Q3 2019 Earnings Call

Ladies and gentlemen, thank you for joining today's SQM conference call called we'll be getting momentarily. We do take you for your patience. If you do need assistance, while you're waiting please press star in zero to signaling operator.

Good day, everyone and welcome to the SQM third quarter 2019 earnings Conference call.

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At this time I'd like to turn the conference call over to Mr., Robert E. on it. So please go ahead.

Thank you good morning, everyone and welcome to rescue yet.

Quarter 2019 earnings conference call for your information. These cool these conference calls will be recorded.

Well go live you may access the webcast later on that were website.

Okay Yep go.

They should we got somebody up the results up beat up noted on our website <unk>.

It is also available on our website.

Joining me today Speaker East Ghazalat, Chief Executive Officer.

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And do that they see these corporate concerning the called Bonnie This is.

Peter but I'll be performance, a 50 basis, probably WD.

<unk> expenses or otherwise.

You bet the cost synergies.

Say it would be like grow together with all their statements that are not started golf balls are forward looking statement I stopped or fine on the fails it gives diesel.

Any forward looking statements are estimates, reflecting the best judgment based <unk> based on currently available information and he bought other appraised uncertainties and other factors that could cause actual results to differ but do you really don't fit any such statements.

Certain factors that could affect acuity such forward looking statement I didn't see fighting the public filings made with the Securities Exchange Commission a forward looking statements should be considered in light of those factors.

I now would leave you with our Chief Executive Officer.

Well <unk> before we booked acuity.

Thank you good idle good morning, I think people joining <unk> third quarter 2018, ending Congress school I will begin with some brief comments I know what their quota resource before opening the lines for questions. It gets a little along with the webcast presentation.

Turning to page three of the presentation, you will see a brief overview about what they're quite a resource where revenue for the nine month ended September 32018, pretty towables, what we'd probably be doing on our net income right just over 211 beat.

No worries on day 331 medium reported you didn't just Saint Pete you would last year were reported 33% adjusted EBITDA margins this quarter slightly lower when compared to previous quarters.

The next page you can see the main drivers at these lower results were primarily all where margins will be yes, the n. business like nobody needs comprises the lack of sort of source.

Dealing desk so quarter. These results were partially offset by how do you get average prices not you like business lines.

They do business line, they reported average prices seem to through quarter, where lower done don't see any dispersed how the year. He's was mainly due to the chain you in Chinese government subsidies to electric bagels market on high levels, hoping ventures combined with lower electric vehicle sales volumes, which resulted in delayed demand.

In detail market.

We also continued to see the impact of new supply, we Josh entered the market you didn't this year.

We are negotiating with fourth quarter sales hopefully on therefore, I cannot comment I know what price expectation for the next quarter. However, it's reasonable to expect <unk> fourth quarter average prices to be lower.

Long term outlook on legal market remains positive that's got bonds when I look at Pacific Spanish Argentina, we cheese.

She is on track to reach the I don't think yourself metric tons by the second hobbled themselves and 51.

We have also started work you know the engineering over the next stage I would leave from carbon you capacity expansion to reach I don't 60000 metric tons. We estimate to have these capacity online by the end of 2023 to support our wed expect that sales volumes grow.

I have seen bearings global markets condition affecting fertilizer industry, resulting in lower than usual demand grow well that's impacted markets. So increased competition I'm favorable weather conditions, because somebody that market is expected to grow only 1%. These here. So resold I watch sales volumes and prices this year I'd be negative.

Okay. That's it.

Going forward well feel positive about 1009 market returning to its usual growth rate, 4% to 5% next year I love, we thought you'd add capacity expansion will be also increasing it wouldn't make its capacity to support both worked United on solar salts market no well also believed that I would put that some toric sale.

Volumes will be higher next year, reaching approximately 800 than they had ordination I'd just south of that you've done or solar salt sales volumes are expected to be around had been a 50000 metric tons as we begin to supply the large contract in the middle East, we'd expect to see I'm more positive sales volumes Big <unk> next year I guess so.

Volume when you must be in lithium.

So I'm sort of source.

Okay, I will like tool, but now the lines for questions.

Ladies and gentlemen at this point, we'll open the lines for questions do you like to ask a question you may do so by pressing Star then one.

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Our first question today comes from Joel Jackson from BMO Capital markets. Please go ahead with your question.

Hi, Good morning, Ricardo Geraldo I have a few questions I'll ask them one by one.

