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.

Thanks for taking my question. Hi, Roberto, Pedro, Rosana. A couple of questions on my side. The first one, on your press release yesterday, you mentioned that you should see some sort of a deceleration on spreads in the second half of this year. But then I guess the major question that we have is when you look at the first half of the year, how to think about the spreads? Because I guess we and most investors were looking for peak earnings in the first quarter But it looks like that with the winter storm in the U.S. and with the spreads, we might see the peak earnings in the second quarter. So just curious to see how do you think about the first half of the year. And then my second question is about Mexico. How should we think about the utilization for 2021? Because the first thing that the government had pointed to a potential new agreement of 30,000 euros per day of end supply from Pemex. And then you just mentioned on your capacity to import about 20,000 barrels. So would that be the cap on the short term when we think about utilization in Mexico? Thank you.

Hi, Ricardo. Thank you for the question. This is Pedro, and good morning to everyone. Thank you for joining our call. I'm going to address the question around deceleration first, and then the question about Mexico, okay? So we do see the deceleration in the second half. Actually, what we see is a lot of uncertainty. We have a conservative planning process. We tend to be more conservative in the way we do our forecast. But even if you look at industry consultants, they are seeing a peak in spreads between March and April, and then spreads coming down. So we believe that we are going to see a very strong first half of the year. That's the current outlook based on the spreads that we see, the spreads that are forecasted by the industry. And then a lot of uncertainty in the second half. So I would say our view of deceleration into the second half is following the industry trend, but also I would say some conservativeness around the uncertainty by the end of the year. On Mexico, I mean, what we have as a reference for reposition rate is Roughly 50% of the contract volume from Pemex. The contract is 66,000 barrels per day. We're getting somewhere around 30,000 barrels, so a little bit less than 50%. And then we accelerate at around 80% until the pressure suspension in April. So how do you get to the 80%? About 50% from Pemex. another 30% from the current FastTrack. And from April onwards, with the expansion in FastTrack, we believe that we could reach about 90% utilization rate. FastTrack could reach somewhere around 28,000 barrels per day, so that's another, let's say, around 40% of our needs. And then we have... for the future to develop the import terminal. And with that, then I think we could be more sustainably running above 90%. But that's going to take a couple of years . Okay, very clear.

Thank you. Mr. Bruno from would like to make a question.

Good morning, Rosana, Pedro. Thanks for taking my questions. The first one is about Mexico as well. I appreciate how difficult the situation is. There could be a lot of asymmetry in information coming out of Mexico, right, with the government talking about the terms of the agreement. But this could be very biased, and we understand all of the confidentiality agreements in place. At the same time, it makes it very difficult for the market to understand and try to forecast the margins in the future. So the question is, will the company at some point be able to talk about the details and the terms of the agreement, like the discount, the volumes, and all of the KPIs? The second question is about the U.S. So how long should it take to go back to full capacity now after the issues with the freezing in Texas, and the company captured those big spreads perhaps with the inventory from other regions by any chance? And if I may, a third quick one. We saw a strong domestic mix in Brazil in the fourth quarter. Was this result of restocking of third-generation players? Is this sustainable going forward as well? Thank you very much.

