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Innophos Holdings Inc. (NASDAQ:IPHS)

Q2 2010 Earnings Call Transcript

August 03, 2010 09:00 am

Executives

Mark Feuerbach - Vice President, Treasury, Financial Planning & Analysis

Randy Gress - Chairman, CEO & President

Neil Salmon - VP & CFO

Analysts

Edward Yang - Oppenheimer

Christopher Butler - Sidoti

Frank Mitsch - BB&T

Jeff Zekauskas - JPMorgan

Elie Mishaan - Corsair

Operator

Good day ladies and gentlemen and welcome to the Innophos second quarter 2010 results conference call. My name is Steve, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of today's call. (Operator Instructions). As a remainder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Mark Feuerbach, Vice President of Treasury and Investor Relations. Please proceed, sir.

Mark Feuerbach

Thanks for joining us today for the Innophos Holdings Inc. conference call to discuss second quarter 2010 results. Conducting the call today are Randy Gress, Chief Executive Officer, Neil Salmon, Chief Financial Officer, Bill Farran, General Counsel and myself, Mark Feuerbach.

During the course of this call, management may reiterate forward-looking statements made in our August 2nd press release regarding financial performance and future events. We will attempt to identify these statements by use of words such as expect, believe, anticipate, intent and other words as to note 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 and other factors as set forth in the forward-looking statement section and in item 1A risk factors in our annual reports on Form 10-K as filed with the SEC that could cause actual results to differ from those in the forward-looking statements made in this conference call.

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 August 3rd 2010. 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 would like to turn the call over to Randy Gress, CEO of Innophos. Randy?

Randy Gress

Thanks Mark and good morning everyone. Today I will be providing you with an update on the strong second quarter results. After the quarter’s highlights, Neil will summarize the financial results and then I will conclude, we will then take your questions.

Both net sales and operating income were up on a year-over-year and on a sequential basis. Pricing and volumes in both the specialty phosphates and GTSP and other business segments improved sequentially. In fact I am pleased to report specialty phosphates achieved a fifth quarter of sequential volume growth improvement and the first sequential pricing improvement since 2008.

This quarter, net sales were $184 million, up 10% year-over-year and a 9% improvement sequentially. Specialty phosphates revenues increased 1% versus last year with volumes up 21% and prices lower than a year ago when pricing had just begun to adjust from earlier peak levels. Compared to first quarter, pricing improved moderately on a sequential basis and volumes improved 3%.

Our Mexican business continued its strong recovery with specialty phosphate volumes up almost 40% year-over-year. There are three primary contributors to Mexico’s recovery and improved cost position relative to market, recovery of market demand and significant success in establishing new export markets with sales to South America being the primary contributor to volume growth.

The mix has also improved with a greater proportion of specialty salts and higher grade acid versus historical levels although there is still further to go in fully repositioning the business.

US and Canada Specialty phosphates delivered year-over-year volume growth of 16% with the improved economic environment contributing together with ongoing success in our commercial programs. Improved economic conditions were most evident in the recovery of phosphoric acid sales to industrial markets although volumes were still somewhat below pre-2008 levels.

Our ongoing success in strengthening our position in the more differentiated specialty salts and specialty acids was also evident. Sales of these products were much less effected by recessionary conditions and we were already near pre-2008 volumes. On a sequential basis, US and Canada volumes were a little lower than the first quarter. We did not detect any sustained change in the demand environment and the reduction was attributable primarily to three factors.

First after a loss of primary specialty food salts inventory following flood damage at a third party warehouse in Nashville, we had to increase lead times and reschedule some orders. Our nearby manufacturing facility, together with our supply chain team have done a terrific job of responding and we don’t believe we have lost any business as a result of this. However, it did affect second quarter sales moderately.

Second, we had our scheduled maintenance shutdown at Geismar, Louisiana. The plant shutdown and went well and the facility was back up on schedule. We also took advantage of our new network strength, utilizing some Mexican supply to compensate for the Geismar outage.

