SQM(SQM) - 2024 Q2 - Quarterly Report

Consolidated Interim Financial Statements Consolidated Interim Statements of Financial Position As of June 30, 2024, the company's total assets decreased to US$10.77 billion from US$10.78 billion at the end of 2023, while total liabilities decreased to US$5.80 billion from US$6.30 billion, primarily due to a reduction in non-current financial liabilities, leading to an increase in total equity from US$4.48 billion to US$4.97 billion Consolidated Statement of Financial Position (Unaudited) | Account | As of June 30, 2024 (ThUS$) | As of December 31, 2023 (ThUS$) | | :--- | :--- | :--- | | Total Current Assets | 5,229,716 | 5,866,141 | | Total Non-current Assets | 5,543,223 | 4,912,696 | | Total Assets | 10,772,939 | 10,778,837 | | Total Current Liabilities | 2,392,647 | 2,513,876 | | Total Non-current Liabilities | 3,405,420 | 3,787,532 | | Total Liabilities | 5,798,067 | 6,301,408 | | Total Equity | 4,974,872 | 4,477,429 | Consolidated Interim Statements of Income For the six months ended June 30, 2024, the company reported a significant decline in financial performance, with revenue dropping by 45% to US$2.38 billion and net income falling by 67% to US$435.6 million, resulting in a basic earnings per share of US$1.5179 Consolidated Statement of Income (Unaudited) - Six Months Ended June 30 | Account | 2024 (ThUS$) | 2023 (ThUS$) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 2,378,134 | 4,315,591 | -44.9% | | Gross Profit | 752,475 | 1,920,687 | -60.8% | | Income from operating activities | 627,601 | 1,843,930 | -66.0% | | Income before taxes | 587,375 | 1,835,569 | -68.0% | | Net Income | 435,616 | 1,332,304 | -67.3% | Earnings Per Share (Unaudited) - Six Months Ended June 30 | Metric | 2024 (US$) | 2023 (US$) | Change (%) | | :--- | :--- | :--- | :--- | | Basic earnings per share | 1.5179 | 4.6567 | -67.4% | | Diluted earnings per share | 1.5179 | 4.6567 | -67.4% | Consolidated Interim Statements of Comprehensive Income For the six months ended June 30, 2024, total comprehensive income was US$439.8 million, a significant decrease from US$1.34 billion in the same period of 2023, driven by lower net income partially offset by positive other comprehensive income Consolidated Statement of Comprehensive Income (Unaudited) - Six Months Ended June 30 | Account | 2024 (ThUS$) | 2023 (ThUS$) | | :--- | :--- | :--- | | Net income | 435,616 | 1,332,304 | | Total other comprehensive income (loss), net of tax | 4,207 | 7,217 | | Total comprehensive income | 439,823 | 1,339,521 | Consolidated Interim Statements of Cash Flows For the six months ended June 30, 2024, net cash generated from operating activities significantly improved to US$709.3 million from a net use of US$10.8 million in the prior year, while net cash used in investing activities increased to US$679.6 million, and net cash used in financing activities decreased substantially to US$32.4 million Consolidated Statement of Cash Flows (Unaudited) - Six Months Ended June 30 | Account | 2024 (ThUS$) | 2023 (ThUS$) | | :--- | :--- | :--- | | Net Cash generated from (used in) operating activities | 709,325 | (10,759) | | Net Cash generated from (used in) investing activities | (679,632) | (123,013) | | Net cash flows generated from (used in) financing activities | (32,389) | (451,091) | | Decrease in cash and cash equivalents | (8,303) | (592,466) | | Cash and cash equivalents at beginning | 1,041,369 | 2,655,236 | | Cash and cash equivalents at end | 1,033,066 | 2,062,770 | Consolidated Interim Statements of Changes in Equity Total equity increased from US$4.48 billion at the beginning of 2024 to US$4.97 billion as of June 30, 2024, primarily driven by net profit of US$435.6 million and reclassification of equity instruments, partially offset by dividend payments Changes in Equity - Six Months Ended June 30, 2024 (ThUS$) | Account | Amount | | :--- | :--- | | Equity at January 1, 2024 | 4,477,429 | | Comprehensive income | 439,823 | | Equity instruments reclassified | 58,016 | | Dividends | (467) | | Other changes | 71 | | Equity as of June 30, 2024 | 4,974,872 | Notes to the Consolidated Interim Financial Statements Note 1: Identification and Activities of the Company and Subsidiaries Sociedad Química y Minera de Chile S.A. (SQM) is a Chilean open stock corporation engaged in mining and chemical production, with main activities including specialty plant nutrition, iodine, lithium, industrial chemicals, and potassium, employing 7,909 