Ricardo how do you see lithium inventory right now do you think that we're past the point that inventory accumulation or do you think they were gonna have inventory in <unk>, you mean lithium build across 2020, and what did ask three arms Raul and.

Emitting inventory accumulation. Thank you.

Yeah, because you've been circuit deal [laughter] first morning, John I think that's just reading the uncertainty out there decent price it seemed to medium term into short term I don't foresee customers, increasing dirty bent tree I think that they will try to be used dirty bent tree, that's what we expect.

You are doing today and they will do in duty next year. That's why I don't think is gonna be a knee shoot that the wouldn't try to come relating bench, we think that they issue will be that they will try to keep low even treat in terms of lithium differing chimps up the batteries because that makes it an industry when you put.

But you have to produce.

Hi, being on venture you about do you see in order to supply your customers.

That's a different picture.

If you make sell I don't foresee any accumulation adventure to you all the customers.

Okay. So we've seen I think low grade carbon into China cell for something like five in half dollars per kilo.

And.

And we've seen prices in Japan be maybe below 9000 on time so.

Where do you think is the marginal price right now the floor price and do you see some of the higher cost producers in Australia, and China in terms of the spodumene supply in the conversions by being rational yet or do you think we still need to see some rational behavior.

Chris I don't want to comment about the pricing they'll say I'd say mentioned before nowhere near the middle of negotiation with the pricing in the fourth quarter I'm, just starting to see sugar prices. What next year of course pricing for what it would be all were done third quarter horse average prices next year would be lower than D C or anything.

Oh, it's believed that everyone is rushing out in terms of what they're doing.

I don't know whether you like when I do you all the competitors, Australia I don't know what he is gonna be their reaction some of their reaction store their decisions a public knowledge.

Got it.

I think that everyone is rational everyone has their own forecast your old business model Ondeck tried to follow that business model that rationale.

I don't foresee I am I Crazy industry, I think that everyone is doing what they think it's the right thing to do.

Okay, and finally in potassium nitrate you talk about you know demand growth being 5% this year and moving back to kind of a mid single digit or low to mid single digit growth next year as usual why did the inflection point that's going to happen in the next few months, that's going to change from this low growth.

Scenario to now back to normal growth. Thank you.

I think that there was a very unique situations during 2018, especially the beginning of the year that affected the demand for this year.

I think that they weather conditions Bader no I, we have dispersing knows what the next see funny you wrote that he's come in better in terms of volumes. That's why you think is gonna be better. That's why we put do you know what president He said, we expect to be better.

And they come May show situation on the Europe , the uncertainty will stay at Brett see done done certainly between that they they trade war between the United States in China. So I think Mark Kidding Circularize, it's moving in their normal way no, especially for delays the business.

Also we yeah I would main competitor Denise rail they recovered some market share because they would be corporate production capacity for one time during 2018, that's not going to happen. We expect again in 2020, that's why you put everything together we've seen we think it's reasonable no we expect hobby no market.

In the range of 4% to 5% growth, we kind of record <unk> role.

A growth trend in S.J.M. volumes, probably better pricing.

45% is more your own volume not the overall market correct.

Well I think that he told me, it's the end market the whole market would be between 4% to 5%. Okay. We we are working in our business plan for 2020, we don't have debt. What he spent up yet were targets. It just doesn't 20, but did the whole market I think going to be between four to five.

Okay very much.

Our next question comes from Robert Brown from Morgan Stanley . Please go with your question.

Well, let me kind of the how did the good morning. Thank you for taking my questions I have a above three a very straightforward question today. The first one on lease him a we saw in into customs a data that the hydroxide, calling trucks ours to way above the levels, we seem to Chinese market and as you can exposure to China.

Backed out those prices to converge to up to the Chinese price levels and Oh, there. We also see by hydroxide in carbon it at a more similar price levels is this something you you expect to happen to or contracts in east is there a level that a meat.

Could change your decision on the Oh, Oh on investment in Australia.

And now I can go in Oh would be a in the other question. So later on thank you.

Oh, well or not on it so first I, it's important to consider they need can be cammisa ER.

So white market, we have different products different qualities different market you can use it.

Reasonable to expect that into future, you'll have different pricing, depending the their market conditions, depending the use of the problem dependent as well.

But of course.

However.

Yeah.

Next year average prices would be though were done do you see that's that's definitely.

On on the relation between hydroxide I'd be surprised when he's not so p. or yet I think with steel on the move I don't have a t.. We don't have you got to find out big sure, but what's been a b they do they they did.

