Specialty phosphate company Innophos Holdings Inc. tripled net income for the first quarter ending March 31, 2009. Net income was $30.2 million ($1.39 per diluted share) on sales of $190.8 million, versus the year-ago $9.26 million ($.43 per share) and $162.5 million, respectively.
“With operating income at $55.3 million and net income at $30.2 million, first quarter 2009 results were strong, reflecting selling price increases put into place in 2008, although volume declines in the core business continue to indicate reduced demand caused by the economic crisis together with increased competitive pressure in all segments,” said Randy Gress, Innophos CEO. Year-ago operating income was $23.4 million.
“Although at significantly reduced prices, the fertilizer market has begun to function, enabling us to clear excess GTSP co-product inventory sooner than forecasted, with a positive effect on cash flow during the first quarter. I am also pleased to note that strong cash generation across the business enabled us to decrease net debt to an all time low during the first quarter.
“We are currently experiencing pressure on selling prices as we drive to maintain our market share,” continued Gress. “Overall, our focus continues to be on seeking greater operational and financial efficiencies with selective investment in order to maintain our strong leadership positions in our core business.”
Innophos said it could not provide guidance for the full year, citing the uncertainty around Mexican phosphate rock cost and operating levels, softer overall demand, greater competition, and concern about the overall economic climate. However, management currently expects second-quarter 2009 volumes, excluding GTSP fertilizer sales, to increase approximately 5 percent from those experienced in the first quarter, with Mexico operating rates unchanged. Innophos expects its second-quarter 2009 raw material cost structure to be $15-$18 million higher than the first quarter due to higher phos rock costs in Mexico, the first quarter inventory re-pricing benefit, and the mix of phosphoric acid supply in the U.S. This increased cost will be offset somewhat by improved fixed cost containment.
Beyond the second quarter 2009, Innophos said overall volumes are uncertain and dependent on the depth and length of the recession and overall competitive intensity. Selling prices are expected to trend down throughout the year and cost structure is expected to increase, primarily due to increased phos rock costs affecting Mexico fully in the third quarter of 2009. Assuming sulfur market prices in Mexico remain at current levels and phos rock prices reflect the upper range management has determined to be reasonably possible outcomes of the rock arbitration proceedings, Innophos’ raw material costs for Mexico compared to the first quarter 2009 could then increase by approximately $20 million per quarter at approximately 50 percent of full capacity operations. The company is partially mitigating its exposure to this upper range outcome by procuring phos acid directly.
Innophos also announced plans to hedge its position regarding high phos rock prices. It said that in the first quarter, it obtained from the Mexican government in a qualified bidding process a 50-year phosphate mineral rights concession located at Santo Domingo, Baja California Sur. This site had previously reached development stage under a government-sponsored program conducted in the early 1980’s, but the project was suspended in 1985 due to depressed phos rock prices. Innophos intends to explore this phosphate deposit and determine whether resuming development is economically justified.
Innophos also announced plans to hedge its position regarding high phos rock prices. It said that in the first quarter, it obtained from the Mexican government in a qualified bidding process a 50-year phosphate mineral rights concession located at Santo Domingo, Baja California Sur. This site had previously reached development stage under a government-sponsored program conducted in the early 1980’s, but the project was suspended in 1985 due to depressed phos rock prices. Innophos intends to explore this phosphate deposit and determine whether resuming development is economically justified.
Innophos also obtained a multi-year exclusive option to explore a privately-held concession located in the vicinity of the Santo Domingo deposit. Earlier exploration of this concession indicated the presence of phosphorite mineral bearing characteristics similar to the Santo Domingo deposit, which could potentially share common processing facilities with the Santo Domingo site. Innophos currently estimates that full exploration costs to a proven reserves standard for the Santo Domingo deposit could require expenditures of $10-$15 million over a three-year period. This estimate includes mineral rights payments, taxes, mineral resource measurement, beneficiation process design, and completion of feasibility studies. Full expenditures would only occur if interim milestone goals were successfully attained. It is estimated that 2009 and 2010 expenditures will be approximately $10 million, with efforts primarily focused on the Santo Domingo deposit. Innophos intends to seek one or more partners for these efforts, but anticipates no difficulties in completing the exploration phase without a partnership.
Also in conjunction with its overall supply diversification efforts, Innophos recently commissioned a phos acid pilot plant at its Coatzacoalcos facility. The pilot plant will be used to develop phos acid production processes for the concessions and other alternative sources of phos rock and MGA (agricultural grade acid) for use in the company’s purified phosphoric acid production processes.