So, thank you, Bruno. Good morning. So, on Mexico, I think it's important to say that the MOU that was signed has conditions around the intent of the parties to negotiate a series of topics over the next few months. Those topics include volumes, prices, penalties, the historical liquidated damages, the terminal, the term itself of the contract. So all of this is subject to negotiation. So we will disclose that whenever we have a final agreement with them. So that's our view. We're not going to disclose any additional information which is still subject to negotiation. Regarding the U.S. and kind of your question about taking advantage of the big spread, We have in the U.S. roughly 35% to 40% of our production capacity outside of the Gulf Coast. So those facilities in the northeast of the country have been operating. They were not subject to the cold freezing there in Texas. So the volumes coming out of those facilities have been, I mean, we have kept producing them and we are benefiting from that. We have three sites in Texas, one in La Porte, one in Oyster Creek, and one in Cedric. The two larger ones in Cedric, sorry, in Oyster Creek and La Porte have resumed operations already, and the only one that's still scheduled to come back over the next few days is Cedric. So at this point, we keep running, I would say, our operations, we have been able to come back with operations in the large majority of our production. I would say maybe 10% to 15% is what's still offline at this point. But that should come back unless we find some issue, but it should come back in the coming days. I think another point that is important to emphasize is that the The fact that we have unspread is more valuable or has a better impact than the loss in volumes. So we believe that, I mean, looking at the short term, I would say first quarter, January, February, March, the overall impact is positive for the company given the situation. and also our ability to come back with volumes the way that we have been able to do. Final point on that, it's important also to mention that that situation is specific to the U.S. We don't see the same kind of effect in Europe or in Brazil. So if you're looking at the positive effect, it's really localized in the U.S., And then for your final question around the Brazilian market and the inventories in the value chain, I'm going to invite Edson Terra, who's our vice president in charge of South America. He's here with us and allows Edson to answer that.

Okay. Thank you, Pedro. Thank you. Good morning, everyone. Thank you for the question. What I would say, we saw an increase in the overall market, present market in the fourth quarter. That is around 11% compared to the previous quarter. And at the same time, you notice by our operating rate that we had an operating rate in the fourth quarter that was two points below the third quarter, mainly because of unexpected industrial issues on the cracker in Sao Paulo, in ABC. We don't see most of our customers building inventories. In fact, demand is quite high during the complete second half of the year, so they were not able to build inventory even if they wanted. What we noticed, there was an increase on imports, mainly in November and December. So maybe... On this flow of imported product to Brazil, there may have been, I would say, a recovery on the inventory levels, but I don't see that as part of initiative from our customers.

Great. Thanks for the answers.

Yes, sir. Ben is asking if Codia Banks would like to make a question.

Hi, this is Zia Don for Ben. Thank you for taking my question. Congratulations on a strong quarter. Just a few questions here for you. First, some headlines are pointing to an increasingly difficult macro situation in Brazil with the COVID situation, some FX volatility, and some uncertainty in just the economic outlook. Can you talk a bit about the potential risks to your operations if these materialize, if the country were to go into shutdown or quarantine, and maybe what kind of measures you have in place to kind of address those concerns? And then separately, can we talk a little bit about your capital allocation? Leverage now has improved materially over the last few quarters. free capital generation is positive and looks to be positive if those spreads maintain over the course of the next half at least. So just maybe some guidance on where your capital allocation priorities lie today. Thank you.

Hi, Ben. Good morning. I'll ask Edson Teja to address your first question around the Brazilian market and uncertainties, and then I'll take the second one.

Hi, Ben. Thank you for the question. Basically, what I see is what we are seeing in the market is that we are working with an increase in the market, I would say, a little bit higher than the Brazilian GDP for this year, mainly to the situation on new habits and what we're seeing from our customers. So I would say that our residents should be between 5% and 6%. Presently, 5% to 6% growth during the year. I would say that there may be an effect of a potential increase on the effect of the pandemic. However, we have seen that our people, our customers, are much more prepared to face those situations. You have to consider that our business and most of our customers' business are considered as essential operations to fulfill and to fight the pandemic. So I would say we don't see a major decrease as an effect of a potential increase on the measures to protect from the pandemic.

Just to add to that, I mean, one question that you may have is also around the uncertainty around effects. So I think one point that we have is We are a naturally hedged business. We do have an exposure to cost in head highs, and we have a currency hedging program to address that. And the risk that we face is actually an overvaluation of the hell. If the hell is more disvalued because of volatility, that's actually good for the results of the company.

So just to emphasize that point. Maybe one thing just to complement it is that we also have, I would say Brazil is our target market from our assets in Brazil, but we also have regular business in South America, which is very relevant, and we also can complement the offer of our products or regular exports to other regions as well.

