Braskem SA ADR

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Breskin's fourth quarter of 2020 in Wisconsin Falls. Today, we have Robert Simoes, CEO of Breskin, Pedro Freitas, Vice President of Finance, Brooklyn and Corporate Affairs, Edson Terra, Vice President of South America Allergy and Polio Allergy, and Rosanna Avonlea, University Relations Director. We would like to inform you that this event is being recorded, and all participants will be in listen-only mode during the company's presentation. After Breskin's remarks are completed, there will be a question-and-answer section. At that time, further instructions will be given. Should any participant need assistance during this call, please press 5-0 to reach the operator. We have simultaneous webcasts that may be accessed through Braskin IR website at www.braskin.ri.com.br and the MDIQ platform where the slide presentation is available for download. Please feel free to flip 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 we'll be answering during the Q&A section 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 Security Legations Reform Act of 1996. Forward-looking statements are based on beliefs and assumptions of Breskin management. and on information currently available to the company. They involve risks, uncertainties, and assumptions, because they relate to future events, and therefore depend on circumstance that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of . and could cause results to differ materially from those expected in such forward-looking statements. Now, I will turn the conference over to Rosana Volho, Investors Relations Direction. Ms. Volho, you may begin your conference.

Good morning, all. We would like to thank you for joining Bryce King's earnings conference call. Today, we will present fourth quarter 20 and 2020 results. Please, let's move to the slide number three, in which we will talk about Braskem's main achievements in 2020. First, regarding financial results, the company presented net cash generation of R$1.3 billion. Additionally, Braskem maintained a robust cash position in the amount of R$2.9 billion, with sufficient liquidity to cover liabilities coming during the next 84 months. in relation to leverage, the company continued committed to reduce its corporate leverage in order to be reassigned as investment grade company. For that, the company implemented the initiatives in the deleveraging plan, contributing to a 0.63 times reduction in corporate leverage. Furthermore, supported by the company's cash generation and commitment to financial health, corporate leverage measured by the ratio of net debt to recurring operating results was 2.94 times U.S. dollars, which represents a sharp reduction compared to 2019 leverage. Regarding the geological phenomenon in Alagoas, one of the company's priorities in 2020 was Braskem executed agreements for the compensation of residents, social and environmental remediation, and reparation for workers. And after the approval of those agreements by the court, the public interest civil actions filed against Braskem were terminated. Another highlight about the geological phenomenon in Alagoas was the conclusion of the expert and independent technical studies contracted by the company from international recognized entities for the evaluation of potential impacts in the surface of the region. In the operational front, the company announced the resumption of chlorophyllite plant in Alagoas, which allows the company to resume production of PVC and cork soda with an integrated business model. Moving to ESG positioning and in line with the company's focus on sustainable development since its creation in 2002, Bratkin decided to expand its effort to achieve the goals associated with combating climate change and eliminating plastic waste. In terms of combating climate change, The company's goal is to reach carbon neutrality by 2050, while also reducing its greenhouse gases emissions by 15% by 2030. Regarding eliminating plastic waste, Bracken will work to expand its iGreen portfolio to include, by 2025, 300 kT of thermoplastic resins and chemical products with recycled content, and by 2030, 1 million tons of these products. Moving to the next slide. On slide number four, we will present the main measures taken by the company in response to COVID. Due to the spread of COVID, a series of measures were adopted to minimize the pandemic's impacts on the company's value chain in production sales, as well as on the safety and health of the team members. With the objective of support and cooperate with the value chain, Bratkin made donations in the amount of around 10.6 million reais including hospital materials, protective items, tests, hygiene kits, and more. Additionally, in order to support its customers, Braskem granted a credit line of R$ 1 billion to support mainly small and mid-sized companies in the chain. In the operations and sales front, the company reduced utilization rates and sales in Brazil and the U.S. in the second quarter of 2020, And then after demand recovery as from third quarter 20, the company presented records high sales in Brazil in line with the strategy to prioritize the Brazilian market. Regarding safety, which is a non-negotiable value for the company, Braskem adopted the following measures. Smaller teams for production and locking in the U.S., remote work for team members who work in the offices, and medical support for team members with suspected or confirmed COVID cases. Moving to slide number five, we will comment about the data for quarter 20 and 2020 highlights. In the fourth quarter 2020, the company's recurring operating result was $833 million, 22% higher than third quarter 20, and explained mainly by the bad spreads for resins and main chemicals in Brazil, PPE in the United