IPHS

Innophos Holdings, Inc. (IPHS)

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Innophos Holdings, Inc. (IPHS)

Q4 2008 Earnings Call

February 10, 2009 10:00 AM ET

Executives

William Farran - Vice President and General Counsel

Randy Gress - Chief Executive Officer

Richard Heyse - Chief Financial Officer

Analysts

Christopher Butler - Sidoti & Company

Jeff Zekauskas - JPMorgan

Frank Mitsch - BB&T Capital Markets

Bill Hoffman - UBS

Richard O'Reilly - Standard & Poor's

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Fourth Quarter and 2008 Innophos Holdings, Inc. Results Conference Call. My name is Erica, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions)

I would now like to turn the presentation over to your host for today, Mr. Bill Farran, Vice President and General Counsel of Innophos. You may proceed.

William Farran

Thanks for joining us today for the Innophos Holdings, Inc. conference call to discuss 2008 results. Conducting the call today are Randy Gress, Chief Executive Officer; Richard Heyse, Chief Financial Officer; and myself, Bill Farran, General Counsel.

During the course of this call, Management may reiterate forward-looking statements made in our February 9, press release regarding financial performance and future events. We will attempt to identify these statements by use of such words as; expect, believe, anticipate, intend and other words that denote future events. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

We caution you to consider the important risk factors that could cause actual results to differ from those in the forward-looking statements, as contained in this conference call and in our earnings reports and filings we make with the SEC. We will make a replay of this conference call available for a limited time over the telephone at the number set forth in our press release and via a webcast available on the company website.

In addition, please note that the date of this conference call is February 10, 2009. Any forward-looking statements we may make today are based on assumptions that we believe to be reasonable as of this date, and we undertake no obligation to update these statements as a result of future events.

Now I'd like to turn the call over to Randy Gress, CEO of Innophos. Randy?

Randy Gress

Thanks Bill and Good morning, everyone. In keeping with the usual approach for use on our conference calls, I will start off with some comments about the full year results and then what we have seen in the business in the fourth quarter, and finish up discussing our outlook generally, then Richard Heyse will give us some of the highlights for the quarter and the full year. Next Bill Farran will give us an update on the outstanding legal issues and then after a short summary from me, we will take the questions.

Full year results can only be described as exceptional. We saw substantial increases in 2008 net sales at $935 million versus $579 million in 2007 or a 61% of improvement as our 83% selling price increases positively impacted revenue and income by $480 million across all product lines.

These changes outweigh the 22% of negative volume and mix impacts on revenue, primarily in STPP and other products. Reflecting the quarter results, the largest portion of the annual negative volume and mix changes took place in Mexico due to reduced demand for Granular Triple SuperPhosphate, GTSP, fertilizer co-product, because fertilizer markets have ground to a standstill and also limited reformulation and detergents using Sodium Tripolyphosphate or STPP.

Meanwhile, in U.S. full year demand for Specialty Salts and Specialty Acids were strong, with a positive volume and mix impact. We had strong performance in this area by focusing on growing the business domestically as well as internationally. This is why you see a positive 6% favorable volume variance year-over-year in the Specialty Salts and Specialty Acids business. We were very successful in achieving our objectives.

However, Purified Phosphoric Acid had unfavorable volume and mix for 2008 compared to 2007 primarily due to lost production from planned maintenance and then unplanned Hurricane driven outage at our Geismar, Louisiana facility, along with the impact of the recession on fourth quarter industrial and agricultural demand.

Benefiting from our raw material supply contracts, which buffered us from much of the 2008 price shocks in sulfur and phosphate rock, and strong product selling price increases, we saw 2008 operating income increased by $248 million for 520% and net income improved by $206 million compared to a loss of $5.5 million for 2007.

These were unprecedented levels of achievement for our business.

Now and switching to the most recent quarter's performance, Innophos delivered solid results in the fourth quarter despite a selling environment that became significantly more challenging through the quarter. Net sales for the fourth quarter were up 50% over fourth quarter 2007, due to average selling price increases of 98% or $141 million across our product lines. Operating and net income for the quarter at $69 million and $52 million respectively, show that we continued to operate successfully in the dynamic pricing and cost environment despite a lack of demand for fertilizer and softening of demand for other products at the lower end of our product portfolio.

One can see this softening of demand in the quarterly volume and mix impacts on revenue, which had a negative impact of almost 48% across all product lines, but most notably in STPP and other products, due to reduced demand for GTSP fertilizer co-product in fertilizer markets that were essentially non-existent in the fourth quarter. Volume was also lowered both in U.S and Mexico in Specialty Salts and Specialty Acids, primarily due to reduced demands in some technical applications.

As one would expect, demand for our other products supporting the food, beverage, pharma and oral care business, held up well. Demand was also lower in the United States for technical grade purified phosphoric acid. Technical grade products are primarily used in the industrial, detergency, and horticulture markets we serve. Accordingly, volumes in the U.S. were lower in the fourth quarter particularly in account exposed to the agricultural and industrial markets, the overall economic slowness and likely correction of inventories across the chain all the way to the final customer.

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