Hi, saying Oh, both brought looks different let the pricing of both products, but of course Chinese very poor done on we are you trying that we'll continue to be China, Chinese and most important mark in the lease you business seemed electric cars like to bagels market would be China by far the most important marketing to future. That's why we're gonna be there to anyway.

No of course pricing pricing in China that even if these high quality or low quality are nowhere.

It's on we know that but but each there's no way not to beat Chinese Your article Global play your we want to be a we're gonna be 18% up their market share next year.

And you know what it to do so we need to be there we need to be everywhere its difficult to have a long chain a you mean.

That's that's most important issues second let me change review I know about they I would put you can Australia is moving ahead.

Or long term projects, we have a long term partner in Australia.

Outside expressing NY were meeting in New York September were really possibly an optimist about the future of this industry, we foresee a very good environment into future. It that's why I would probably one of the Mary Beth and it's both human probably you're going on strike.

We have short about that we'll continue with their projects a pretty good ones.

Thank you to kind of the and just spoke to you all your very straightforward questions on iodine. How further you think presses can go up and if you can give us a an update on the timing of the expansions and a and then on sort of salt. So when you. We think they do by volumes will start hitting a results next year. Thank you.

Okay, Oh, the pricing of how you'd I'd definitely prices. They next year would be I get us an average as compared to this year I think pricing and now you're doing.

It will be probably as compared to fourth quarter do you see here a couple of thoughts how your next year.

Good to know now he's gonna be an equilibrium between supply and demand.

Anyway, we are producing in next year in my forecast. So production I'll tell you anything like that this year in terms of production.

For next year on my capacity increase how would you must increase the first step up tick up I think people will have more that you'd ideally you bought them volume I think it's going to have 2021, but it wasn't 20 was gonna be bedridden jumps up production because we had we had some issues of production during 2000, and making that we do not expect.

Next year.

But it's difficult to say, what he's going to be that it could even pricing again he supply into monika.

We don't have.

A good yard picture now the second question was let me take it sounds like that's why you know you do you have the delta.

Yeah.

We have started to leave the.

Right.

In may so so from the 40 point of view the second quarter should have they perceive myself the higher bore Ben importantly, really reflected on the third or fourth quarter I've been going forward to the next year on the Nick.

They've got for next year, what 60 I wanted to do the neighborhood.

Oh so.

Yeah. So so yeah.

Very clear thank you very much to both thank you.

Our next question comes from Ben Isaacson from Scotia Bank. Please go ahead with your question.

Good morning.

I'm going to try not to ask any looking questions.

My first question is on iodine and I remember a several years ago. When the price of iodine was quite high there were a lot of people looking at bringing on capacity in the 30 to 30 334 dollar cash cost range.

Is there a risk that if prices go any higher we will start to see some demand destruction and we'll start to see some new capacity wanting to come on.

Yes.

It's a very good question and you were right you means that pricing.

Hi.

So many different application that's you know.

No horse.

Oh.

All of them to have their own what we can full price elasticity.

I don't think there's some I think bright magic number we can say, yes, that's right.

Destruction up the mine I every single variation on Friday.

And some price elastic it's Tom price it lets see.

In the short term some price, let's see the and the medium term that's why it's very difficult to hop out or an outlook about that.

But but but at the end it's important means that price.

Hi, I'm affecting them I, yeah. He somebody right, where do you think you'll have demand destruction I don't think so you have some variation of that's what that rule. We ask the company, we expect and we want to support done when correct shot the modify your time those two 3% to 4% for year, that's wasn't being a C.

Three 3%, he's a very reasonable target.

But right one element of the demand.

No, but most of what is important than the demand Dundee right is that you see it depends on the in the.

Well they kind of means you considered old application so yeah, you're right.

They did grow before year end of mine.

And so the growth of the world economy used economy going into right direction, you will have a strong out your angle.

That.

Lemon, it's more important than they short channels so bright.

I'd also like.

Yeah.

It's difficult to say, if youre going to have additional them of course, better pricing me more and well Dane showed more competitors. That's that's real it means increasing their production on new projects.

I see that will happen I don't think again do some magic number that's where you cameras will go to their market that 30 something.

It depends on different projects he had been seen their next own expectations. So the different projects.

We think affordable.

What we're doing today, they do they price environment.

What we expect wouldn't next year.

We were comfortable boom.

It's in our the both objectives first hobby no market role we.

Close to 3% they think it's very important to keep them and changing the loan true.

Second is getting insanely needs market shirt I think both.

These are the ones that we're looking forward into short Jamie <unk> churn.