people as of June 30, 2024 - The company's main business lines are: - Specialty plant nutrition (potassium nitrate, sodium nitrate) - Iodine and its derivatives - Lithium (carbonate and hydroxide) - Industrial chemicals (sodium nitrate, potassium nitrate, potassium chloride) - Potassium (potassium chloride, potassium sulfate)[18][19] Employee Headcount | Date | Total Employees | | :--- | :--- | | June 30, 2024 | 7,909 | | December 31, 2023 | 7,682 | - As of June 30, 2024, the main shareholders are Inversiones TLC Spa (21.90% of total shares) and Sociedad De Inversiones Pampa Calichera S.A. (15.27% of total shares)[22] Note 2: Basis of Presentation The interim consolidated financial statements are prepared in accordance with IAS 34, with new accounting standards adopted on January 1, 2024, having no significant impact, and the company acquired Sichuan Dixin New Energy Co. Ltd. for approximately US$125.7 million on April 30, 2024 - The financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting"[25] - New accounting standards adopted on January 1, 2024, including amendments to IAS 1, IFRS 16, IAS 7, and IFRS 7, did not have a significant impact on the company's financial statements[28][29][30] - On April 30, 2024, the company acquired Sichuan Dixin New Energy Co. Ltd. for US$125.7 million to obtain a lithium hydroxide plant with a capacity of approximately 20,000 tons per year[35] Note 3: Significant Accounting Policies This note outlines the company's significant accounting policies, including the use of the U.S. dollar as the functional currency, weighted average cost method for inventories, revenue recognition upon transfer of control, and depreciation of property, plant, and equipment over their estimated useful lives - The company's functional and presentation currency is the United States dollar[38] - Inventories are measured using the weighted average monthly cost method[52] - Revenue from the sale of goods is recognized when the company has delivered products to the customer and control has been transferred[65] - Property, plant, and equipment are depreciated on a straight-line basis over their estimated technical useful life, with assets in the Salar de Atacama considering a useful life ending in 2030 if shorter than the technical life[54] Note 4: Financial Risk Management The company manages various financial risks, including credit risk mitigated by 80% credit insurance on receivables, exchange rate risk hedged with derivative contracts, and maintains a high liquidity ratio of 2.19 with US$1.434 billion in unused revolving credit facilities as of June 30, 2024 - The company's main financial risks are market risk, liquidity risk, currency risk, credit risk, and interest rate risk[73] - To mitigate credit risk on trade receivables, the company uses credit insurance that covers 80% of all receivables with third parties[74] - The company uses derivative instruments to hedge 100% of its bond obligations denominated in UF (a Chilean inflation-indexed currency unit) and cash flow variations in Australian dollars for the Mt Holland project[81] Liquidity Metrics | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Liquidity Ratio | 2.19 | 2.50 | | Unused Credit Facilities | US$1,434 million | N/A | Note 7: Equity-Accounted Investees The company's total carrying value of investments in equity-accounted associates was US$45.6 million as of June 30, 2024, with a share of profit of US$4.3 million and dividends received totaling US$4.3 million for the six-month period Summary of Investments in Associates (as of June 30, 2024) | Metric | Amount (ThUS$) | | :--- | :--- | | Total Carrying Value | 45,649 | | Share in Income (6 months) | 4,261 | | Dividends Received (6 months) | 4,319 | Note 8: Joint Ventures The company's total carrying value of investments in joint ventures significantly increased to US$587.1 million as of June 30, 2024, primarily due to the acquisition of an additional 30.57% of Azure Minerals for US$350.4 million, bringing its total interest to 50% - On May 9, 2024, the company acquired an additional 30.57% of Azure Minerals for US$350.4 million, increasing its total interest to 50%[112] Summary of Investments in Joint Ventures | Metric | As of June 30, 2024 (ThUS$) | As of Dec 31, 2023 (ThUS$) | | :--- | :--- | :--- | | Total Carrying Value | 587,073 | 30,904 | | Share in Income (6 months) | 2,641 | (7,355) | - The company has contributed a total of US$773.2 million to the Mt Holland lithium joint operation project