So, and then to address the point or the question around capital allocation and free cash flow. So, last year, as you saw in the presentation, we had a total capex of around 2.7, 2.8 billion reais, including our operational capex of 1.7 billion reais. was worth around $250 million. So that's much less than the normal for the company. The normal capex for the company is between $500 and $600 million. So we do have, for this year, a catch-up in operational capex. The operational capex for this year should be around $700 million. As we showed in the presentation, I mean, $60 million. $167 million from Braskem itself, and then another $34 million in Braskem Edison, plus another $100 million in strategic capex. So the overall capex for the company this year, we are forecasting at close to $800 million. And a part of that, more than $100 million of that is catch-up from maintenance and sustaining capex that we did not do in 2020. So if you take a look at the last slide in the presentation or the next slide, slide number 23, you can see there a lot of, I mean, all of this information. If the scenario that you pointed out is true, we may end up with significant cash flow generation from operations in the year. And what we are planning to do and what we're doing is actually retiring some debt, prepaying debt. We haven't started to do that. We ended the year with a very high cash balance, and we have now paid the perpetual bond. We are aiming at recovering our investment grade by the end of the year. If not sooner, that's the challenge that we have to convince the rating agencies that by the end of the first quarter of the year, we would be ready for that. given the trend that we see in reducing leverage materially and also in the strong cash position, the long-term maturity in our debt. So I think we have a lot of elements there to be able to fight for that investment grade back through the course of the year.

Great. Thank you very much.

Mr. Luis Carvalho from UBS would like to make a question.

Hi, Roberto, Pedro, Rosana, and everyone. Thanks for taking the questions. And, first of all, congratulations on the risking the Alagoas and Mexico, I would say, themes. I think it's pretty much an advancement to the main issues. If I may ask the first question, coming back to the capital location strategy, looking to the spread scenario and the FX rate and what you just pointed out to 2021, we're seeing going to be that close to the $3 billion, a capex of, as you said, Pedro, $800 million. And I had the interest of around $500 million, right? So that probably is going to lead you to a cash generation or free cash flow, sorry, of around $1.7 to $2 billion by this year, right? So, just would like to understand if these numbers make sense. And second, if the sketching ration would be primarily used to that prepayment in order to reduce the leverage. So, if that's your main priority right now. And the second question is, as you made significant, you know, advancements in terms of the Alagoas accident and also in the Mexico, I would say, contract now that you have an MOU with Panex, Did you guys receive any requests from the controlling shareholders or the Russian Petrobras with regards, you know, any information about the company for potential divestments from the controlling shareholders? These are the questions. Thank you. Hi, Luis. Thank you. Thank you for the question. So, on your first question around cash flow and capital allocation, I mean, The EBITDA number is yours, right? We still see a lot of uncertainty in the second half of the year. So I would say that this number is possible, but different numbers are also possible. So we'll have to see how the year goes, especially in the first half. I think by June, July, we'll have more clarity around that number. I do see where you're getting that. If you look at the spread that industry consultants are using or forecasting, you would get to somewhere around that number. But then I refer back to the first question that I answered today, Ricardo's question, around the uncertainty in the back end of the year. Your numbers, I mean, $800 million in capex is what we would disclose. The $500 million in interest is roughly what we have. Income tax, I mean, if we have the results that we are forecasting, we should be paying more income tax, as in the last 23 of the presentations, more in the range of $200 to $300 million at least as kind of our forecast. It's also important to mention that As part of the Alagoas settlement, we are putting 1 billion reais, so a bit less than $200 million, that's $170, $180 million in the Alagoas account through the years, so that's another use. And depending on the insurance discussions, I mean, if we don't get the insurance payout by the end of the year, there may be another $200 million to go to Alagoas as well, so we do have those other, I would say, cash uses going forward. And then, with the balance of that, what we're seeing is we don't have any major cap-ex or projects on the work. I think the more relevant one that we have is the expansion on green polyethylene that we announced a few weeks ago. That's a very significant move by the company towards our goals to reduce our carbon footprint and also, I mean, serve our clients with this polymer, which is, I mean, we had record sales last year and we see strong demand for green polymers in the market continuing going forward. But for this year, I mean, it's a $60 million, I mean, the $60 million investment is not even this year, right? Part of it is this year, another part is next year. So, Again, we don't have any major cap in the works. We don't have any major M&As also on the works. We do keep looking always at opportunities, but we don't have anything going on. So really what we are seeing is preparing debt is the main news that we have. Again, as I said, we do have a clear target and ambition to get back our investment grades. So, paying back that, paying down that, I think it's one way of us emphasizing that and trying to achieve that goal. And then, on the second question about controlling shareholders, what we have, I mean, it's what we disclosed to the market somewhere in the middle of last year. We have a request from NovoNor to support them with the sale of their controlling stake in the company. As far as we know, the official process has not started yet. We have been collaborating with them in sharing information that would allow them to open a process, a sale process of their stake in the company. But as far as we know, that same process has not been initiated yet. I would expect it to start sometime soon, but we are not a part of that process. We are not, I would say, in the driving seat in this situation. And regarding Petrobras, we know from just news articles that they are willing to sell their stake, but we don't have any direction from them on how they want to do it or when. So all of that, I think, is still being defined by Petrobras themselves. Okay. If I may just do a follow-up on the first question related to the insurance payment. What's the real discussion that you're having with these guys, and what is the likelihood that you can have any, I would say, any reimbursement from the insurance companies? Yeah, Luis. So, regarding that, the insurance companies, I mean, it's a $300 million policy, right? So the discussions with them are underway. There's a lot of back-and-forth discussions and also submission of information. Of course, nobody is going to make a $200 million check without having technical analysis, detailed, in-depth evaluations. So we've been providing the insurance companies and their expert support with these technical checks. technical documents. So they are going to, I would say, a great depth. It's a very complex geological situation. So that technical assessment by the insurance companies need to be completed. And then after that is when we would expect to see any, I would say, failure of the company. Our advisors tell us that we do have a strong claim on that. So, we are now just going through the process, which I think is natural in the case of this magnitude.