States, and PPE in Mexico. In 2020, recurring operating results was $2,082 million, 38% higher than 2019, and explained mainly by the better spread for resins in Brazil, PPE in Europe, and PPE in Mexico, and also higher resins sales volumes in Brazil. Moving to the next slide. On slide number six, we will present the main highlights of Brazil's operations. In 2020, the utilization rate was four percentile points lower than 2019, mainly to the temporary drop in demand and to the stocking trend in the petrochemical and plastics production chains in 2020, caused by the pandemic. This effect was partially offset by the normalization of industrial operations as from third quarter of 2020. in the Brazilian market. Resin sales increased in relation to 2019 due to the stronger resins demand in Brazil, to the company's strategy to focus on serving the Brazilian market, and also to the inventory rebuilding trend in the chain due to the acceleration of economic activity. Given that, Brazil's recurring operating result was $1,641 million, 73% higher than 2019, representing 72% of the company's consolidated recurring operating results. In the next slide, we will provide an update on geological events in Alagoas. In this slide, we'll talk about the last update regarding the National Mining Agency official letter. In February, the company informed the market that the National Mining Agency in Brazil has accepted the reconsideration request made by the company, requesting that the agency reconsider its order directing the implementation of additional measures for the mine closure plan proposed by the company. As disclosed in November, such additional measures would have on a cost amount of around R$ 3 billion if implemented. Additionally, the agency decision maintains in place the implementation of the measures completed in the mine closure plan originally proposed by the company. Lastly, considering that the mine closure plan is a dynamic process with complex execution, the agency will continue to oversight the results of the measures that have been taken by the company and further evaluations requirements and provisions may be necessary in the future. Moving to the next slide. In this slide, we'll talk about the financial impact of the geological event in Alagoas. In the chart on the left of the slide, we present the disbursement schedule. BRAS can estimate that expenses related to the case of Alagoas will be incurred over the next five years in the total amount of 9.2 billion Reais, of which 4.4 billion Reais we expect to be disbursed this year. And then in the right chart of the slide, we present how the company tends to fund the disbursement amount for 2021. The company has already set aside 1.3 billion reais in a specific bank account to support the residence program of the company. That is also a 1 billion reais that the company expects this year to monetize related to tax credit of fiscal fees in Brazil. And also, we have $300 million related to general liability insurance that the company is currently in talks with insurance companies. Moving to the next slide. In this slide, we'll talk about the return of chlorophyll production in Alagoas and the benefits of parading the vinyl business in a new integrated business model. In February, the company announced the restarting of chloro-chloride production at its unit in Alagoas, which had been shut down since May 2019. To restart the plant, Braskin concluded the project to produce brine as feedstock made from imported salt, which allowed the company to resume production of PVC and koski soda with an integrated model. in terms of spreads. For 2021, the integrated business model improves the spread by around $200 per ton, impacting in a positive way the profitability of the vinyl segment. Moving to the next slide. In the United States, the average capacity utilization rate of our PP plants increased in relation to 2019, explained by the normalization of operations as from third quarter 20, which offset the temporary slowdown in the second quarter of 2020. In Europe, the capacity utilization rate also increased, explained by the operational adjustments in 2019. PPC sales increased 2% from 2019 due to the higher supply of finished products in the United States and also in Europe. Considering that, Recurring operating results in the United States and Europe was $352 million, 7% lower than 2019, and representing 15% of the company's consolidated recurring operating results. In the next slide, we will talk about the main highlight of Mexicans' aspirations. In Mexico, the average capacity utilization rate of RPE plants decreased two percent of points in relation to 2019, explained by the shutdown of the complex in December due to the interruption of natural gas transportation by the Mexican government agency that is responsible for the natural gas pipeline and transportation system in the regions. In 2020, Brass Canada imported an average of 6,400 barrels per day of heat tank from the United States to complement the supply of heat tank from Pemex, which corresponded to 10% of the capacity utilization rate of PE, which ended the year at 74%. In December 2020, BRAS Canada completed an expansion of the FreshTrack operation, which currently has an expected capacity of 20,000 barrels per day of heating, or about 30% of the total heating requirement of the petrochemical complex. Polytree sales in Mexico increased by 4% when compared to 2019, due to the higher supply of finished products available for sale. Mexico's recurring operating results was $283 million, 22% lower than 2019, and representing 12% of the company's consolidated segment results. In the next slide, we will provide an update on breast kidney disease operations. In this slide, we'll talk about the last update regarding breast kidney disease