However in what a strong PWA demand environment, we opted to reschedule some orders to better accommodate the outage. Finally, across the first and second quarters, we saw some impact from further home auto dish wash reformulation of Sodium Tripolyphospate or STPP with higher orders in Q1 in anticipation of the change and minimal further orders in Q2.

Also as you have seen, Granular Triple Super Phosphate fertilizer or GTSP volumes, increased significantly on higher purified acid production rates, leading to higher co-production and also to a favorable order pattern in the quarter.

Overall, we delivered a companywide 4% year-over-year increase in operating income, which was more than 50% higher than the first quarter. We are also transitioning well with regard to rock supply. Following our first new long-term supplier contract signed earlier in the quarter, we have continued to conduct troughs on potential new rock sources, taking advantage of the flexible processing capability of our Coatzacoalcos, Mexico plant.

We have successfully processed one of the three [trough] shiploads received to-date with the other two expected to be processed in the third quarter. We are well on track to assure handling of multiple sources and negotiations are proceeding well on several fronts. While there is still work to be done, I am confident we will be able to see secure competitive rock supply for 2011 and beyond. I will now turn it over to Neil for more detail on the quarter.

Neil Salmon

Thanks, Randy. As Randy mentioned, net sales in the second quarter were $184 million, a 10% increase over the 2009 second quarter. Specialty phosphates revenue improved 1% despite lower prices than a year ago with volumes up 21%. The US and Canada business achieved 16% volume growth while Specialty Phosphates Mexico grew volumes by almost 40%.

The year-on-year price decline was similar in both regions at around 20% with total revenue consequently down 3% in US and Canada, but up 15% for Specialty Phosphates Mexico. GTSP and other sales in the quarter at $22 million was substantially improved compared to the $6 million of a year ago. Pricing improved the GTSP in line with market representing most of the 59% price improvement for the overall GTSP and other segment.

But the main contributor as Randy mentioned, were significantly improved volumes. Second quarter 2010 gross profit margin at 26% of sales was about the first quarter’s 22% as expected as favorable raw material contract resets worked their way through into cost of goods sold.

Although, we continue to expect some moderation in market prices before contract prices reset for 2011, our expectation remains that an approximate $5 million per quarter cost increase from our higher contract raw material prices will phase in beginning with the fourth quarter 2010 and take full effect in the second quarter 2011.

Operating income for the second quarter 2010 was $33 million and it was encouraging to see strong volumes, lower costs and the return to competitive sourcing for Mexico, more than offsetting the specialty phosphate price adjustment versus high year-ago levels to deliver a 4% increase in operating income. Specialty phosphate’s operating income was $31 million, down $8 million compared to last year, but up $9 million compared to the first quarter.

GTSP operating income in the quarter received the full benefit of the improved 2010 sourcing position for phosphate rock and accordingly, GTSP and other operating income for the second quarter 2010 was $1.9 million compared to a loss of $7.4 million for the same period in 2009. Of the $9.3 million improvement, $4.3 million can be attributed to non-recurring items in the Q2 2009 period specifically a $1.8 million write down on GTSP inventory carrying value and a $2.5 million mark-to-market adjustments on anticipated, unfulfilled natural gas purchase commitments.

Lower operating expenses for the quarter can be attributed to ongoing strong cost control, reduced legal expenses following the OCP settlement and the switch in ERP expenditure to being accountable item this quarter versus an expense last year.

Net income was level with last year at $18 million although after taking accounts as slightly higher diluted shares outstanding, earnings per share at $0.79 were 2% lower than the $0.81 for the second quarter of 2009. Our effective tax rate for the quarter was 34% and we now anticipate a range of 34% to 36% for the full year.

Net debt decreased by $8 million to $123 million from March 2010. Also as a reminder during the quarter on April 15, 2010, we redeemed at par, the remaining $56 million of outstanding Innophos Holdings 9.5% notes due 2012 with on hand cash.

