智利化工礦業 (SQM) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the SQM Second Quarter Earnings Conference Call. My name is [Ann] and I will be your coordinator for today's call. As a reminder this conference is being recorded for replay purposes. At this time all participants are in listen only mode. (Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Mr. Mark Fones, Vice President of Finance and Investor Relations. Please, proceed, sir.

Good afternoon, everyone. And welcome to SQM's first half 2012 earnings conference call. For your information, this conference call will be recorded and is being webcast live. You may access your webcast later on at our website www.sqm.com.

Joining me today as speakers are Eugenio Ponce, Senior Commercial Vice President and Ricardo Ramos, CFO.

Before we begin, let me remind you that statements in this conference concerning the Company's business outlook, future economic performances, anticipated profitability, revenue, expenses or other financial items, anticipated cost synergies and product service line growth together with all statements of our historical fact are forward looking statements and that term is defined under federal securities laws.

Any forward looking statements or estimates reflecting the adjustment 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 affect the accuracy of such forward looking statements are identified in a public filing made with the Securities and Exchange Commission and forward looking statements should be considered in light of those factors.

We are pleased to announce that SQM posted strong results during the first half of 2012, earnings totaled $342.2 million or $1.30 per ADR an increase of 40.5% with respect to the same period in 2011.

Furthermore, gross margin reached $531.9 million, 43.9% of revenues and 33.9% higher than the amount according -- during the first half of 2011. Revenues totaled $1.2 billion for the first six months, representing an increase of 17.6% over what was reported in the same period of 2011.

We also announced our year over year earnings increase of 45.4% for the second quarter of 2012. Reporting quarterly net income of $192.2 million.

Gross margin for the second quarter reached $295.7 million, 41.1% higher than the amount recorded for the same period of 2011.

Revenues total $683.3 million, an increase approximately 23.9% with respect to the second quarter of 2011.

Our first half 2012 results were response to increased margins in all of our business lines when compared to the first half of 2011 our potassium, lithium, and industrial chemicals business line showed volume growth while the prices continued to increase for our iodine and specialty plant nutrition.

Operator, we may go now to Q&A session.

(Operator Instructions). And our first question comes from the line of Fernando Ferreira with Bank of America, Merrill Lynch. Please, proceed.

Hi, I have two questions actually. First one, it seems that the premium of the SPN division relative to potash has been increasing lately. And I would like to know if that's the case and if so, if you can tell us where those premiums are today and why they have been increasing lately.

Yes, that is correct. Mr. Ponce speaking. SPN products has been increase the price this year compared with last year around $50 and this has been because the markets accept this and also we increased our prices of potassium sodium nitrate in Brazil and we signed several contracts there with premium price compared with last year.

That has been the increase on prices of specialty plan.

And do you expect this premium to be maintained going forward? Are you going to increase more?

We believe this premium will be maintained in the short term.

Okay, thank you.

And then, my second question would be on lithium. I'd like to understand a little bit better what's your strategy going forward in the market as SQM is nearly running at full capacity in your plant. So I'd like to understand better your strategy for pricing, if you're going to follow price increase going forward and also regarding the consolidation that we have been seeing in the sector in the past few weeks.

We will keep our current business strategy in lithium. As you have seen in our press release, our prices increased in 2012 compared with 2011 around 10%. However, we see that in the short term prices to remain stable.

Now, we are of course the demand of lithium, as you know, is expanding, is improving year by year. Therefore we are already starting expansions in our production facilities that we will announce in the near future.

Okay, great. Thank you.

And our next question comes from the line of Giovana Araujo with Itaubba Please, proceed.

Hi, good afternoon. My first question is on iodine. What prices do you expect until the end of the year and for 2013? And can you give us an overview of the whole market supply situation and what you believe will be the structure prices going forward?

Yes. We see the prices will remain stable for the rest of the year and most probably also for next year.

We see that demand is still growing and is growing more and less at the same pace that in the last years even we see a little bit recovery in certain market, in certain uses for iodine next year that were below this year. So demand could grow a little bit more next year than this year.

Now, as you also know, there are some newcomers that we were publically announced that they will come in the market -- mainly they're coming now in the second semester and also I think it was in the previous conference call also was mentioned by SQM. So they will capture part of this growing demand.

Okay. And my second question is about potash, what do you expect in terms of volumes for the -- deliver volumes until the end of the year and how do you see the demand on potash market globally over next 12 months, considering the situation in Asia, prospects for Brazil purchase and also the situation in the US market?

