Braskem SA ADR

Good afternoon, ladies and gentlemen. At this time, I would like to welcome everyone to Bratkin's third quarter of 2020 earnings conference call. Today with us we have Alberto Simões, CEO of Bratkin, Pedro Freitas, Vice President of Finance, Procurement and Corporate Affairs, and Rosana Volho, Investor Relations Director. We would like to inform you that this event is being recorded and all participants will be in a listening-only mode during the company's presentation. After breath-taking remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. We have a simultaneous webcast that may be accessed through the Brotkin IR website at www.brotkin-ri.com.br and the NEDIQ platform where the slides presentations are available for download. Please feel free to sleep through the slides during the conference call. There will be a replay facility for this call on the website. We remind you that questions which will be answered during the Q&A session may be posted in advance on the website. Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of Securities Legation, Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Draft 2 Management and on information that is currently available for the company. They involve risks, uncertainties, and exceptions because they relate to the future events and, therefore, depend on the sequences that may or may not occur in the future. Investors should understand that general economic convictions, interest convictions, and other operating factors could also affect the future results of Breskin and could cause results that differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Rosana Valho, Investor Relations Director. Rosana Valho, you may begin your conference.

Good afternoon, all. We would like to thank you for joining this Brass Cane Earnings Conference Call. Today, we will present our quarter 2020 results. So, please, let's move to slide number three, in which we will talk about brass cane sustainability goals disclosed this week. Based on our Sustainable Development Strategy and in line with the Sustainable Development Goals of the United Nations for 2030 and the Paris Agreement on Climate Change, we recently informed the market our new goals related to mitigate climate change and eliminate plastic waste. Our goals for mitigating climate change are achieve carbon neutrality by 2050, and provide a 50% reduction in greenhouse gas emissions by 2030. Regarding eliminating plastic waste, our goals are expanding the IMGREEN portfolio, aiming to include 300,000 tons of thermoplastic resins and chemicals with recycled content by 2025, and by 2030, 1 million tons of such products. And also, by 2030, work to prevent 1.5 million tons of plastic waste from being sent for incineration to landfills or deposit in the environment. Moving to slide number four, we will present our strategy to achieve carbon neutrality and also to eliminate plastic waste. To achieve carbon neutrality, the company's strategy will concentrate its actions on three fronts. First, reduction of emissions focusing on energy efficiency and increasing the use of renewable energy in current operations. Establishing partnerships focused on innovation and technology. offsetting emissions with potential investments in the production of chemicals and polymers from renewable sources, and capturing carbon emissions through research and development for the use of carbon emissions as raw material. Additionally, in the forefront of circular economy, Braskem will continue to pursue its mechanical and chemical recycling projects. With that, the company reaffirms its commitment to sustainable development and its continuous purpose of improving people's lives by creating sustainable solutions for chemicals and plastics. Let's move to the slide number five, in which we'll talk about the company's consolidated highlights for the third quarter of 2020. In this quarter, the company recurring EBITDA was $699 million, 126% higher than the second quarter of 2020, mainly explained by the bad spreads in the international market of polyethylene in Brazil, polypropylene in the United States, and polyethylene in Mexico. Also, explained by an increasing sales volume in Brazil and in the United States due to the recovering demand for resins in the Brazilian market and polypropylene in North America. compared to the same period of the previous year, the company recurring EBITDA in U.S. dollars was 69% higher. Moving to the next slide, we will present the third quarter 20 highlights in Brazil. In Brazil, the average capacity utilization rate of our crackers increased 17 percentile points in relation to the second quarter. and 2% of points compared to the third quarter 2019, reflecting the normalization of operations in this quarter. Resin sales in the Brazilian market increased 24% in related to the second quarter 20 and 3% compared to the third quarter 2019 due to the strong recovering demand for resins in the Brazilian market. It is important to highlight that in this quarter, and in line with our strategy of prioritizing sales to the Brazilian market, the company exceeds 1,050,000 tons of resin sold in the domestic market, a historical quarterly record of resin sales in Brazil. Given that, Brazil's EBITDA was $529 million, 148% higher than second quarter 20, representing 70% of the company's consolidated segments EBITDA. The increase in EBITDA is mainly explained by the higher sales volumes of resins and chemicals in the Brazilian market and by better spreads in the polyethylene business. In the next slide, we will provide an update regarding the dialogical event in Alagoas. In January, we signed an agreement with the Alagoas State Public Defender's Office, the Federal Prosecution Office, the Alagoas State Prosecution Office, and the Federal Public Defender's Office. In this regard, and to the best of our knowledge, Brock estimated around 3.5 billion reais in provisions. of these amounts, around R$1.7 billion was related to support the relocation and deminification of residents of the areas at risk located in the affected region. Important to mention that this amount was transferred to a specific bank account managed by Braskem. Therefore, it's not being considered in our cash position. Additionally, R$1 billion was related to actions to monitor and close the salt