Okay. Thank you very much.

There's Barbara from JPP Morgan would like to make a question.

Hi, good morning, everyone. I just actually wanted to make a follow-up question on the rating agencies and the DIG call for this year. In your discussions with them, what they are expecting to see from the company before they make a decision on an upgrade, the downgrade was based not only on the higher leverage that the company was experiencing at the time, but also a weaker market fundamentals in the sector. So just wanted to understand in the conversations with them what they are expecting to see and is there any target leverage that was specified? If you could provide a little bit more color on that, it would be great. Thank you.

Hi, Banda. It's Rosanna. Thanks for your question. So, about the reasons why we would like here. First, it was a movement that we did that the agency did with petrochemical companies. So, it was not brass caning specific. It was more in the context of the pandemic's impact in volume and demand. And then since then, as we disclosure the leverage plan and that helped the company to the leverage as well. And as we improve the results in the second half, we are showing the agencies a very fast movement of the leveraging of the company. So, internally, in our talks with the agencies, kind of the goal that we have is to be around 2.5 times, not that we're down without breaking any data. We do think we are confident for this year, as we mentioned in the presentation, and as Pedro mentioned as well, we are confident with spreads and then with the generation of the company. Again, being conservative in the second half of the year, but we are working hard. We are talking with the agencies. We are delivering not only the initiatives that I mentioned before, and we do think that we can first get the outlook, the positive outlook, and maybe by the end of the year, an upgrade of moving to IGs.

Okay, great. And then the timing for this discussion is Anderson, your target is end of the year.

Yeah, this is kind of internal target, but you know the agenda, right? It depends on agency's committee, their analysis. What we are showing them is the leverage of the company every month, and we share the monthly results to the agencies. But in the end, it depends on the analysis discussions and the committee. Our work we are doing, we are delivering. As I mentioned, we presented, remember in the end of second quarter last year, we presented a level of 7.1 times. And then in the end of last year, our leverage went down to below three times. So, it's a very tight process that we showed the agency. So, we are confident with that agenda for this year.