And of course, and minus let's see C. D will it grow economy, both are very important block.

Yes, John spoke about the increase of competitors all see supportive, but anyway. You have you considered that we're keeping our market shares on I wouldn't market treaties lower down 40%. That's you know means that someone else asked to supply you with a 60% growth will be open market. That's why have you noticed strong market growth close to 3%.

So I noticed situations because you have a space for new producers additional capacity honest space, what is going to months he needs market share.

That was helpful. Thank you my second question is.

Are you guys were going to produce outwards, and so roughly five to 600000 tons of potash and your realized price that's been very high this year and my guess is that's because a significant portion has been going to S&P rather than MLP. So as you go to a million comes in 2020.

Should we expect the right your realized price declined quite rapidly as you sell more into the MLP market versus the S&P market.

Yeah, no they suck NATO things that having in front of me the number.

But it'll be has not been so important D C or in terms of fun you are right.

Because I would once was low these here no. We're done done the previous year, we focus I would say, helping so markets, where we had some logistic advance. It that's why we have better brides return.

Better price margins coming from those markets, where we have some distinct advantage.

On on it'll be we have some changing most UNFI is very small change next TBD.

<unk> production is pretty small now we don't expect increased a lot that where does so p. production mainly M. P is what we're doing today.

But again next year, we expect to have a significant growth trim, so volumes Oh MLP sell.

And of course, when you increase your volumes you go to what different enough growth markets around the world on in order to do so probably I wouldn't logistic advantage, we have something that needs to get done, but Tim Brasil in Chile in some south American countries, we need to go to other markets, where the returns are gonna be.

No. We're done they today margins. If you can see do pricing up there will be asked to date pricing.

One thing that the average marching will be.

Probably $10, though were done these here, but no more than that.

Hi, My my last question is.

On the social unrest that we read about unseen in Chile can you give some details in terms of how got has or could impact you are with respect to strikes port activity.

Is there of disruptions to any of your labor or logistics is there eventually when you think longer term and how the government will pay for reform is there a risk of higher corporate taxes are while teach thank you.

Hi, Yes, we have informed we have had some issues with trying to see the hardware products workers synchrony tractors.

We have had some issues Vod safety I ask you know safety our main focus.

But anyway, it's important because he did a women chain a were previously insured no sales forecast for the fourth quarter D C or I mean, we are going to de lever. It I would probably just start with customers like where do you know previews or.

Even though they see positioning Chile, we have a really good relation we start with union.

We are indicting talk with them, there's no issue so both strike, which I will unions in today, but of course, there's some issues about trying to see.

So they did you do need better duck, what used to be a couple of weeks ago. That's you may know.

I'm optimistic it means definitely I'm optimistic that situation is moving into right direction, Chile in order to so these differences as you may know more than 90% of the two unions have against violence up any time.

That's why you don't foresee that these would be a strong issue I mean I wouldn't be finished school seen the medium to long true, but as you mentioned.

How do we expect are not more taxes think t. lit. It's it's too early to know I cannot speculate about that the government men on Dale will see shown aren't working on it now as we speak about what he's going to be dot situation. We haven't heard about when he talks that we love Fac company so far.

But you don't know it meets its axis are always something open we have to see about got about but for the moment being a I repeat I'm optimistic we have been solving I wouldn't me issues that are mainly chauncey too to live sports. The ports are open I would workers are working.

I mean, it today the situation he's he's.

It's okay. These were working no problem and again, we maintain that were forecasting <unk> previous forecast even people's done it. They these social unrest.

Fourth got still sell some volumes for the fourth what did this year.

That's great. Thank you very much appreciate it.

Our next question comes from Chris Terry from Deutsche Bank. Please go with your question.

But oh ricotta two questions for me just firstly on the balance sheet as as you go through a period of lower cash flow in the back of lower loop lithium prices at the moment and then you still have the capex for the next one to two years I'm on the expansion projects I just wondered if you could comment on.

The optimal balance sheet in dividends in and how you get the balance between know the dividends and the Capex coming out and that's my first question I'll also second question after that thanks.

Yes.

I agree didnt get out of a pretty good for your question.

We have had.

Great.

More than 25 years of being a very there about the somebody from the Das point of view you can see that we decided that we got b b that when they want a week movies for a very very long time, I'm Triple B block with it.

He also lumpier, but we hospital docket.

We closely monitor descendants livor it to make sure that we could you do have a thrombotic that Linda.

Got to really grow going forward like your boss.

We already saw what we should see it we have a very challenging coffee.

