Q1 2020 Earnings Call

during the

First quarter was a lower average prices and leave him on the DVD. You can prices fell significantly during the beginning of the year as we expected to himself and we're also lower than what we recorded during the first quarter about a year and lower. What we expected for this quarter. We're working to reduce kitchen volume according our original plan this year and expect to increase market share setting more than last year with whoever the original expectations of market growth that we all have for this year's have changed significantly because of the covid-19 and now we expect market demand in 2020 to be similar wage levels seemed last year. I ran represented a significant portion of the gross profit of the company during first quarter. This increase was a result of higher average prices will reached approximately $35 to kilogram during the first quarter of the year the fertilizer industry in Sonia vertical Market has been deemed to essentially industry during the covid-19 Northlake this could help minimize wage.

Impacts related to covid-19 of the fertilizer Market. However, it is reasonable to believe that the man drove in the water sold 2019 Mercury Capri new fertilizer who will not reach the original aspect to 6% in closing. We while the covid-19 demek limited or where ability to sell the universe quarter. Our current global economic conditions are inserting making life difficult to predict the future supply and demand of the markets in which we participate we remain positive and respect sales volumes in most of our business lines to be hired in they're coming quarters wage. I believe in the fundamentals behind long-term demand growth in the unit 2019 solar Source industry as a result of this we continue to move forward with our previously announced expansion pack to expect to bring our lithium carbonate that you can my trucks are projects online by the end of 2021. And now turn the line over head out of yarn our Chief Financial Officer. Yep.

We have all the way to maintain a strong man at our current situation is not different. We ended the first quarter with approximately one point four billion dollars in cash and cash equivalents. However, it is important to note that in April. We paid a $250 for our current ratio was approximately 3.2 times at the end of the first quarter after wage eventually the press release last night. Our next relativity is not due until April 2023 the robots balance sheet. We have always kept gives us flexibility to operate comfortably during turbulent times like the ones we find ourselves today while our dividend policy aims to maximize return to investors. It also considers key ratios to ensure a healthy cash position of the other hand. We continue to move ahead with our capex program and expect it to reach approximately $350 this year lower than the 405.

a million dollars previously at all

This topic delays is a result of reduced essential activities in our production facilities to help protect the health and safety of our workers depending of the week. We should be able to accelerate our capex plans in 2021 and make up for any delays. We see in the upcoming box. Thank you operator off we met no vote.

We will now begin the question-and-answer session. Ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the key to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

Our first question comes from Lucas Ferreira with JPMorgan, please go ahead.

Hi gentlemen, thanks for for the opportunity to ask questions. I wanted to understand a bit better. I'll have been the Dynamics of of the lithium demands overlap a couple of months. So we were seeing China returning to normality gradually. So if you can speak about the demand and orders from from China, how do you be moving off? And any any any anything you can say about to Europe? I think he was expected to be a a good contributor of a greater demand this year with higher penetration life. So if you can talk about how you're seeing the routine marketing specific and the orders and the the pipeline that would be my first question and and the second question is on iodine a I understand it's also hard to predict what what's going to happen, but we haven't seen a very healthy. I would say price and volume Dynamics. Although volumes are not increasing, you know prices are compensating.

In in your gross profit overall have been improving. So what's your expectation there, you know in spite of the the impact there on the volumes. Would you expect to keep Supply under control? And then do you think a price should remain at the healthy levels? That would be my my second question. Thank you.

Thank you for your question. Let me try to answer the first one about the lithium to have an and I'll look what's going on or what we think is going on industry. And after that I will ask for leave it to be even more colors and Detail in the airline business first in the in the in the in the in in the this film as you may know ourselves and the first quarter cuz we reported where affected by this situation the covid-19 and the main effect in the first quarter was China demand the GPS, you know in China was negative during the first quarter close to 7% off on our waiting formation is that the electric cars vehicles sales in first quarter decreased 54% of parts of the first quarter nineteen means it was a strong production. We have to confirm that China was almost closed all the quarter and affected significantly details in that market as you may know our company with marketing strategy and sales and strategy.

For the first quarter and this is for the year.