operations. In March, the company informed the market that Bras Canideza has signed with Pemex and Sanagais the following documents to enable Bras Canideza to continue operations. A memorandum of an understanding with Pemex setting out respective understandings for the discussion of potential amendments to the E-Tain supply agreement and for the development of an E-Tain import terminal subject to negotiation, entering into definitive documentation, approvals of Ross Kennedy's shareholders and creditors, and with reservations of rights. and an agreement for natural gas transportation service with Senagaes with a term of 15 years, short-term condition upon the execution of the definitive documentation that I mentioned before. With the execution of those documents by Bras Canideza, Bras Canideza immediately started to receive the service of natural gas transportation, which had been terminated in December 2020. Additionally, the e-tank supply contract between BRAS candidates and Pemex remains in full force. At the time, BRAS candidates cannot predict the outcome of such discussions with Pemex, its shareholders, and creditors. Moving to the next slide, where we'll talk about pre-cash flow generation. In 2020, we had a positive free cash flow generation of R$1,276 million, mainly explained by the strong operating results of the company, the monetization of Pisco Fin's credit of R$1,786 million, and the reduction in estimated investment by 23%. Those impacts were partially offset by the impact of working capital on cash flow in the first half of 2020, which explained by the cash consumption due to the shift in the feedstock profile with lower volumes of matter being imported. Moving to the next slide, we will talk about debt profile. In the end of December, the average debt turn was around 19 years with around 50% of the total debt due after 2030. Also, considering its cash position, the company has sufficient liquidity to cover that maturity in the next 84 months. Let's move to the next slide, which we will talk about corporate leverage and the leveraging plan. Corporate leverage measured by the ratio of net debt to recurring operating results in U.S. dollars is stood at 2.94 times in the end of 2020. This ratio represents a significant reduction in the company's corporate leverage, which had ended 2019 at 4.71 times. During 2020, Braskem implemented measures to reduce corporate leverage in order to be reassigned as an investment-grade company. Since the end of the second quarter of 2020, the company has reduced significantly its corporate leverage going from 7.11 times to the end of the year at 2.94 times. In 2020, the company made progress on the initiatives of its leverage plan and ended the year with the following achievements. Issue of hybrid bond in July 2020 in the amount of $600 million, treated as 50% equity by standing pools and feature ratings. Reduction of investments from $721 million to around $555 million in 2020, below the target of $600 million. reduction of around 9% in fixed costs from 2019, near the target of ending 2020 with a reduction of 10%, and then monetization of around 1.8 billion reais in fiscal fees credits in the year. Moving to the next slide, we start talking about our ESG highlights. In alignment with its strategy to expand the use of clean energy and its industrial operations, Braskem has signed an agreement to purchase renewable energy from Casa dos Ventos, one of Brazil's pioneer and largest investors in the development of projects in this industry. The agreement contributes to the feasibility of the construction of a new wind farm by Casa dos Ventos in Rio Grande do Norte State, which will ensure the supply of energy to Braskem for the next 20 years. In addition to energy purchase, Braskem will have the option to acquire an equity interest in the wind farm, which would enable a self-production model by the company. Regarding our carbon neutrality goal, this new agreement with Casa dos Ventos will help the company to reduce CO2 emissions. Let's move to the next slide, where we'll talk about the expansion of our bi-polymers business. In February, the company informed the market that it's launching the project at the Triunfo Petrochemical Complex in Rio Grande do Sul state to expand its current production capacity of green ethylene using feedstock made from sugar cane to produce green polyethylene, which have a negative carbon footprint. With an estimated investment of $61 million, the expectation is to add 60 kT per year of green ethylene production by the end of 2022. Regarding our carbon neutrality goal, this project could help Bracken offset its CO2 emissions. Let's move to the next slide. Bracken, a Danish-based company, announced in late 2020 the first production of MEG on a demonstration scale. This unit started up in 2019 to demonstrate the breakthrough technology that transforms sugar into renewable ABG. ABG is a raw material for making PET, which has several applications and is an essential input in factors such as packaging, especially beverage bottles. Regarding our carbon neutrality goal, Similar to the green ethylene, this project helps Broskine to offset its CO2 emissions. In the next slide, we will present an important partnership between Broskine and the University of Illinois Chicago. Broskine joined forces with the University of Illinois Chicago to research a route for developing ethylene using a technology that captures and uses CO2. The project is in the initial development stage and Braskem will contribute with its know-how in market and producing polymers to scale the technology. This eruptive technology of the university in partnership with Braskem has global potential for industrial applications by connecting the production of polymers to capture and convert of CO2. Regarding our carbon