Calling that.

The next year, but we are Colombia.

Any major shoot it too far be it probably now regarding did he did it is even at 42, Yeah. You may know she they define what you it they love their time.

Function of our balance sheet, which he is the market there.

[laughter] degree off they said that the on how they called Buddy Bothers me, it's going to be over the next.

Two years in regards to through to the dividend distribution, we announced yesterday about a 100% of in equal.

Orders being distributed.

But.

Going forward of course, it will be a functional they maybe that for this year chip orders.

Okay. Thanks. Thanks, Thanks for that and then my final question, it's just around round lithium putting back to the Chinese silos, just just to put a little bit more of a framework around your strategy. There is a strategy to so as much material as you can to South Korea to Japan.

In other areas outside charter and then sold the reminder, or whatever is left to China or is this strategy to are actively grower youre youre youre <unk> percent of your overall sales into China. Thanks.

I would leave human studies, a long time is try the I'm concerned that the where 80% of the world market on China is the most important market in the electric cars I'm most of the grille di di <unk> coming from the electric cars of course try Nike market not I'm Mark do you know remark is not like <unk>.

Definitely we are not single in China, it rather than we cannot sell you know that mark China very important market, we want to know in detail and they customers in China, we want to work with them into long term, we want to develop new products with them <unk> is the most important market.

Even though we're selling everywhere, where something in Korea, where selling Japan missing in Europe in United States everywhere, China is the most important market and aimed at least for into future East along Tim has tried to young Chinese very important you know where lungs demonstrate.

Okay. Thanks very much.

Our next question comes from Andrew Mccarthy from Citi. Please yeah with your question.

[noise] Hello, good morning, everyone. Thanks for taking my questions first one is sodas lithium I just wanted to follow up on the point Z. The sales split geographically going forward I mean, the last couple of quarters, we've seen so saw or at least from the export data.

We seem sort of 20% to 25% going into China is it reasonable to expect that trend to to us to follow into the full quota and then given your 65000 or sales volume target in to twin teach wait and see it.

Is it likely the share will increase in 2020, that's going into China [noise].

Maybe could take that question first please.

[noise] [laughter] I.

Hi, Hi, and.

I I don't have in front of me.

I personally think to her where she here, we'd expect to southern China were working in our business plan, we have a decent slammed by where did he tale of the business blame for next year, but of course were moving from 47000 metric tons expected. This year to close to 65000 metric tons next year, it's an important entry China being the most.

Whatever marquee jumps up the future growth.

Of course type thing that the percentage of sales to China would be a person to each hybrid next years compared to this year that somebody doesn't mean, so sorry that we don't want to sell the northern markets were studying everywhere.

People look very good people in Korea, and Japan, United States everywhere sudden indefinitely.

Horse Chinese the market that is growing I withdrawals on we expect to increase there were so to trying to next year, yet we think.

Thank you.

Great. Thanks, very much I'm, just my second and final question just a follow up on the the social crisis and issues you've been having in Chile or in the last few weeks.

You mentioned that being some trends it issues just wondering if there's any sort of preliminary financial economic impact. She can disclose that and then on the other side, obviously, the the Chilean FX is or as a depression.

The Chilean pesos depreciated.

Just wondering if any are you seeing any impacts in terms of the financial statements from from that effect as well. Please thanks.

Well okay.

The impact if any were reflected in the quarter I do when we do we're not putting a lot of each cell auto and brought them. So he shoes more done call, but we had issues in order to coordination journey in transportation on any waiting lining.

So in some tons said.

He's not relevant trimmed something costs, but he's really amounting to himself that potential disruption or forward operation that was okay. It means we produce.

That's why we didn't disclosure, we haven't disclosure any economic impact so far that's the main reason on about exchange rate it without get out of them. Yeah. Well of course is actually up to the M. Pesa based on how to introduce you did a lot over last.

Do they.

Broke too badly <unk> 400 to 500 meter <unk> costs are directly related to the official.

And that May have a false TV one hour it results in the fourth quarter, but from a bottom before interview everything Hey, Chuck.

Cover so we don't think and we'll have lots of can be significantly from Doug.

Very good thanks very much.

And ladies and gentlemen, without Weve reached the end of today's question and answer session. This point I'd like to turn the conference call back over to management for any closing remarks.

Thank you very much for joining us today, and we hope to hobby weed out the next conference call Goodbye everyone.

Ladies and gentlemen that does conclude today's conference call. We do you take for joining todays presentation. You may now disconnect your lines.