as of June 30, 2024, with an outstanding investment balance of US$71.4 million[114] Note 10: Inventories As of June 30, 2024, total inventories slightly decreased to US$1.71 billion from US$1.77 billion at the end of 2023, with finished products constituting the largest portion at US$919.0 million, and the allowance for inventories increasing to US$149.7 million Inventory Composition (ThUS$) | Type of Inventory | As of June 30, 2024 | As of December 31, 2023 | | :--- | :--- | :--- | | Raw material | 53,386 | 61,098 | | Products-in-progress | 649,884 | 744,217 | | Finished product | 919,008 | 891,469 | | Total | 1,709,485 | 1,774,594 | - Inventory allowances increased from US$133.8 million at the end of 2023 to US$149.7 million as of June 30, 2024[121] Note 12: Financial Instruments As of June 30, 2024, the company's financial assets included US$1.11 billion in other current financial assets and US$724.3 million in trade receivables, while financial liabilities comprised US$1.51 billion in bank borrowings and US$2.93 billion in unsecured obligations, with derivative instruments used for hedging exchange and interest rate risks Financial Assets & Liabilities Summary (June 30, 2024) | Category | Current (ThUS$) | Non-Current (ThUS$) | | :--- | :--- | :--- | | Assets | | | | Other financial assets | 1,109,800 | 37,492 | | Trade and other receivables | 724,267 | 1,934 | | Liabilities | | | | Bank borrowings | 1,209,394 | 296,091 | | Unsecured obligations | 295,510 | 2,632,994 | - In May 2024, the company's investment in Azure Minerals was reclassified from 'other non-current financial assets' to 'investments in associates and joint ventures' after the ownership stake reached 50%, with the accumulated fair value variation of US$186.8 million transferred to retained earnings[130] Note 15: Property, Plant and Equipment Net property, plant, and equipment (PP&E) increased to US$4.00 billion as of June 30, 2024, from US$3.61 billion at the end of 2023, primarily driven by additions to 'Constructions in progress,' which grew to US$2.03 billion, with US$29.7 million in interest costs capitalized during the first half of 2024 Property, Plant and Equipment, Net (ThUS$) | Category | As of June 30, 2024 | As of December 31, 2023 | | :--- | :--- | :--- | | Land | 40,705 | 23,481 | | Buildings | 304,118 | 285,487 | | Constructions in progress | 2,028,999 | 1,834,041 | | Machinery, plant and equipment | 1,395,554 | 1,228,422 | | Other | 226,655 | 238,506 | | Total | 3,998,531 | 3,609,937 | - The company capitalized US$29.7 million in interest costs during the six months ended June 30, 2024, compared to US$18.5 million in the same period of 2023[185] Note 18: Provisions and Other Non-Financial Liabilities Total provisions decreased to US$391.1 million as of June 30, 2024, from US$452.8 million at year-end 2023, with a significant portion of current provisions related to the US$292.8 million lease contract with CORFO for Salar de Atacama operations, and a US$56.9 million provision for dismantling and restoration costs Provisions Summary (ThUS$) | Type of Provision | Current | Non-Current | Total | | :--- | :--- | :--- | :--- | | As of June 30, 2024 | 332,751 | 58,378 | 391,129 | | As of Dec 31, 2023 | 392,322 | 60,450 | 452,772 | - The largest current provision is for the lease contract with CORFO, amounting to US$292.8 million, which grants exclusive rights to exploit mineral resources in the Salar de Atacama until December 31, 2030, with payments based on a tiered percentage of sales value for different products[208][210] Note 19: Disclosures on Equity The company's capital management aims to maintain a debt-to-equity ratio below 1.0, which stood at 0.47 as of June 30, 2024, with a dividend policy for 2024 targeting a distribution of at least 30% of net profits, potentially increasing up to 100% based on financial leverage and liquidity ratios Capital Management Ratios | Ratio | As of June 30, 2024 | As of Dec 31, 2023 | | :--- | :--- | :--- | | Net Financial Debt (ThUS$) | 2,314,733 | 2,086,717 | | Liquidity | 2.19 | 2.33 | | Indebtedness (NFD/Equity) | 0.47 | 0.47 | - The company must maintain a Total Borrowing Ratio (NFD/Equity) no higher than 1.0 for its local bonds, which was 0.47 as of June 30, 2024, in compliance with the covenant[217][218] - The dividend policy for 2024 is to distribute at least 30% of profits, with the potential to increase to 60%, 80%, or 100% if certain liquidity and leverage targets are met[228][229] Note 20: Contingencies