Business context and reporting period
Sociedad Química y Minera de Chile S.A. (SQM), a Chilean producer of lithium, iodine, specialty plant nutrients, potassium and industrial chemicals, filed this annual report on Form 20-F for the fiscal year ended December 31, 2020. Its audited consolidated financial statements are prepared under IFRS in U.S. dollars. This is a full-year filing, not a standalone fourth-quarter report.
Key financial results
Amounts are in U.S. dollars unless otherwise noted.
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $1.817 billion | $1.944 billion |
| Gross profit / gross margin | $482.9 million / 26.6% | $560.1 million / 28.8% |
| Operating profit | $302.5 million | $433.7 million |
| Profit before tax | $238.5 million | $390.6 million |
| Net profit | $168.4 million | $280.6 million |
| Profit attributable to controlling interests | $164.5 million | $278.1 million |
| Basic earnings per share | $0.6251 | $1.0567 |
| Adjusted EBITDA (non-IFRS) | $579.5 million | $644.2 million |
| Cash from operating activities | $182.2 million | $427.0 million |
| Capital expenditures | $322.2 million | $321.3 million |
Cash and cash equivalents were $509.1 million at year-end; including current financial assets, cash and time deposits totaled about $857.2 million. Current assets were $2.57 billion and current liabilities $475.9 million. The filing reports a current ratio of 5.54 in its liquidity discussion, while another note gives 5.40. Financial debt was $1.90 billion; net financial debt was reported at about $1.07 billion, with net financial debt to adjusted EBITDA of 1.9x. Total equity was $2.16 billion and total liabilities were $2.66 billion. Cash and cash equivalents decreased $79.4 million during the year. Cash used in financing was $94.1 million, including $222.0 million of dividends paid.
Material changes versus 2019
- Revenue fell 6.5%; gross profit declined 13.8%, and profit attributable to controlling interests fell 40.8%.
- Lithium revenue decreased 24.2% to $383.4 million as average prices fell about 47%, despite sales volume rising 43% to 64,600 metric tons.
- Iodine revenue declined 9.8% to $334.7 million: sales volume fell 24%, partly offset by average prices rising 18.9%.
- Specialty plant nutrition revenue decreased 3.1% to $701.7 million. Potassium revenue declined 1.3% to $209.3 million, with lower prices partly offset by higher volumes.
- Industrial chemicals revenue rose 69.3% to $160.6 million, driven by an 82% increase in sales volume, including solar salts.
- Other expenses rose to $99.6 million from $26.0 million, mainly reflecting a one-time $62.5 million class-action settlement charge. Finance expenses increased 6.8% to $82.2 million, while administrative expenses fell 8.7% to $107.0 million.
- Financial debt increased from $1.49 billion to $1.90 billion. Operating cash flow fell to $182.2 million from $427.0 million.
Outlook, risks and unusual items
- Management outlook: SQM expected 2021 lithium sales to exceed 80,000 metric tons, with lithium-market demand growth near 25%. Management expected lithium prices to improve in the first half of 2021 after fourth-quarter 2020 pricing of just over $5,300 per metric ton. These are forward-looking expectations, not guarantees.
- Investment: The company indicated 2021 capital expenditures could be about $500 million. In February 2021, the Board approved an estimated $700 million investment for SQM’s 50% share of the Mt. Holland lithium hydroxide project with Wesfarmers. A separate shareholder-approved capital increase of up to $1.1 billion was made effective in February 2021; the filing describes the proposed share issuance and preferential offering.
- Sustainable development and production: The 2020 plan set goals to become carbon neutral and reduce water use by 65% and brine extraction by 50%. Management said lower brine extraction should gradually reduce third-party potassium chloride volumes and could lower gross margin by $25–30 million annually on average over the following ten years, while not restricting feedstock for potassium nitrate production.
- Concession dependence: Products originating from the Salar de Atacama represented 33% of consolidated revenue in 2020. SQM’s lease and project agreements with Corfo expire December 31, 2030; failure to renew could materially affect lithium and potassium operations. Lithium extraction and sales are also subject to limits.
- Environmental and legal exposure: SQM Salar’s environmental compliance plan remained subject to review after an adverse 2019 court ruling; potential sanctions include fines, operational restrictions or permit consequences. The company also disclosed tax disputes over lithium mining taxes, including $63.9 million paid in October 2020 for disputed 2017–2018 assessments, and other litigation. A U.S. class-action settlement for $62.5 million awaited final court approval. Separately, the DOJ’s motion to dismiss the criminal information was granted on January 19, 2021, and the charges were dismissed.
- Other risks: Commodity-price volatility, competition and capacity additions, COVID-19 effects, Chilean political and constitutional changes, water availability, labor actions, currency movements, climate and seismic events, and the presence of Tianqi—a significant shareholder and lithium competitor—could affect results. The filing also highlights that internal mineral reserve estimates involve uncertainty.
- Audit and controls: PwC issued an unqualified opinion on the IFRS financial statements and concluded internal control over financial reporting was effective. Critical audit matters included bulk-inventory measurement and environmental, tax and legal contingencies.
Important facts for investors to verify
- Track realized lithium prices, sales volumes and the timing, cost and ramp-up of Chilean capacity expansions and Mt. Holland.
- Confirm the final terms, proceeds and dilution effects of the approved capital increase, along with subsequent dividend decisions.
- Assess the renewal prospects and extraction limits for the Salar de Atacama agreements, which expire in 2030.
- Monitor outcomes of the environmental compliance review, lithium tax disputes and remaining litigation, including final approval of the class-action settlement.
- Reconcile liquidity and leverage measures: the filing cites current ratios of both 5.54 and 5.40, and distinguishes financial debt from net financial debt.
- Review customer concentration and sales durability: one customer represented about 69% of industrial chemicals revenue in 2020; two customers together represented about 42% of iodine revenue.