Well, in potash we actually -- we are very small producer of potash. We just follow the big one and regarding prices. Now, regarding volumes, we see that this year demand will be lower in general terms than last year and we are following what the big producers are doing and we're mainly selling in the surrounding countries. We sell very few in Asia, very few tons in Asia and we concentrate with our small volumes in the surrounding countries.

Okay, in that context, do you expect some decrease in prices? Stable prices for the next -- for the rest of the year?

We expect the prices, for us, will remain stable for the rest of the year.

Okay, okay, thank you.

And our next question comes from the line of Juan Tavarez with Citi. Please, proceed.

Hi, thank you. Two questions for me. I mean first to get a little bit of your view of what you're seeing today in terms of demand from Brazil for fertilizers. If you can maybe give us some insight of how you're seeing those customers. How's kind of the inventory situation in Brazil and the dynamics there of accepting these premiums in SPM prices and potentially for potash?

In Brazil for our SPM products, we have seen a bit of good demand. We have a new association in -- with a French company, Roullier, it's called SQM VITAS, that is working mainly in the northern part of Brazil where we build a new plant. Therefore, we have with several agronomists that work this new joint venture a very high reach in a sense that we can call to many, many customers that we didn't have before. Therefore, our sales in that market is increasing.

Now, regarding MOP, we -- I mean the situation is that there were some announce of price increases by the suppliers of MOP, that really we haven't seen. But those price increases, therefore prices have remained as stable as they were before and we think for the second semester that would be the case, might be wrong we think that.

And regarding your strategy where you're expecting to sell 50% of your potash in granular form, what's the eventual target? Is it to reach much higher than that? Do you have a target for 2013 of maybe reaching 60% or 70% or is 50% kind of your cap at this point?

Yes, actually our target is to increase above 50%, maybe 60%, 70% as granular and that's why we made the investments. The investments are there, we have a very good quality today and it has been accepted by the clients. Also was going to startup period of any new plants and now we are selling with a very good quality and therefore our target is to go to 60%, 70% of all our MOP sales will be granular.

And could you give us some insight on the difference in pricing of granular and standard? In terms of premium or ...

Well, of course. If you have a standard product you have to go to countries like China, India, Europe. You have granular approach you can go -- I mean from Chile. You are a Chilean producer, okay? You can go to neighboring countries like Brazil, Peru or the lower Mexico, Argentina at a premium price compared with China, India, Europe when they buy standard. Therefore, that can give us an average increase of margin of $50 granular compared with standard.

Okay, perfect. And just my last question, could you tell us what current spot prices are for iodine?

I usually say look up our prices, but you can see it in the press release, I think.

So spot prices are close to [$55]? Is that the response?

I don't want to insist but we prefer not to comment about prices.

Okay, thank you very much.

(Operator Instructions). And our next question comes from the line of Tim Tiberio of Miller Tabak. Please, proceed.

Good afternoon, thanks for taking my question. My question, I guess, is regarding SPM volume recovery in the second half. Obviously you've been realizing higher prices with the better product mix, but in the first half you had been highlighting some issues in key end markets, particularly in this fruit and vegetable markets in southern Europe and also Mexico. Have you seen any material improvement in those markets since you last reported?

Okay, we have a -- if you can see it in our information we sent to the market, but second quarter has been better than first quarter. That's first statement I want to make. Now, we see that in certain market there will be certain recovery, mainly Mexico for instance and we see that second half of this year will be slightly better than second half last year in terms of volumes. In terms of prices, stable prices.

Okay. And then on the industrial side of the business. Can you perhaps give us an update on how some of these solar cell projects are going? It seems like you saw a nice sequential boost within that segment. Is that primarily being driven by the implementation of some of those projects in the flow through back to your business?

Could you repeat the question, I didn't -- I don't want to have any misunderstanding. Can you repeat it please? The question? I didn't get the last part of your question.

The last part of my question is just are you seeing demand pull through from some of these solar cell projects that you've been talking about? You've obviously seen a nice sequential improvement quarter over quarter in the industrial segment. Just trying to get a sense of where that's coming from and whether that will continue in the second half.

Okay, yes, the solar cells will continue in the second half and it would be better than in the first half of this year.

Okay, thanks for your time.

Ladies and gentlemen, with no further questions, this concludes today's question and answer session. I would now like to turn the call back to Mr. Mark Fones for closing remarks.

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

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation and you may now disconnect.

Have a good day.