Capital expenditure is currently expected to come in at the high end of the range we have previously disclosed or around $35 million attributable to the same major expenditures we established earlier in the year. First, the ongoing focus on Mexican food grade capability with continuing incremental improvements to existing Mexican food grade salts facilities. Next there will be comprehensive testing of the ERP project through the end of the year and into early next year to enable us to implement the system most efficiently. Although the rate of spending will be reduced versus the bill phase in the first half of 2010.

Third, additional de-bottlenecking and expansion of salts capability in Canada and various US locations will enable us to continue improving our focus on higher margin products and end markets and support our export strategy.

Finally in keeping with the company's supply chain diversification strategy, we are continuing to enhance Mexico's capability to process multiple grades of rock and are continuing to evaluate the Mexican phosphate rock concessions. Now back to you, Randy.

Randy Gress

Thanks, Neil. We believe that conditions in the third quarter are continuing to support the successful execution of our 2010 goals for the transformation of our business to a greater focus on high value specialty phosphates and the establishment of a multi-sourced rock supply.

Along with some further improvements in specialty phosphate pricing, volume growth for specialty phosphates is expected to continue for the third quarter leading to net sales growth in excess of 5% on a sequential basis and 10% on a year-over-year basis.

GTSP volume for the second-half of 2010 is expected to be similar to the first half and market pricing is currently stable. However the ongoing impact from order patterns will continue to mean GTSP sales in any one quarter are variable. We’ve seen no signs so far of recent economic uncertainty adversely affecting demand and we expect to continue to make progress developing our position in new markets and maintain our improved operating income margin through the third quarter.

As we have indicated, our margins in the second quarter were somewhat advantaged to market given the protection we have against short-term raw material market price movements. However even allowing for the catch-up, we currently anticipate in 2011 to market based input costs. Our recent margin trend is encouraging. We remain very focused on continuing to earn and demonstrate our value propositions to customers. We will continue to focus on higher margin markets and segments in order to maintain or continue to improve the product mix.

And our supply chain strategy continues to improve the leverage and flexibility of our sourcing network. One of the reasons, I have confidence in the strength of our value proposition is the increase we continue to see in the development work we are doing in close partnership with customers.

In part, this is driven by increasing customer desire to partner with innovative suppliers in developing new consumer and products to meet emerging trends. We feel that Innophos’s leading application expertise as well as our product breadth positions us well to support our customers’ needs. For example and meeting their reformulation objectives and reducing sodium contact. Both our long-standing leadership position in calcium phosphates and ongoing de-bottlenecking to increase throughput across our specialty salts range support this work.

With the core business in good shape, we are continuing to make progress on several bolt-on acquisition and additional organic investment projects aimed at accelerating achievement of our strategic goals of growing in profitable specialty end markets and expanding our geographic base. We expect to be able to fund likely investment through existing liquidity while continuing with our dividend in evaluating opportunities to improve the structure, flexibility and cost effectiveness of our debt facilities. Thank you for listening and we will take your questions now. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). And your first question comes from the line of Edward Yang with Oppenheimer.

Edward Yang - Oppenheimer

Is there a way to quantify the impact on sequential volumes from the three factors that you called out; the flood, the Geismar turnaround and also the reformulation and also on the latter, the home auto-dishwash reformulation, that would be more of a permanent impact, would that be correct?

Randy Gress

As far as the home auto-dishwash, you may recall that was a result of regulation that was taking effect in the US in quite a number of states and that was driving the major sulphurs to do some reformulation. So yes, that impact will be permanent and as you may recall, we’ve done a good job I think in transitioning our plant as well as our market position to the more specialized product and Neil, could you shed some light on the first one.

Neil Salmon

But to expect as we would have been within the range we’ve previously given on volume growth for the quarter of 5% to 10% sequentially. At the lower end of that range, but so within the range.

Edward Yang - Oppenheimer

Okay and given the home auto -dishwash reformulation, what would that have been in terms of a volume impact percentage wise?

Neil Salmon

I don’t have an exact volume number on that with me, but the important point for the second quarter of course is that it’s not an ongoing impact going forward.