Perfect. Thank you so much, Rosanna. Thanks, Barbara.

Julian Wayne from HSBC would like to make a question. Remembering if you have a question, please press star one. Remembering if you have a question, please press star one. Julian Wayne from HSBC would like to make a question.

Hi, thank you for the opportunity. I actually have three questions here. The first one is on Mexico, right? Well, if you can give us overall numbers about the cost of imports of SN versus getting SN from Pemex, what is the cost differential there? And also on that line, do you need a waiver from Brasco and Ibeza bondholders? for the potential amendments in the S&P contract with Pemex. The other question is, if you could talk a little bit, I know you indicated you're more cautious on the second half 2021 spreads, but can you give us an indication of where you see the experts in terms of spreads for 2022, overall big ballpark numbers, if it's going to be showing like a reduction of 20% over 21 or something of the sort, any color that would be welcome. And the third question is, I wonder if you could compare the economics of your green polyethylene project with the conventional PE project. If you expect to get an economic profit with this green PE plant and what kind of return differentials between the green and non-green PE projects, just big picture numbers here would be great. Thank you.

Hi, Liliana. Thank you for the question. On the cost to import ethane, it's between $180 to $200 per ton currently, and it should go down with higher import volume. So as I mentioned earlier, starting from April, we expect to expand the fast-track solutions to 28,000 barrels per day. And with that, that would be around 40% of the needs of Brazilian debt. And with that, the number of $180 to $200 per ton should be reduced, right? Because you have economies of scale as you increase the volume. On the bondholders, I would say, and the approvals, any approvals, discussions are still in early stages. So... We will evaluate that through the period, but right now we don't have that perspective yet. Then following up on the next question on the expectations for 2022, in broad line, what the industry experts are saying is a return to the spread of 2020. So, that's the overall, I would say, on average, the expectation that we have for 2022. And finally, on the green polyethylene, what we have first, For Brascom to approve any investment, we do a return calculation, right? So there is a positive return on this investment. So you asked in terms of economic profit. It has a positive economic profit. So we do have that as kind of the groundwork has been done on the project to be, I would say, a profitable project for the company. Regarding margins and comparison to regular polyethylene, what I would say, I mean, I would say two things there. One is more conceptual. The nature of the spread is different, right? So you have in regular polyethylene or fossil polyethylene, you have two spreads that you can consider in our case. One is spread to the ethane price, and the other is spread to NAFTA, right? And the spread in the green PE is mostly spread of the green PE price to ethanol. And we have several types of contracts of green PE. Some of them are even linked to the ethanol reference. So, in the end, you have kind of a fixed margin on that production. So, it's a different type. I would say green tea tends to be a bit less volatile because of that hedge that we have in the commercial contracts. And so, it's a different kind of perspective, right? The other aspect that I would mention is, so it's hard to do this comparison because, I mean, we're comparing to a spread of ething to PE and also an aphid to PE spread, so very different things. Those are more cyclical in nature. The green PE spread, I would say, tends to be less cyclical going forward. And the other aspect is, of course, this is still a specialty in the polymer world, so it tends to have I'd say a higher margin overall. But again, depending on moments in cycles, for example, the spread that you see today on PE to ethane is above $1,500 per ton. Then I would say that that is a very attractive spread today, right? So overall, those are the perspectives that I could share with you on green tea.

That's helpful. Thank you very much, and congrats on the strong results, mainly in Brazil.

Mr. Matias from Blue Bayou would like to make a question.

Hi. Thank you. Thank you very much. Two questions. The first one is, as you're suggesting, the focus now on the second half or, you know, for the remainder of the year is going to be capital allocation and deleveraging, trying to get back to that investment grade rating. So can you just tell us what's a minimum cash level that you're comfortable holding? We recently saw you doing a liability management exercise or tendering for perpetual bonds. So again, can you just tell us what's the kind of cash balance target towards the end of the year. That's one question. And the second question, I think it was asked, but I apologize for the repetition. What's your expectation on the timing for the roughly $300 million of the insurance on Alagoas? Do you think that could happen this year? Thank you. Hi, Matthias.