Active in the Chinese market. That's why we think that at least we reduce ourselves in China during first quarter close to two thousand metric tons. In other markets the situation with us like different and other Asian demands was slightly affected in the first quarter for us. So you're not original plan. And I think that the good news came from Europe Universe quarter off Europe sales of our lithium was better than expected and was okay, but at the end the effect negative effect of China plus some negative affecting the other Asian man affected, I would expect it sells you need the first quarter.

I think that's important to seek what what we we're looking forward Chinese economy is getting some recovery and growth forecast for the Q2 is expected to be positive close to 5 % probably off electric vehicle sales is still we expect to have a negative compared to the second quarter nineteen, but not at the level of 15 were talking about the level of the 20% off 25% increase. However is in its in very important to consider this big Improvement compared to the q1 according our information today most of the facts in China producing in a normal way and after two months of complete shutdown Chinese subsidies and all the government policies that stimulate the economy should help and I would think we will see a third and fourth pretty strong cars in the other markets important to consider the dividers arrive later than the big impact it started at the end of March and continues during April.

Cars producer we're we're effectively name. Especially Europe and Greece and the electric vehicle sales rep where ever use in April as we may know as we no close to 31% and 55% in the US you make our produces a started reopening the factories. And today most of them are producing. We know Korea and Japan we are less affected that did not stop production. They that's being very positive for us that considering that we are trying to locate a lot of products in those markets regarding to the other lithium Industries. Remember that is important to consider also the portable device industry construction and grease they will be affecting potentially the demand in this application could be lower than 2019 as we have been.

We haven't been here. We are in the first Ford month of this year with all the information we have and considering the expected reduction of customer inventories. We believed today with the today information on the demand for this year to be similar to the demand of 2018, which was close to the three hundred and twelve thousand metric tons of dead kind of innate equivalent.

Regarding all those five then moving a specifically to the sqm situation. We we think that we are in a in a good position to increase our market share. This here is that we expect to sell more this year as compared to the previous one. Of course, the situation of the market is different that the original expectation of the market. We have a lot of contracts for the year with customers. We have been working for many years and they are confident. We can reach our goals. We have started seen some effects on the supply side today because of the market condition. If you current separation that can face bad situation and we we expect that that that we will reach our original original bar. Would Target to be higher than last year and to increase our market share and market market share any any way we're building inventory. This inventory will help us to have yep.

Flexibility and to support our customers and anyway our demand in the long-term will increase on the inventory will be very very positive in order to face the future demand of the market for the future and where our I believe it to share with us. What's your view before moving to the lithium? We're not in the same room with the liberal because the cobit we are in the public places in Santiago Santiago is under lockdown today. If you can share with us your view about the future of the lithium in order to to share your opinion about that. I'm talking with 21-25 onward.

Okay, no problem. We got table. Hello everyone. Well, if we look at the Outlook of of the medium and long-term, I believe that the fundamentals are still there. We are estimating that in total the the leasing demand will grow after this 20/20 special year off after 21 225. We should have an average growth of around 20% in leasing demand meaning that by 2025. We believe that total price would exceed eight hundred thousand metric tons. And and these fundamentals are basically what we have what we let's say expect from the OEM manufacturers. They all seem totally committed to electrification of their Fleet also governments are pushing for this kind of a dead.

Of this type of cars. So all-in-all. I think that we have to be optimistic in the in the long term.

Just a follow-up on that before we go. Try a dine. Can we say already that the first quarter was the weakest quarter for you in terms of sales in a year or it's still early to say that given that we are not yet at the end of the of To Kill.

Lucas we we recorded information we have today. We do expect that. The first quarter was the weakest quarter of the year and in the little distance in volumes, certainly.

Okay, thank you. You can go ahead with the second part of the question regarding the UN. What why do you think that the demand is here would be lazy or will be lower than last year. And now of course lower than originally expected. Yeah. Well, first of all to give some context wage demand in a 2019 we are estimated to be close to thirty seven thousand metric ton of iodine our last estimation for this year is that this demand will not be around 34.5 meaning a reduction of $2,200 or 6.1% and how we base this estimation. Basically the main uses of iron or one of the main uses of iron is x-ray contrast media. This is an application that is related to preventive medicine so long.

According to our customers they explain that you to the covid-19 pandemic people is reluctant to do examinations. Are they they offered to avoid going to the hospital? So this definitely has an impact on the demand of this specific application. Also iodine is used in other applications that are Bap re linked to the economic situation. For example, there is an application that is related to pains and definitely construction will be affected with this year. So that is also an application that will be negatively impacted. We foresee that Electronics application prior then we'll also be negatively impacted and for the rest the there are some uses that are more related with lockdowns. For example, yep.