neutrality goal, This project is related to capture and use of CO2. In the next slide, we'll talk about petrochemical scenario in 2021. According to the most recent projections by external consulting firms, the expectations for healthy polyethylene and PVC spread in 2021. In the case of PE, In 2021, it is expected the spread of PE to be better since 2017, reaching up cycle levels, mainly to the strong demand globally. In the case of PVC, after the return of our chlorophyll I-Plan, the spread better reflects the profitability of vinyls, which is higher than the non-integrated model spread as mentioned before in this presentation. Let's move to the next slide. which will talk about the scenario for PPE. Similar to PPE and PVC, external consulting firms are also projecting healthy PPE spreads in 2021. In the case of PPE, the main highlight is regarding spreads in the United States, where projections point for a sharp increase in PPE propylene spreads compared to recent years due to the strong demand and lack of new capacity in 2021. In addition, PPE spreads for company business in Europe and Brazil also have a positive trend in 2021. Moving to the next slide. In this slide, we present the short-term outlook focusing on the dynamics in the first quarter of 21 compared to fourth quarter 2020. In the case of Brazil, ethylene production should be similar, despite a pit stop at the Rio Grande do Sul complex and a scheduled shutdown of the São Paulo complex in the quarter. Regarding sales, total rising sales should be in line with fourth quarter 20, and the company expects to continue the strategy to prioritize sales to Brazilian market. Additionally, it is expected healthy spread for all risings due to the resilient global demand. In the United States, because of the impact from severe winter weather in February on the U.S. Gulf Coast, utilization rates in sales volumes could be lower than 4.20. However, it is expected healthy PP propylene spreads in the U.S. that will offset this impact on production and sales. Finally, for Bras Canideza, polyethylene production should be similar compared to last quarter, with the partial restarting operations in January as an experimental model, and with the return of the natural gas transportation service in March. However, sales could be lower due to the lower availability of products in inventory. regarding spread, in line with what we presented for the other regions, the spread for polyethylene based on ethane in the U.S. should be healthier due to the continuous strong demand and also the impact from the winter storm on the PE supply. Let's move to the next slide where we present the outlook for 2021. In Brazil, after a strong economic downturn in 2020, the Brazilian economy is expected to return to growth in 2021, impacting in a positive way the demand for thermoplastic resins and as a consequence, the company sales volume in Brazil. In relation to petrochemical spreads, according to the projection of external consultants, the expectations for healthy spreads for all resins in Brazil demand for petrochemical products has been shown to be quite resilient, impacting in a positive way the spread in the region. In the United States business, the company will operate the new PP plan throughout the year in 2021, and the company should increase the volumes of sales in the United States business. In additional, PP propylene spreads in the US are expected to remain healthy in 2021 as new additions on PP capacity in the region are planned only for 2022 and on. And the demand for petrochemical products has proved to be quite resilient. Regarding the company's business in Europe, sales volume should remain in line with 2020 in a scenario of maintaining the same production capacity in the region but with healthy PP propylene European spread in the Mexico business. In early 2021, BrasCanadeza partially returned the polypene production based on an experimental business model following safety protocols. Additionally, at the beginning of March, the natural gas transportation service that had been interrupted in December 2020 was reestablished. In relation to spreads, according to the projection of external consulting, the expectations for healthy spreads of PE10 in 2021. Considering the scenario in the region and the production for CapEx interest and income tax, the company is confident we have 2021 cash generation. Moving to the next slide. To conclude the presentation, we will talk about the main objectives of the company for 2021. For this year, the company developed six main objectives in its strategy. Continue with the advance related to the geological phenomenon Alagoas. Find constructive ways to solve the E10 shortage in Mexico. Ensure the company's continued financial health, risk management, and discipline in capital allocation. It strengthens broken image and recognition with team members, clients, suppliers, investors, and society. Increase effectiveness, innovation, and speed up digital transformation. And lastly, advance in the implementation of our ESG commitments and goals. Lastly, but not least, safety in our operations is a perpetual and non-negotiable value in our strategy. That concludes today's presentation. Thank you for your attention. Let's move to the question and answer session. Thank you.

Thank you. The floor is now open for questions. If you have a question, please press star 1 on your touchtone phone at this or any time. If at any point your question is answered, you may remove yourself from the queue by pressing the bell key. Questions will be taken in order they are received. We do ask that when you pose your questions that you pick up your handset to provide optimum sound quality. Please, all the while we stay for questions. Mr. Ricardo Rezende from Dr. Morgan would like to make a question.