智利化工礦業 (SQM) 2014 Q4 法說會逐字稿

Good morning and welcome to the SQM 2014 earnings conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Gerardo Illanes. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to SQM's fourth quarter 2014 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 today our speakers are Patricio Contesse, Chief Executive Officer and Ricardo Ramos, CFO.

Before we begin, let me remind you that statements in this conference concerning the Company's business outlook, future economic performance, anticipated profitability, revenues, expenses or other financial items, anticipated cost synergies and products or service line growth, together with all other statements that are not historical facts are forward-looking statements as that term is defined under federal securities law.

Any forward-looking statements are estimates, reflecting the best judgment 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 our Chief Executive Officer, Patricio Contesse, for brief comments before we move to Q&A.

Good morning and thank you for joining the SQM fourth quarter earnings conference call. I will start with a brief introduction before we open up the line for questions. Tuesday evening we posted out results for 2014. Earnings for this period reached $296 million lower than the amount seen in 2013. Revenues totaled just over $2 billion, down approximately 9% when compared to 2013.

For the fourth quarter, we reported net income of $78 million, an increase from the $69 million reported during the same period of 2013. The stronger results during the fourth quarter were impacted by our cost saving efforts. The success of this effort (inaudible) our EBITDA margin. Our fourth quarter 2014 EBITDA margins increased to 36.9% from 35.5% when compared to the same quarter of 2013. This increase (inaudible) despite lower prices in iodine, nitrate and lithium. We worked diligently all year on cost reduction and specifically decreasing cost of potassium chloride, nitrate and iodine.

Since releasing our earning on Tuesday, we have received many questions surrounding the iodine mark. In 2014, iodine prices fell significantly and we expect lower prices in 2015. However, as the lower cost producer of iodine, we are extremely well positioned to face this challenging environment. The market continued to grow about 1,000 metric tons per year, and we will work in the mid-term to regain a market share of around 30%.

During 2014, fertilizer markets were positive. We estimate that lower demand in the potassium chloride market reach approximately 60 million tonnes. We also saw some price recovery in this market during the second half of 2014. While there is some uncertainty surrounding the 2015 commodity fertilizer market, we expect our sales volume in potassium chloride and potassium sulfate business line to remain relatively flat in 2015 when compared to 2014. In potassium nitrate, we saw sales volume increase approximately 4% during 2014 when compared to 2013 and we expect to see even higher growth in 2015.

We see positive growth in the lithium market in 2014 and our sales volume were up about 10%. We're currently seeing positive pricing momentum in the lithium carbonate market and are hopeful that this will continue throughout the year. As we move into 2015, we look forward to maintain lower cost and remaining well positioned to move quickly to meet any changes in market demand and market dynamics in all of the main businesses, which we sell.

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

(Operator Instructions) Ben Isaacson, Scotiabank.

This is Carl Chen stepping in for Ben. Thanks for taking my questions. So can you talk a little bit about the progress on your cost saving plan and what are the other potential cost saving opportunities have you identified? And just secondly, you mentioned about getting back to that 30% market share for your iodine business. Can you please give us some color around that? Thank you.

Okay, first of all, about costs, we reduced last year cost in the range of $130 million. Of those $130 million, about $50 million were related with the exchange of Chilean peso that became weaker compared to the US dollar. During this year, we expect to lower $40 million more over the $130 million. Of that we estimate about $50 million will be related with the value of the Chilean peso compared to the US dollar. So we think we will continue to diminish our cost even further than what we have already obtained. Regarding iodine, since about two years ago, we have made known to investors and analysts and market that we're looking forward around to be in the 30% of the world market. We are today in the range of 26%, so still we have some room of market share to get.

Giovana Araujo, Itau.

My first question about CapEx, how much do you expect to spend in maintenance and expansion in 2015?

We decided last year to have a CapEx program for two years for $300 million. Last year we make investment in the range of $115 million so there are payments that have still not been done that count from 2014 to 2015, but that is overall what we think that we will invest during these two years, so this year we'll be in the range of $180 million.

Most of the investment is related with maintenance CapEx, but also, some of the investment that are significantly and important are related with increasing quality of our product, improvement process that -- it will permit us to reduce our costs. At this stage, we don't need -- we don't see the need to increase production capacity.

Okay, thanks. And the second question is about iodine prices. You mentioned you're expecting lower prices in 2015. What level of decline or drop do you expect for 2015, should be in the range that we saw in 2014 or probably something lower than that, right?

Well, in the iodine, there are going on a lot of things, because we think first that the current prices are affecting some of our competitors. So it will depend much on what happens to them in the market to know -- to have a better reference, related to what prices, how much could decrease. If they maintain the production, our current competitors, even though they are suffering, and we think some of them even losing on a cash point basis, we think that the volume -- the prices will go down in the range of 10%. If there is some reaction in the market then it could be lower than that.

Okay, thank you.

Cesar Perez-Novoa, BTG.

I have a set of questions here. Could you provide some guidance for the potash demand in 2015 and how that would affect your product specifically on the volume side? And regarding the premium side of the fertilizer business, I'm talking here about specialty grade nitrates, what is the indication for the pricing outlook in the middle to long-term? If that could be provided that will be really helpful. Thank you.

Regarding potassium, last year was -- demand was exceptionally high. We have estimated this year will be lower than that. Last year it was [60, 61] and this year maybe [59 or 58] in that range, but that should not affect our volumes, because here we are very small producer and we sell what we produce and that has been since we are in this market. So the less volume that could be demanded during this year, it should not affect our volume sales for this year.

Regarding potassium nitrate, have been a different line compared to what the prices of potassium nitrate has been. That is due that -- go for different markets, different [mixtures] that are not related with potassium chloride. So we see a scenario that we'd continue to increase volume or prices, so we think that is going to be relatively flat.

All right. Thank you, gentlemen.

Alberto Ariztia, Santander.

Patricio, could you please explain us what happened last year in the iodine business that volumes didn't grow and you said you plan to gain market share, if you have capacity problems or with current prices, do you plan to expand your production slower? And secondly, regarding your potash production capacity, I have understood that you have 2.3 million tonnes capacity, in which levels did you produce last year and in which level do you intend to be this 2015? Thank you very much.

First of all, iodine, we had a very strong first quarter in 2013. But if we look at the other quarters, compared to the quarters of 2014, we think we gained some volumes, but the -- it is not seen -- if you take the year completely, because the first quarter of 2013 was very, very high. If you take that quarter out then we increased volumes.

Regarding the production in Atacama Salar, we are in the range of 2 million metric tons, so we will continue to be in that range, because we have looked forward to produce a little bit more SOP, and when you produce a little bit more SOP, it goes against MOP, but you earn more money making more SOP.

Perfect. Thank you very much.

Andrew McCarthy, Banchile.

I just wanted to ask on the lithium business. Just, firstly, if there was an update on the dispute with CORFO, and then also if you could just expand a little bit on why you won't -- you are not looking to increase lithium volumes this year?

Well, the market of lithium is quite strong this year. We are slightly increasing prices and probably we will increase some volumes too compared to last year. (technical difficulty) CORFO we are in the arbitrage process and so it's not too much that we can say there. We feel relatively -- not relatively -- we feel quite confident that we should be finally in a positive position.

Okay, thanks.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to SQM management for any 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.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Take care.