He's a farmer Farmer is very concentrated in Europe and India and especially in India the lockdowns that we saw in March and April are affecting the demand. So we hope that this could revert in the coming months. But so far we try to be conservative. The only applications in life that are more inelastic are those related to nutrition which they have proven over the years that independent of the economic Cycles. They they they are very resilient. So that is more or less the overview of Ireland.

Many thanks gentlemen.

As a reminder, we ask that you limit yourself to two questions or next question will come from Isabella simionato with Bank of America, please go ahead.

Thank you. Good afternoon everyone. Thank you for the call. I would like to know about more about the the cost structure right how did life or his new environments right has led to eventually higher costs in your in your production or any sort of disruption A disruption if you could update on that and regarding the Catholic that was reduced for this year. Can you give us a little bit more details if it is a postponement 4021 and where exactly that that that production happened. Thank you.

Are you talking about try to answer your questions? Well, because of a covid-19. We have not seen an impact on the cost of production or in any of our business life actually on the country. I mean not because of covid-19, but because of all the reason they cost of every single product in our production process has been coming down over the past year in potassium nitrate soluble nitrate, unless you of course the the weaker Chilean Peso and the and the lower cost of energy are are of course helping in this regard, but we own not seek higher cost because of this situation. They are balance. Of course, it's taking some time for you to see them in the in the p&l because I have a such a high level of event or if we have more than a billion dollars of the battery and that takes some time to to be reflected in the in the results. But from our point of view, of course, it's having an impact right away.

Regarding your your question about topics, but we have been doing more more than than reducing Comics because of a financial constraint. We have been reducing the activities that are not essential facilities in order to make sure that we comply with the toughest recommendations to to protect our people and to reduce the speed at which the name is can spread in our facilities. So because of that we have reduced the use of contractors, we have reduced some non-essential activites and some cake cupcakes activities that can be possible without having a significant financial impact either on our plans to sell this year or in the upcoming years or also in the wash themselves. That's why the campus has been reduced from 450 to 350 million dollars, but well to be more more precise the character has not been reduced by delay wage.

Um on we expect that.

This context or this expansion. So these activities will be catch up as soon as the the the conditions allow us to bring more people in our facility regarding the most important leaders were working on which are expansions of a lithium related product. We we are still expecting that they should be ready by the end of 2021 so long so we don't see a big impact there.

That's your head out. Thank you.

Our next question will come from then Isaac said we'll discuss your bank, please go ahead.

Hi, this is Zia actually on for been thanks for taking my call. I just have one on pricing actually realized fairly Dicky pricing our segment wage like commodity Benchmark price has fallen quite meaningfully over the last two quarters. You talk about how your potash versus sop sales mix has evolved. And what should that mix be for the balance of the year of your birth. Also, has there been a shift in the regional mix to account for the strong realized blush pricing. Thank you.

yeah, as you may know that if the borders price was affected in I think in the

In the last two or three or four months, maybe on on the China settlement of last month. It's in the last two weeks is in the same line. We do expect that photos prices as everyone else to be slightly to be lower during the next three quarters as compared to the first quarter this year. We are considering that in our projections, but you should consider we're very small in the potash industry. We are dead. You see here, even though this year. We do expect to sell more than last year than we continue with this expectation. We can select the market where we try to approach and I with I think that the fact net effect may not be as high as originally expected this price reduction. But anyway, we are expecting and we know that the price of products today is lowered what used to be probably a year ago six months ago and we are considering this in our projections for the next few quarters.

Just so we know that we're selling as you know, very important volumes in Brazilian Market Brazilian markets being affected probably with the it's been affected today with the price environmental club and by the volumes we do we do know that the volumes press p.m. For the rest of the year will be hired and we we expect to be close to seven hundred thousand metric tons of both our sales during this year as a total volume by no means first where it's going to be affected the emergence due to the price of Iron Age, of course. Yes.

Perfect. Thank you.

Our next question will come from Alex Falco with HSBC.

Please go ahead.

