieved reflect both increase in volumes as well as the strong recovery of prices. It is important to consider the possible effect of the DSM Iodine business acquisition in February 2006.

And finally regarding Lithium, higher prices, more than offset lower sales volume.

Moving to slide number three, you can see the evolution for iodine and [inaudible]. In this slide you can clearly appreciate the [inaudible] time that we have achieved in this year the [timing] the trend of improving our resource every quarter in relation with the same quarter of the previous years.

Again, after the last positive years, the 38% increase in net income for the first quarter 2006 is due to better prices environment and growth of our three core business.

On the next slide number four, we can see operating income evolution, for the last few years and the first quarter 2005 and 2006. As you have seen during the last three years, we have reached an important increase in operating income.

The 38% increase during the first quarter was basically interacted by better prices in all three core business. Specialty Plant Nutrition, Iodine and Lithium and an increase in Iodine sales more.

All this was partially offset by lower sales volume of specialty plant nutrients, higher cost of energy, raw materials and favorable exchange rates [inaudible]. Moving to slide number five, you can see that evaluation for the year 2003 to 2005, as for the first quarter 2005 and 2006, you can see [inaudible] rating strong cash flow. We use the logical outcome of higher results.

First quarter we have had approximately 30% compared with the first quarter 2005. It is [inaudible] that will allow us to find most of the CapEx present for the next few years maintaining our financial indicator [inaudible].

Okay, now we can proceed to the Q&A. Thank you.

[OPERATOR INSTRUCTIONS].

Your first question comes from the line of Francisco Errandonea from Santander Investment.

Good morning and congratulations on the results. In the press release it is mentioned that in the next quarter cost will be affected by [inaudible]. If you just -- do you have an estimate of how much has been [inaudible] as [inaudible].

I should say that we always say that we have recent information regarding Gas [inaudible]. So everybody know that Gas has been affected the supply because of the situation we have in Bolivia. We had been in -- during April, in the range of 82% approximately cut off today, well, at the range of 50%. Exactly, how much this will end, we don't have formally. Everything looks like not tend to normalize but as [inaudible] have been explaining in the presentation of the company, every month we have 100% cut off, recently in the range of $1.5 to $2 million more expenditures.

At the moment, in April, we have about 22 days in the range of 80%, slightly more than 30 days, about 16 days and now this normally we have 50%, we expect, but kind of [inaudible] 100% of that in the next 16 days that should be normalized.

And [inaudible].

We have three utilities, first is Gas, then we have a chance of using Diesel, back in the last year we have -- we have divest in the capability of [inaudible], number six.

There is much division that is I between. The Diesel and the Gas, of course. So now we are burning [inaudible] that is much less expensive than this. We have about 80% of the top installation that use Gas and the capability of using [inaudible] instead of Diesel, we hope at the end of the year we should be nearly 100%.

Thank you.

You next question comes from the line of Cristian Ramírez from LarrainVial.

Cristian Ramírez: Good morning gentlemen and once again congratulations on your report. I have got two questions and the first one is related to prices. As you don't show prices or that is the product line on the first quarter of release. Could you please give us an explanation of -- some kind of detail on how prices are behaving because you said, for example in the case of Specialty Plant Nutrients and that they're in the rate of 10 to 15% higher than the first quarter 2005? Could you please give us some detail on what that mean for all your main three product lines?

Well, we have regarding the prices, we had price [inaudible] today that's done in the [inaudible] in the line of 10% to 15% of success. But we expect for the next year -- for the rest of the year to be a flat situation pricing with regard to [inaudible], the average [inaudible] in the year would be higher compared to last year.

But we don't see the current situation of the market of price. And we'll continue to grow in this area compared to the first quarter 2006.

Regarding Iodine, we're increase the first -- first quarter, slightly more than 20%. We think that Iodine should continue to grow pricings not in the same pace but continue to grow price at the end of that, till the end of the year. And the case for Lithium also we have in the range of 40% increase, only 5%. We'll continue to see those with a lower pace or rate, slower rate of increasing prices. But still continue to grow at the end of the year till the end of the year [inaudible].