Edward Yang - Oppenheimer

In terms of your guidance for 5% sequential revenue growth for Specialty Phosphates, is that mostly coming on volume or price?

Randy Gress

Most of that will be on volume with some modest price improvement expected.

Edward Yang - Oppenheimer

Okay and maybe a longer-term question, you have gone through a pretty volatile period in terms of ups and downs, in terms of margin and lot of that was driven by pricing and raw materials. Now that things have settled down somewhat and you’ve settled at a very nice operating margin rate, do you have any better sense of what the long-term operating margin for your mix of business should be? Two to three years out?

Neil Salmon

I think we haven’t issued a specific target there. But if you look at our margin trend through Q4 of last year, Q1 of this year and Q2 as we said, Q2 has a little advantage to market but we’ve given you an idea of the quantum of that. But fundamentally I think that those three quarters with that one adjustment represent a rate that we will aim to build on going forward for the US and Canada business.

Mexico as we have mentioned, is still in transition we have made some progress in repositioning the business to a more specialty product mix, but this was a potential in Mexico, though that’s likely to be a more gradual recovery rate than the rate we have seen over the last couple of quarters.

Operator

And your next question comes from the line of Christopher Butler with Sidoti.

Christopher Butler - Sidoti

Just wanted to circle back with the maintenance, is this something that is an annual maintenance or how often does this occur for you?

Randy Gress

As far as guys, we do that every two years.

Christopher Butler - Sidoti

And so, as we move from the second quarter to the third quarter with that completed, you had mentioned that we’re going to see some volume growth, pricing, some marginal, moderate price increases.

In the release, you had mentioned that, for specialty phosphate, you expect profitability to be about the same as the second quarter? Shouldn’t we see some contraction with those inputs? Answering with those inputs? Let me correct myself.

Randy Gress

Sorry Chris, I missed your correction.

Christopher Butler - Sidoti

On the margin expansion.

Randy Gress

Well, we also see ongoing some raw material cost increase from earlier increases in raw materials that we’ve talked about. So, I think overall, when you take account of those factors, then steady margins third versus second as a reasonable expectation.

Christopher Butler - Sidoti

Just to get a better sense of how your business works? Phosphate rock prices have been climbing since they bottomed the second half of last year. Wouldn’t at that point to better pricing for your products but also possibly a bigger stepup in costs when we get to the contract renewal at the end of the year?

Neil Salmon

There is direct connection between phosphate rock pricing and our specialty products, but as we discussed in the past, we do aim to maintain well, sort of margins we’ve been talking about over our input costs and I think, yes we are seeing phosphate rock prices increase in the first couple of quarters or at the beginning of this year.

Long term, we see additional supply coming onto the market and so we are optimistic about phosphate rock prices going forward. So, it’s always difficult to know in exactly what quarter we will see changes though.

But our view on rock pricing as they reach the end of this year and into next year has been taken account of and the indication we have given on cost of goods sold increase next year.

Operator

And our next question comes form the line of Frank Mitsch with BB&T.

Frank Mitsch - BB&T

Just a follow-up in the phosphate rock price and we actually heard from another company that they actually saw those starting to see phosphate rock prices moderate here. So, I'm curious as to A; what your thoughts are there and then secondly you are talking about $5 million increase in the fourth quarter on raws, what raws in particular are you seeing that sort of inflationary effects?

Randy Gress

As far as the phosphate rock pricing moderating or increasing slightly, there has been some firming in demand within the phosphate market more recently. And I think as that impacts our contracts. As you know we have a mix of supply agreements, there is some lag in overall contracts which spills into where we expect cost to change next year and we have rolled that in with the overall mix of raw materials.

Neil Salmon

Yes, I think the rock is one component, the other most important component is sulfur. Sulfur was at a low level throughout 2009. It increased roughly in the first six months of this year, the [tamper] price and Q2 was $145. The third quarter price is going to be quite a bit lower than that it seems, but still up on the 2009 average level.

So sulfur and phosphate rock are the two most important components. There are a number of other raw materials that we take account of, but they are very much smaller in that overall impact.