Nice talking to you. On capital allocation and cash balance by the end of the year. So we have a financial policy that is by nature conservative. It was designed after the financial crisis of 2008, 2009. And so it requires the company to carry a substantial amount of cash above our, I would say, operational needs, right? And usually that number of minimum cash that we need to carry by the financial policy is around $1.5 billion. It fluctuates. It tends to fluctuate between $1 billion and $1.5 billion. But I have in mind is $1.5 billion. So that's kind of the cash balance that I think that sustainably Bracken should carry going forward. Plus the revolving credit facility, that's a large cushion there. The financial policy does not require us to have the revolving credit facility, but it's, I would say, it's another layer of cash availability in case of need. So I have this $1.5 billion in mind, and we'll see through the course of the year, right? Today, we are, I mean, we closed the year at $3 billion. We paid down the perpetual bond, as you said. So that's $500 million. So the remaining is at around $2.5 billion. So you can see that we still have, I would say, excess cash in our hands. So the objective is to pay down that going forward. But we will always consider the uncertainties through the course of the year, right? So depending on how Mexico goes going forward. The lingering and residual uncertainties around Alagoas, how those are resolved through the course of the year. Insurance, the question that you asked as well. So, all of those are events that, through the course of the year, we will have more clarity around and also around the cycle. I think the cycle is the most important one of them by far. So, as we have more clarity through the course of the year, Then we'll see how, I mean, how deep we can go in this liability management. But right now, I mean, we have the view of $1.5 billion in cash by the end of the year. Maybe a little bit more depending on lingering uncertainties that will be at that point. On the insurance and the timing, it's a process that is not in our hands. So it's a process that is depending on the technical analysis by the consultant that the insurance companies have hired. I think that process is still going to take many months. To me, it's a bit uncertain by now. I was more bullish in the beginning of the year, but by now I think There is an uncertainty whether we'll be able to receive, I would say, all of that amount by the end of the year, or we'll only receive a part of it, or even if it's going to be a discussion that goes into 2022. So I'm afraid we still have a lot of uncertainty around that timing at this point. Understood. Thank you.

I will turn over to the company for closing remarks.

Hi, everyone. It's a pleasure to be here together with you. I'd like to thank Johanna for this call, and I want to end with a couple of remarks. Firstly, although the year of 2020 was impacted by uncertainties and volatility, such as the COVID pandemic and the weaker global demand for fuels, which affected, for sure, international oil prices. We maintained the ability to operate very efficiently, even in disruptive moments, save our customers, and keep discipline in our capital allocation. Given that, we closed the year with a positive cash flow generation, and a leverage of 2.94 times an important reduction from last quarter's leverage. This reduction reinforces our commitment to our financial liquidity and to be reassigned as an investment rate company by the credit-rated agents. Second, the trend for 2021 has been positive so far Not only because of the strong petrochemical scenario, this helps to spread for all of the products, but also because we already announced the two important value-creative initiatives of the company. The presumption of our chloralkali operation in Alagoas, which allows Bratcan to produce PVC and caustic soda on an integrated basis. And secondly, a new investment to expand our production capacity of green net land in Triunfo, reinforcing our position as a global leader in biopolymers production. For 2021, our main objectives are continue with the advances related to the geological phenomenon in Alagoas, find constructive ways to solve the essence shortage in Mexico. Ensure that companies continue financial health, risk management, and discipline in capital allocation. Strengthen Brazilian image and recognition with the team members, clients, suppliers, investors, and society. Increase effectiveness in innovation and speed up digital transformation. And finally, Advancing the Implementation of ESG Commitment. Thank you very much for your participation and looking forward to talk to you when we release the first quarter of 2021 results.

Thank you. This concludes today's Broskine-Sarins Conference Call. You may disconnect your line at this time.