智利化工礦業 (SQM) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SQM first-quarter 2008 earnings conference call. My name is Michelle, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today, Mr. Patricio Vargas, Vice President of Finance and Investor Relations. Please proceed.

Thank you, Michelle. Good morning, everyone, and welcome to SQM's first-quarter 2008 earnings conference call. For your information, this conference call will be recorded and is being webcast live. You may access the webcast later on at our website, www.SQM.com.

Joining me this morning, our speakers are 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, futures and earnings performances, anticipated profitability, revenues, expenses, or other financial items, anticipated cost synergies and products for service line growth, together with other statements that are not historical fact, are forward-looking statements as such term is defined under federal securities laws.

Any forward-looking statements are estimates reflecting the best judgments 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 filings made with the Securities and Exchange Commission and forward-looking statements should be considered in light of those factors. I now leave you with Patricio de Solminihac.

Good morning, everyone. I would like to thank you all for taking the time to join us today. I want to briefly go over the key indicators and highlights from the first quarter and then we will go to the Q&A session.

Beginning on slide number 2, we can see that our revenues for the first quarter grew 37.6% with respect to the first quarter of 2007, totaling $336 million.

The biggest revenue drivers this quarter was our Specialty Plant Nutrition segment. Revenues in the SPN business grew 66% compared to the first quarter 2007 revenues. And total sales increased over 90%. In the SPN business, while we did record higher sales volume during the quarter, the most important effect comes from pricing.

Potash producers have been announcing record high prices this year, which have a direct impact on the potassium chloride we sell to third parties as a commodity fertilizer. Additionally, since we sell potash-based Specialty Plant Nutrition, the pricing benefit for SPN extends to most of this business line.

We should also mention that since the price of our agricultural-grade nitrates are related to the price of our industrial-grade nitrates, the good news in fertilizer's prices translates into good news in our industrial chemicals segment, where revenues increased nearly 23% over the first quarter of 2007.

In our other core businesses, [tendencies] have been more moderate compared to the 66% growth in SPN. But we still saw revenues grow of nearly 16% in our iodine segment. After finishing 2007 with a slight decrease in revenues in this business, in the first quarter, we recovered some of those sales volumes. Some of the volume increase is explained by sales to North America and Europe, where demand for iodine to be used in iron derivative has been growing.

In lithium, even though we saw a revenue decrease, our outlook is more positive than it was six years ago. Although, we still expect total revenues for the full year to be slightly lower than last year. We have been talking about growing supply from Chinese producers for a while. What remains to be seen is when the bulk of the new volume is going to enter the market and to what extent our own volumes and pricing will be effective. If these producers come out short, we certainly have the reserves and the capacity to keep up the slack and meet the growing demand for lithium.

Moving on, in the operating income on slide number 3, we recorded an increase of nearly 47% in the first quarter. We were able to achieve this substantial increase because of the solid revenues performance, which more than offset the increase in cost that we faced during the quarter.

High production costs continue to have an impact in all of our product lines, and the most significant cost increase continues to be energy, raw materials and peso-related costs. Energy prices continue to climb and the corporation for the first quarter of 2007 is even more pronounced because in early 2007, we were still receiving some natural gas from Argentina, whereas in 2008, our energy supply has come from more expensive alternative fuels, which in turn, have sharply increased since first quarter 2007.

Most or all of our raw materials also continue to increase, and the application of the Chilean peso during the first six months of the year has affected both production costs and selling and administration expense.

I will finish up this interaction with slide number 4, where we can see that net income grew nearly 51% compared to the first quarter of 2007. The increase in our bottom line was due to the combination of our selling operating result with the lower non-operating loss for the quarter as compared to the first quarter of 2007.

On slide number 5, we have summarized what we believe are the two factors that should have the most significant impact on our 2008 results, fertilizer prices and production costs. In 2008, we expect to deliver a significant increasing result, largely better [aligned] by the world's fertilizer price. In the first quarter alone, we have already achieved a considerable price increase. And we think the supply and demand from [the momentum] in this market give us good reason to be optimistic about our prospects for the rest of the year. Thank you very much. Michelle, you may now go to the Q&A session.

(OPERATOR INSTRUCTIONS). Cesar Perez.

Congratulations for your outstanding first quarter. You've got very strong Specialty Plant Nutrition revenues in quarter one. I just wanted to understand a little bit the effect on the transportation effect. The shipping volumes that you had in the fourth quarter of the year and how that translated into the first quarter of 2008.

I'm sorry, are you referring to the product that we are keeping the first quarter regarding originally related to the second quarter? Or you are referring to the transport costs, the shipping costs, I mean -- the bold transportation costs?