Frank Mitsch - BB&T

So those are the two that you expect to be headwinds starting in the fourth quarter?

Neil Salmon

Yes, I mean strictly sulfur and to a degree phosphate rock.

Frank Mitsch - BB&T

Okay. And Randy can you talk a little bit more about the efforts that you have put in place in terms of market share gains in North and Latin America. I know that you have been embarking on that strategy. How is that progressing?

Randy Gress

Yes, I think when we take a look at our growth certainly it’s been focused in the specialty salts and specialty acids area where we are working closely with a number of customers supporting some of these emerging trends. One of the trends is the move towards reduction in sodium usage and with our line of calcium phosphates certainly have some opportunities to leverage our position there.

And then for the growth in the export business sequentially over the past couple of years and then even quarter-to-quarter, we’ve been successful in taking these high value products primarily again and is specialty salt, specialty acids to other geographies and being successful in that position there.

I think we have been really trying to build on some of the global relationships of some of the customers and leveraging what we can provide in value and knowhow especially on the application side and I think lastly living up to our commitments and reliability from an improved network to satisfy those markets.

Frank Mitsch - BB&T

It sounds like you are trending in terms of getting additional share this year and into next year?

Randy Gress

We are growing the share and that’s primarily based on performance and the value offering that we have, some of that is with some new products that are being built into our customers’ products formulations.

Operator

And your next question comes from the line of Jeff Zekauskas with JPMorgan. (Operator Instructions).

Unidentified Analyst

This is (inaudible) for Jeff Zekauskas. I wanted to make sure that I understood the raw material portion correctly, so for your American attrition because of the reset you are now lagging market prices and when is the next reset and why you think that your raw materials are going up sequentially?

Neil Salmon

So the reset that impacted cost of goods sold in the second quarter took affect at the beginning of the year and the delayed roll-through is just a timing of purchases and the inventory delay. Of course, the reset at the beginning of this year was set against 2009 prices. We don’t give details on specifically which time period is used, but as we’ve discussed already, 2009 prices were lower than so far in 2010.

So those contracts were reset again at the end of this year and take effect over a similar time period, so the main increase in Q2 2011 and the exact outcome of those resets is still unknown because it will depend on the trend of raw materials for the rest of this year, the remaining six months.

As I’ve discussed already, we see some moderation in sulfur, little less sure what's happening on prospect growth of it, but some indications of moderation there also and we’ve given our best view and taken account of that in the numbers we’ve given you on the 2011 impact.

Unidentified Analyst

That’s clear but why raw materials are going up in there, at the end of the year is the next reset? Will it be in effect for 2011?

Neil Salmon

Our view is that raw materials, although there will be some moderation from current levels, we’ll still be above their equivalent 2009 benchmark for the purposes of this reset and the reason raw material costs are increasing is to do with strengthened fertilizer business which is where the majority of demand for these materials comes from and you follow this closely, I know you’ve seen the strength in commodity fertilizer prices over the last six months or so.

Unidentified Analyst

No I apologize maybe I didn’t ask it correctly. I understand the fertilizer prices are going on globally, but what did it have to do with the your raw material costs, if your reset will be for the next year only, why your raw material prices are going up sequentially?

Neil Salmon

Well our contract prices include reference, have a degree of formula in them that includes market references. We bet those market references to be higher on a year-over-year basis at the point that they reset for 2011.

Unidentified Analyst

Okay and for your Mexican attritions, I think that you are purchasing raw from OCP Steel and is it at market prices or a lag?

Neil Salmon

The OCP price was fixed at the beginning of the year, as part of the OCP settlements and as we said at the time, that was in line with market prices at the beginning of the year. But also we have the three [trawler] shipments that we have taken as part of our mix. And those are more at current market prices.

Unidentified Analyst

And this goes through the P&L as you use it than you reflect this (inaudible)?

Neil Salmon

That’s right; it is sold as part of our finished products, yes.

Unidentified Analyst

Then, what is your current capacity utilization in North America and in Mexico? I mean in US, Canada and in Mexico.