and Restrictions The company is involved in significant legal and tax proceedings, most notably a tax contingency with the Chilean IRS regarding lithium exploitation, for which the company has paid and is claiming US$986.3 million for tax years 2012-2023, and recognized an additional tax expense of US$17.5 million in the current period following an unfavorable court ruling - The company is party to various lawsuits, including claims for damages and disputes over supply contracts[233][234][236] - A major tax contingency exists with the Chilean IRS over the specific mining tax on lithium, with the total amount paid and under claim being US$986.3 million for business years 2011 to 2022[239] - Due to an unfavorable appeals court ruling in April 2024, the company reviewed its accounting treatment and recognized a tax expense of US$17.5 million for the period ended June 30, 2024, related to this ongoing tax dispute[239] Note 21: Breakdown of Income Statement Items For the six months ended June 30, 2024, Lithium and its derivatives was the largest revenue contributor at US$1.21 billion, followed by Iodine at US$509.3 million, with cost of sales primarily driven by payments for Corfo rights (US$246.8 million), raw materials (US$347.8 million), and third-party product purchases (US$191.0 million) Revenue by Product Line - Six Months Ended June 30, 2024 (ThUS$) | Product Line | Revenue | | :--- | :--- | | Lithium and derivatives | 1,212,087 | | Iodine and derivatives | 509,277 | | Specialty plant nutrition | 468,250 | | Potassium | 136,700 | | Industrial chemicals | 42,359 | | Other | 9,461 | Key Components of Cost of Sales - Six Months Ended June 30, 2024 (ThUS$) | Expense Category | Amount | | :--- | :--- | | Raw materials and consumables | (347,825) | | Corfo rights and other agreements | (246,800) | | Purchase of products from third parties | (191,028) | | Contractors | (147,247) | | Employee benefit expenses | (143,807) | Note 22: Reportable Segments The company reports on six operating segments, with Lithium and its derivatives being the most profitable segment with a gross profit of US$346.2 million for the six months ended June 30, 2024, and Asia and other regions generating the most revenue at US$1.45 billion, while Chile holds the vast majority of non-current assets at US$3.25 billion Segment Performance - Six Months Ended June 30, 2024 (ThUS$) | Segment | Revenue | Gross Profit | | :--- | :--- | :--- | | Lithium and its derivatives | 1,212,087 | 346,183 | | Iodine and its derivatives | 509,277 | 283,429 | | Specialty plant nutrients | 468,250 | 91,488 | | Potassium | 136,700 | 15,009 | | Industrial chemicals | 42,359 | 17,539 | Revenue by Geography - Six Months Ended June 30, 2024 (ThUS$) | Region | Revenue | | :--- | :--- | | Asia and Others | 1,454,572 | | Europe | 395,236 | | North America | 365,335 | | Latin America and the Caribbean | 111,642 | | Chile | 51,349 | Note 25: Income Tax and Deferred Taxes For the six months ended June 30, 2024, the company recorded an income tax expense of US$151.8 million on pre-tax income of US$587.4 million, comprising US$116.3 million in current tax and a US$35.4 million deferred tax expense, with the statutory income tax rate in Chile at 27% and net deferred tax liabilities of US$72.4 million Income Tax Expense Reconciliation - Six Months Ended June 30, 2024 (ThUS$) | Description | Amount | | :--- | :--- | | Consolidated income before taxes | 587,375 | | Tax at statutory rate (27%) | (158,591) | | Adjustments (royalty, non-deductible, etc.) | 6,832 | | Income tax expense | (151,759) | Deferred Tax Position (ThUS$) | Category | As of June 30, 2024 | As of Dec 31, 2023 | | :--- | :--- | :--- | | Deferred Tax Assets | 221,942 | 302,236 | | Deferred Tax Liabilities | (294,292) | (394,688) | | Net Deferred Tax (Liability) Asset | (72,350) | (92,452) | Note 26: Subsequent Events Subsequent to the reporting period, on July 29, 2024, Inversiones TLC SpA (a Tianqi subsidiary) filed a legal appeal against a CMF resolution concerning the SQM-Codelco partnership agreement, arguing it requires shareholder approval, and on August 20, 2024, the Board of Directors modified its policy on transactions with related parties - On July 29, 2024, shareholder Inversiones TLC SpA (Tianqi) filed a legal challenge regarding the SQM-Codelco partnership, claiming it requires shareholder approval[288] - On August 20, 2024, the Board of Directors approved a revised policy for transactions with related parties[288]