mining wells and R$700 million for other measures not covered by the agreement with the authorities. In July, Braskem executed an amendment to that agreement with the authorities and informed the market the second relevant provision in the amount of around R$1.6 billion. More recently, in September, we have informed the market an important development in the assessment of the plantation impacts of the geological event of Lagoas, with the conclusion, on September 14, the studies of expert independent technical engaged by the company from internationally recognized entities. In order to implement the potential new measures related to the illogical event in Alagoas, the company, in light of the information available to date, estimated the additional amount of around 3.6 billion reais. Finally, just to reinforce, Bracken cannot predict with certainty future development in respect of this matter or its related expenses. And the cost to be incurred by the company may be different than estimated. Moving to the next slide. Regarding the financial compensation and relocation program, in September, by September 2020, around 6.7 thousand properties were relocated. More than 7.5 thousand families were included on the compensation flows. Around 26 thousand residents were relocated and more than 2 thousand families from humanitarian aid were shifted to the program. Additionally, the residence center is set up to service residents of the financial compensation and support for location program. That is also a program focused on picking up and providing healthy care and welfare improvement for animals. Around 180 million reais was disbursed from the bank account of 1.7 billion reais mentioned before related to the expenses of the financial and compensation support for relocation program. Let's move to the next slide where we will present the third quarter 20 highlights in U.S. and Europe. In the United States and Europe, the average capacity utilization rate of RPP plants increased in relation to the second quarter of 2020 and also in relation to the third quarter of 2019, explained by the higher demand in the United States and the improved production capacity after operational issues in some plants in the U.S. and Europe in the previous quarters. PP sales volumes were 10% higher compared to the second quarter of 20 and 8% higher in relation to the third quarter of 2019, mainly to the demand recovery in the United States and supply restrictions in the region caused by the Laura hurricane. EBITDA in the United States and Europe was $133 million, 223% higher than the second quarter of 2020 and representing 18% of the company's consolidated segment EBITDA. The performance in the quarter is mainly explained by the higher sales volumes in the United States due to the increase in the country's industrial activity. In the next slide, we will talk about our new PPP plan in the U.S. The construction of Bratkin's new PP plant in the United States was concluded, and it has started commercial production in the third quarter of 2020. The new plant is located at the LaPorte site in the state of Texas and has production capacity of 150,000 tons per year. In October, the production of our new PP plant in the United States was 36,000 tons close to the monthly production capacity of the plant of around 38,000 tons. Moving to the next slide, we will talk about Mexico results. In Mexico, the average capacity utilization rate of our polyclean plants increased 4% of points in relation to the second quarter of 2020 due to the higher retained supply by Pemex combined with the retained import from the United States. Compared to the third quarter of 2019, the utilization rate increased 12% of points, reflecting the start-up of the ethane import project in February this year. In the quarter, BRAS Canada imported 42 million tons, or 8,000 barrels per day on average, of ethane from the United States to complement the supply of ethane by PEMEX. which corresponded to 13% of the capacity utilization rate of the Mexico petrochemical complex. Polyethylene sales in Mexico decreased by 2% when compared to second quarter 2020 due to inventory decomposition. When compared to the same period of last year, it increased by 12% given the high availability of products. Mexico's EBITDA was $97 million in line with second quarter 20, representing 13% of the company's consolidated segments EBITDA. In the next slide, we will talk about petrochemical scenario. According to the most recent projections by external consulting firms, the expectations for healthier rising spreads in all regions. Regarding the rising threat in Brazil, polyethylene spreads increased by 102%, polypropylene spreads increased by 26%, and PVC spreads increased by 41% over the figures projected in the beginning of the year. The spread improved mainly due to the strong drop in the NAFTA prices and the demand recovery after COVID impacts, and also by impacts of Hurricane Laura in case mainly of the polyethylene business. In the case of the main petrochemicals spreads, external consulting firms expect lower spreads over the figures projected in the beginning of the year, due to the COVID, the demand for basic chemics was strongly impacted, which resulted in challenging spreads each year. For the businesses outside Brazil, polypropylene in the United States increased by 9% and in Europe by 20% related to the projections of the beginning of the year. And regarding the spread reference of Mexico, it has presented 13% increase compared to the figures projected in the beginning of the year. Moving to the next slide. During the third quarter of 2020, we had a positive free cash flow generation of 747 million Reais, mainly explained by the increasing recurring BIDA and also by the monetization of Pisco Fin's credit for around 332 million Reais in this quarter. This effect was partially offset mainly by a bigger interest payment in the quarter due to the payment of the first installment of semi-annual interest of bonds issued in November last year. Here today, free cash flow generation was negative 757 million reais, mainly explained by the cash consumption due to the change in the feedstock purchase strategy in Brazil due to COVID. Moving to the next slide. In the end of September, the average debt term was around 19 years, with around 50% of