Neil Salmon

We never give precise figures on this because there’s many pieces to it and it’s difficult to capture in one single measure. I would say US and Canada it varies across product lines, but the most important point is that throughout de-bottlenecking strategy, we are able to find additional capacity at relatively low cost as we need it going forward.

In Mexico, we indicated last year that we were significantly below 50% of capacity. That’s certainly improved and we’re a fair bit about that level now. But we’re still some way from operating at full capacity for the Mexican operation.

Unidentified Analyst

Just a couple of quick housekeeping question. So your SG&A expense declined sequentially and were meaningfully lower year-over-year. Why is that and how should we think about SG&A expense going forward and in dollar terms.

Neil Salmon

Going forward second quarter is a good indicator in comparison to last year, the main item as I mentioned was the ERP expenditure switch from being an expense item in the pre-build phase to capital against the first quarter the main, one-off item was, we had just under a $1 million dollars of OCP-related legal expense in the first quarter that did not continue into the second.

Unidentified Analyst

So the second quarter level is pretty good indicator for the expense going forward?

Neil Salmon

Yes.

Unidentified Analyst

Lastly, with the debt re-payment, what’s the expected level of interest expense going forward?

Neil Salmon

In the second quarter, we have some differed financing related to that which I think was around $600,000. So that was a one-off item, second quarter going forward and then, we still had a small piece of interest related to those, that we took out. So if you make those adjustments, then that will give you the third quarter interest rates based on our one remaining piece of debt which is (inaudible) on $190 million of outstanding.

Operator

And your next question comes from the line of Elie Mishaan with Corsair.

Elie Mishaan - Corsair

I had a quick question regarding the depreciation, I was curious what you guys think it will be going forward from here and if that might be falling overtime over the next few years as sort of stepped up assets from the LBO deal few years ago sort of roll off.

Mark Feuerbach

Yes, actually it will be declining, we had noted that in our 10-K. If I recall correctly the figures were somewhere in the $10 million to $14 million range over the next two to three years. Based on assets that are in service today, that would be the expected decline from the depreciation rates of today.

Elie Mishaan - Corsair

Okay, sort of going forward it would be $10 million to $14 million less than this year’s annual number?

Mark Feuerbach

That’s right.

Operator

And your next question comes from the line of Christopher Butler with Sidoti.

Christopher Butler - Sidoti

A quick question on your supply agreement in Mexico going into next year. You said that you had a process, a trial shipload from one of the three possible suppliers that you are looking at. Should I take that to mean that this is acceptable phosphate rock for your production which means that you have one in the hand possibility of one more and then two additional suppliers that you are still working the rock through for?

Neil Salmon

Yes Chris, as far as our testing and prove-out in Mexico, I think if you step back a little bit we had been doing quite a bit of sampling last year as we build our pilot operation down in Coatzacoalcos and did a number of testing of rocks there.

In addition to that, last year when we were running the plant on MGA, that basically gave us additional understanding and capability in using basically MGA produced from other rocks.

So we had quite a bit of improvement there. And then building on the contract that we signed in May continuing to do some testing with the alternative rocks and successfully process the one and I think I am pretty confident that through the various sources that we have capability of running multiple rocks within the Guangxi site.

Christopher Butler - Sidoti

And could you give us an indication of whether you are talking with the OCP group at this point about renewing that contract next year?

Neil Salmon

Well I think you know that all discussions are confidential, but what I can say is that once we settle the agreement or the dispute that we had OCP continues to be a reliable supplier for us and we would welcome them in the mix going forward.

Christopher Butler - Sidoti

And where do you stand as far as acquisitions and possible targets at this point?

Randy Gress

As I’ve said, I think they’re still making progress and really the focus of these bolt-on acquisitions are to support the growth and strategy we have for our core business and leveraging our specialty salts, specialty acids as well as some of the geographic expansion that we’re looking at.

Christopher Butler - Sidoti

With the upgrades that your making, is that taking the priority right now or are you looking at them working in conjunction?