Yeah. Hi guys. Good afternoon. I just wanted to to to talk specifically on China, you know, and I know that you you know, I just want to talk after you know for the month of May is we've seen a pick up there on at least locally for for you know, at least a production seems like there's a lot of you know, the the the supply side has been some of this this companies have basically shut down even in Australia. I just wanted to know if you know when when you talk to your foot on the ground and and and you know, the the I I know you don't sell really on the spot Market, but just wanted to know specifically for Asia and for China is is dead, you know there it may seems to be an inflection point you comment that probably the worst is over and first quarter is going to be the worst quarter of of the year, but just trying to to go off.

If you have more details specifically for China and want to sell their thank you.

Thank you, Alex. I will ask Philippe Philippe is in direct touch with the China. People are where our team there in a daily basis and I think he can share with us he thought about what's going on with China ask the space and what she is expecting the fuel in the next monthly bill, please.

Yeah, well, first of all, we need to remember that we entered year 2020 with high stock levels in China. Okay. So we were expecting any way a lower lower amount of sales versus the the total year in the first quarter, but the pandemic situation that started in China affected seriously the demand, okay. So this already high inventory levels that were carried out to 2020 would take much longer. Now I'm being depleted as a matter of fact, we believe it will it will take several months and therefore this recovery that we see in the in the I'm in the business itself. Not necessarily will be reflected in a in a in a good sales recovery because again dead.

Demand is affected there. So we will have to see over the next month. We have to believe conservative in our estimation wage, but we still believe that our sales over. The next quarter's in China will be increasing we have good signs from customers that this could be the case. But again, I'm not a lot of uncertainty. I we need to we need to see

Okay, perfect. Thanks for that.

Our next question comes from Joel Jackson with BMO Capital markets, please. Go ahead. Hi. Good morning. I have two questions to ask someone that I'm Ricardo. So if I listen to your boss and Terry tell me if I'm right or wrong. So you still ask you I'm still expects to produce about sixty-five to seventy thousand tons Elsie this year of lithium. You still expect to gain a bit of share off, but it does the cave in a flat demand environment. You expect to build a lot more inventory this year than you thought three months ago 2 months ago. Was that correct?

Yes, of course. He does. That is correct. We do expect to produce between 65 to 70 thousand, even though we are going to increase our market share considering the flood environment. We expect and the total demand wage. I would invent it would be increased this year. But he's a healthy level of inventory that will help us in the future the mandrills and environment so follow up on that. I mean you've got competitors are also building new Supply. You have a bit of a stalling out demand this year. You just talked about Felipe just talked about inventory and China's and larger than you would have thought by now. Did you not get worried on the price of lithium here because a lot of inventory already your building inventory and there's competitors Supply additions on top.

I cannot speak about the other competitors inventories, huh? But until your next game inventory, of course, it's my inventory is not a huge effect of financial situation of the company. I I have a different opinion. I think that our inventory is is a element of flexibility. We have we we strongly believe in a fundamental of the industry and having these inventories a good news for us. We are will not affect our marketing strategy or we're market pricing the inventory, of course not we are looking for market share countries who will get it. That's exactly what we expect to. Have. We if the market is lower for the specific reason already coming to you for the covid-19. Of course, the total volumes will be long, but I would target market share will be there and the excessive inventories. It's a good news in order to have the industry for the future and effect and the flexibility for the market means that the additional yep.

History is not an effect of the price environment in the terms of the inventory of a scam about inventory of our competitors. Of course, I cannot comment what it's going to be. There is a strategy so far off. So are you comfortable running about six months of inventory? Cuz if I do your math and we'll end this year with about six months of your 2020 sales volume, you know, twenty sales volume down about half of that in the year. Are you comfortable with that? Yeah comfortable with that. You have to consider that as I said, you've been mentioned before we do expect that sales in 2025 will be in excess of eight hundred thousand metric tons of data mean having inventory using my capacity today to produce is a very good business because we need to increase our capacity in the future anyway, and if we can offer a full capacity with today today production facilities at best way to use our fixed assets considering that we do the expectant. We will significantly increase It Will Smith.

In the next few years. That's why having inventory.

And considering the expected volume is a very good news.

Thank you.

This will conclude our question-and-answer session. I would like to turn the conference back over to Kelly O'Brien for any closing remarks.

Thank you everyone for joining a summary of the results of some results in. This call will be posted on our website. Please stay healthy.

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