Cristian Ramírez: Sorry you said 40% for Lithium?

In the first quarter. And the first quarter last year.

Cristian Ramírez: What that means is that Lithium is roughly is close to 4,000 for the time being? [inaudible] I mean, I don't mean that the contract prices are [inaudible].

We don't plan it. We don't have that average price.

Cristian Ramírez: Okay. Okay. And second question is related to your cost increase because I see that your costs are remaining flat with relation to the first quarter last year. But I guess about your volumes were lower, your cost per product sold was higher. Is that only explained by the appreciation of fuel and petrol or there are other factors increasing impacting stories like diesel, raw materials and other stuff.

And if that's the case can you please explain what's the impact that each of those categories are having on your cost structure?

Well, I think there are two main factors whereas the energy cost. And we have categorized let's say on the energy cost in three areas. The one is for heating and that is the gas. That is related to the risk of Gas, I think I've explained before.

Cristian Ramírez: Yes.

Just using gas is and the line is $10 million. That could be high if gas doesn't stop. And there is I think, is already explained. Then we have electricity. We have long term contract. They're in arbitration. So we're shifting the same energy price the last year. And that is in the range of 16 -- $30 million. $30 million, excuse me.

Cristian Ramírez: Sorry to interrupt. Are both of your, your contracts with both in North Canada and [inaudible] on arbitration?

We have arbitration with both of them

Cristian Ramírez: Okay.

The largest one is [electron beam] and the shortest [inaudible]. But with both of that $30 million [inaudible] energy that we -- it is just related to electricity. As today we're not paying more than what we used to pay last year.

Cristian Ramírez: Okay.

And then we have diesel that is in the range of $40 million. So and then it is related to our pricing in the range of $65 per barrel. So clearly today at $70 per barrel we're paying more than that. That's why we have 10% more [inaudible] than is 10% more use. It's 30% more. It's not exactly direct. But it's quite related to that.

Cristian Ramírez: Okay.

So the influence in that case. And then in the case of Chilean Peso. We have in revenue of $160 to $170 million today at Chilean Peso.

So clearly the exchange rate has affect that us anyone in Chile, [submissively] it comes that we have an average price of [inaudible] 530 the first quarter. Last year was 560. That means the [93% -- 9%] that's about it. And that is the distribution we have. And those two things have been the main factor that had affected our cost.

Cristian Ramírez: And for the time being are you currently hedging your exposure to [inaudible] as if? No?

No.

Cristian Ramírez: Okay. Thank you very much.

[OPERATOR'S INSTRUCTIONS].

Your next question comes from the line of Ben Laidler from UBS.

Hi, good morning. I just have two questions. Firstly, on the potential extra CapEx in 2007-2008 of 140 million, did you push ahead with that new CapEx schedule? Could you just maybe put some specific numbers on what that would mean in terms of extra capacity by product line?

And my second question was just on DSM, the acquisition. Could you give us a lot better way you're into the integration process what sort of capacity utilization those assets are running at? Okay, thanks.

Okay, Ben, in regard of speaking about the target of $140 million of additional CapEx that we're reviewing today. We expect to have better details within the next two quarters. We're working on that. We're on a specific CapEx program that is for year '06, to '07 and to '08 that is explained in the press release and it is explained in our filing to the SES locally, on filing to U.S.

And 140 something that we're working on this now. We expect to have the numbers in the next two quarters and the details.

About the DSM, about DSM of course we're working with DSM from 1st of January this year. We did precision. We're working very hard in order to put all that facilities working together. As you know we have facilities [inaudible], the DSM facility is really close to our own facility -- our facility into the first region. And we're working as a one company from 1st of January onwards. And we're working [inaudible] DSM and [inaudible] facilities. So far so good.

What's the capacity utilization of the DSM facility?

So far we're using the same capacity utilization as before [inaudible] close between [inaudible] that it does to [inaudible] per year.

Okay. That's great. Thank you.

[OPERATOR'S INSTRUCTIONS].

Sir, at this time you have no more additional questions.

Okay. Thank you everybody and see you next quarter. Bye bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the presentation. You may now disconnect. Have a good day.