I'm referring merely to the volumes.

We're not hearing very well. You said volumes?

I said volumes, gentlemen. Yes, please.

No, what we said is there are two effects. One effect is that some volumes that were supposed to be shipped at the end of last year were moved to this quarter, this year. And some volumes also that were supposed to be shipped in the first quarter will be shipped in the second quarter. So we don't see such an important effect on the production for the year.

What we have to remember though is that as a total volume on the Specialty Plant Nutrition segment 2008, we expect that the total volume will be less than the total volume of last year.

Okay, thank you. Understood.

Emilio Andrade.

A couple of questions here. I wonder if you could tell me how much lithium production coming out of China are you expecting for the year?

Secondly, having such a positive crisis scenario in the fertility business, I would like to know how have price negotiations gone? And how do you think price negotiation for potash and Specialty Plant Nutrition should be during the year? I wonder if there are changes in your forecast for 2008.

Also like you said before, volumes for a special [kanichav] could be lower than in 2007. So I would like to know where are we going to see that in the results? For the next quarter? In the next three quarters? Okay, that's all. Thank you.

Starting with the last question, regarding the volumes in SPN, as I said before, we expect less volume this year than last year, which was something that we originally planned that way because of production constraints. And we expect that that will be even during the year. We don't see any specialty situation in any quarter.

Regarding the lithium volumes, we really have to see what really happened in China. Originally we were expecting more volumes start coming out of China during the first quarter, but as far as we know, they have been affected by the strong winter. So it's difficult for us to have a clear, exactly clear view, how those new volumes will come.

I think that in the next quarter so, we will be able to see the amount of business that they will start attributing during this year. We are planning, as you know, our expansion in our lithium carbonate plant in [Antuberessa], but it should be ready in June. So we are prepared to respond to any situation or additional growth in the market.

Regarding the second question is the price of potassium chloride. As everybody knows, the most important negotiation of the potassium chloride, the producer in China was already settled, and this was a $400 per ton increase. I think that set the tone for the rest of the year. We, of course, as a minor producer of potassium chloride, are following what is going on in the international market.

What about in Specialty Plant nutrients?

Well, Specialty Plant nutrients, as we also tried to explain before, they are potash-related, Specialty Plant Nutrition, so it means that will also follow what is going on in the potash prices.

What we're trying to do is not upset prices for longer-term contracts. We're trying to go over it on what is going on in the market. There are situations where sales need to be done in one job like [Tabaquay Lucille], but all the rates we're trying to sell with the spot market.

Okay, thank you. But there are changes in your forecast after price negotiations between [Lutiana] and India or in the negotiations, that one before and after?

Well, we knew that the price of potassium chloride in China needs to increase. Of course they will lag behind on the international price because of last year negotiations. We didn't know exactly how much it would be. So of course we are following with what the market is doing. And this has been better than our original creation.

Okay, thank you, and congratulations on the results.

(OPERATOR INSTRUCTIONS). Francisco Errandonea.

Congratulations on the results. I actually have three questions. The first one is related with the Specialty Plant Nutrition business. Can you give us a guidance on how much prices in that area increase? Are we talking about a 50% increase, a 20% increase? More to know in what range prices are [just passing] the higher April [dash] prices.

The second question is also if you can give us an update on the Chinese lithium situation. If you have seen an increase in production from China lithium. And especially if you are expecting that Chinese lithium production should increase looking to year end?

And the third and final question is related to your CapEx for 2008. Recently you announced that you are going to use some CapEx for exploring in your current territory. Has this changed the CapEx range for this year or no?

Thank you for your questions. Regarding your first question, prices in SPN, we have seen the first quarter -- as compared with the first quarter of last year, prices increased over 50%. And while the rest of the year will depend on what happens with the world market, as I've tried to say before, we are trying to following the national fertilizer prices.

Regarding the Chinese situation for lithium, we commented before that during the first quarter, we didn't see much else we expected before of additional production from China, mainly because of the strong winter. But we continue to believe that there will be more production.

Now, the bulk of the new production is what we do not have a clear understanding when that will be on the market. But for sure, in our estimate, during 2008, there will be more production coming from China in lithium. That in our opinion is for sure.

Regarding our CapEx, we continue to estimate our total CapEx in the range of $300 million. And then regarding what was commented in our [expiration] imports for metallic products in our mining rights, this is a minor program that we plan to spend in the range of $3 million or less. So that will not affect the total CapEx by any means.

Thank you very much.

At this point there are no further questions. I will now turn it back to Mr. Vargas for closing remarks.

Thank you, Michelle. Thank you all very much for joining us today and we hope to have you with us in the next conference call. Good bye.

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