the total debt due after 2030. Also, the company has sufficient liquidity to cover debt maturities in the next 53 months. For that, we reiterate our commitment to maintain our strong liquidity position and cost discipline while continuing to implement the measures set forth in our deleverage plan. Let's move to the next slide, which will talk about the deleverage plan. Bracken remains focused on implementing the deleverage plan initiatives to reduce its corporate leverage. and as a consequence, to be reassigned as an investment grade company. Besides the conclusion of the hybrid bond issues in July 20, there are other initiatives underway for which Brodsky already presents results, such as reduce investments from $721 million to around $600 million in 2020, with the expectation of ending the year in line with that target, Reduction of around 9% of fixed costs in the year today compared to the same period last year. The goal is to close 2020 with a reduction of around 10%. Another initiative is related to working capital optimization under discussion with relevant suppliers of the company. And lastly, monetization of around 1 billion reais in fiscal fees credits in the year today. Moving to the next slide, we'll start talking about our ESG achievements during the quarter. The Alliance to End Plastic Waste is a nonprofit organization to help to solve a serious and complex issue, millions of plastic waste tons entering the ocean every year. As a member of the Alliance to End Plastic Waste, we have participated in the Progress Report, a report that celebrates the advance aimed at eliminating plastic waste in the environment. In this report, our CEO wrote a letter with Breskin 2019 main achievements. Our contributions were focused on three main fronts, business strategy focused in the sustainability development, Promotion of the circular economy is stimulating new approaches from production to disposal and strengthening of portfolio technologies and business models based on biopolymers and plastic reuse. Aligned with the organization initiatives, we recognize the complexity of this problem and understand that the solution depends on joint efforts from different vectors of society. In the next slide, we will present an important partnership for this quarter. We signed an agreement with TECIPA to remove plastic waste from landfills. This agreement will prevent more than 2,000 tons of plastic waste from being disposed annually in the landfill of Santana do Parnaíba, São Paulo. The volume is equivalent to 36 million plastic packets made of polyethylene and polypropylene. This partnership reinforced Bruskin's commitment to the circular economy and is in line with the company's business strategy, engaged in contributing to the development of the recycling chain. In the next slide, we will talk about chemical recycling. We also had advanced in the chemical recycling initiatives by signing a new cooperation agreement with Brazilian partners to invest on the development of catalysis. The agreement was obtained after Bratkin participation on a selection process opened by SENAI through a public notice. In the chemical recycling, the discarded plastic waste is processed and transformed into raw material cans that will be used to create new plastic resins. Moving to the next slide. At Bratkin, opportunities are for everyone. This means that we pursue, through our actions, to become a more inclusive and welcome company, guaranteeing equal opportunities for all team members through a diversity and inclusion program. In 2014-2015, we implemented some actions focused on women team members in industrial areas, such as diagnosis of work structure for women in the industrial area. In 2016, we launched the Diversity and Inclusion Program with five working fronts, gender equality, social and economy, race and ethnicity, people and disabilities, and sexuality and gender identity. Between 2017 and 2019, we train our teams, both individual and leadership, on diversity and inclusion. And in addition, the diversity and inclusion program become global with initiatives in the U.S. and also in Mexico. This year, we continue to work to create an even more inclusive work environment by creating an internship program with a greater focus on diversity. Lastly, in our 2020 internship program, some selection criteria were made more flexible, such as the English language, which is no longer mandatory in 40% of the vacancies. Moving to the next slide. To conclude the presentation, we will talk about the priorities for the fourth quarter of 2020. In relation to productivity and competitiveness, the priorities to start our chloro-chloride operations in Alagoas, and also to conclude negotiations to renew the supply of NAFTA for the industrial units in São Paulo and ethane and propane for the industrial units in Rio de Janeiro. As for the diversification of feedstock and suppliers, PILAR, we will continue the ramp-up of the complementary solution for importing tanks at Bras Canideza and continue evaluating the definitive infrastructure solution for expanding access to tanks in Mexico. With regard to geographical diversification, our priority is to continue the ramp-up of our new PPP plan in the United States and maximize synergies among the regions where BRASKIN has induced cooperation. about people, innovation, governance, and reputation, we will work to increase the volume of global production and commercialization of recycling resins and continue with the advance of the financial compensation and support for location programming in Alagoas. In capital allocation and financial discipline, the priority is to continue with the implementation of the delivery plan

initiatives and maintain capital location discipline that concludes today's presentation thank you for your attention and let's move to q a session thank you thank you we are now open for questions if you have a question please press star 1 on your phone or phone at this or any time if at any point the question is answered you may lose yourself in a few pressing star 2 key Questions will be taken in the order they are received. We do ask that when you pose your questions, that you fix up your handset to provide optimal sound quality. Our first question, it is from Bruno Montanari from Modern Soundlight. Bruno, you may proceed.