Randy Gress

I think the investments you are talking about is some of our de-bottlenecking as well as the upgrades in food grade acid and more than doubling our capacity in Mexico, combined with some of our specially salts capabilities across the entire system.

Sure, we’re continuing to focus on that, making sure that we’re investing in the right areas there as well as our ERP investment to make sure that we have the tool to support our overall networking, but we can do that combined with what we’re looking at for the bolt-ons?

Christopher Butler - Sidoti

Did you have any meaningful sales in the Mexican segment because of the upgrade in the second quarter or is that still to come?

Randy Gress

Yes, I think we are incrementally growing that business in Mexico, it’s tough to get the rate of improvement there, but what we also did I think which is important is supported the Geismar outage and utilized some of that food grade acid with our overall network. So it further proved our capability across the entire system which I think is a real plus.

Operator

And you have a follow-up question from the line of Elie Mishaan with Crossair.

Elie Mishaan - Crossair

I just had a quick follow up. So CapEx is expected to $35 million for the year. How much of that is maintenance CapEx versus growth.

Neil Salmon

Well, we have indicated in the past that our steady state CapEx is (inaudible) and individual projects is in the range of 20 to 25, I wouldn’t class all those assets as strictly maintenance CapEx, but I think that gives you a feel for the base level of spend for the business.

Elie Mishaan - Crossair

Right it looks like this year you are on sort of for D&A, a runrate of about $50 million and if we say it is going to come down by $10 million to $40 million, so to say $12 million, that brings us to $38 million.

What sort of the disconnect between the maintenance CapEx let’s say of $20 million and $38 million of going forward D&A after the stepped up assets were locked.

Neil Salmon

Well I think certainly long term you would expect those lines to converge, but on a more gradual basis.

Elie Mishaan - Crossair

So maybe near term the D&A will come $10 million to $14 million if we look at the business three years from now the D&A could be down in the 20s probably?

Randy Gress

I think probably over a longer timeframe than that.

Mark Feuerbach

And then just to follow-up on your question, what we had in the K was approximately $14 million over the next three years compared to 2009 depreciation levels.

Operator

And your next question comes from the line of Adam France with 1492 Capital.

Adam France - 1492 Capital

Yes, good morning thanks for taking my call. Randy could you speak to, when you look at acquisitions what are the holes in your product lines at this point? I mean you guys get to straight market shares across a variety of products, but what perhaps are you missing that clients would like to be able to buy from you?

Randy Gress

Adam if you’d look at our breadth of offering in the Specialty Phosphates area, the number of holes I really can’t think of any there. What this does allow for us just back historically, we were a carve out some six years ago from a global business and the concentration of our business is within North America.

So, what we do have is again I think leveraging this position to continue to grow our Specialty soaps within North America especially Latin America and then leverage some of that position to grow globally also.

Adam France - 1492 Capital

One quick question and perhaps it has no relevance to the overall market but what’s going on with mosaic that mine in Florida, can that significantly impact phosphate rock prices or is that not enough to move the needle?

Randy Gress

There is a probably a lot more experts in the overall supply demand balance there on rock. What I read at least on the mosaic piece that, that was roughly six million tons of rock capacity in total where they’ve taken just over 4 million tons of production from there and with the expansions and start ups going on around the world, certainly you have the buyer of our project in Peru which is significant.

And then, on top of that, the Saudi project, the Martin project which is also what I read is they’re going to be shipping product at the end of this year and that’s coming on stream with some ramp up, but that is significant.

And then on top of that, there’s still discussion out there about a number of de-bottlenecks across in the industry globally including what’s being pursued in Australia. So overall, there is still a number of projects coming on that I would think would offset that one [side].

Operator

And ladies and gentlemen, that concludes the Q&A portion of today’s conference. I would now like to turn the conference back over to Mr. Randy Gress for closing remarks.

Randy Gress

Again I'd like to thank you and I look forward to updating you on our further progress again next quarter. Bye now.

Operator

And thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Good day.

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Source: Innophos Holdings Inc. Q2 2010 Earnings Call Transcript
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