Braskem SA ADR

Good morning. Thank you for waiting. Welcome to the conference call of Breskin to discuss the results related to the fourth quarter of 2021. Here with us are Mr. Hubert Simoes, CEO of Breskin, Pedro Freitas, and Rosana, investor relations director. We'd like to inform that this event is being recorded and that all participants will be in listen-only mode during the conference call. Later on, we'll start the Q&A session when further instructions will then be provided. Should you have any assistance during the conference call, please request assistance from an operator by pressing star zero. This event is also being broadcast simultaneously over the internet via webcast and can be accessed at https www.breastcam.com slash ri where you can also find the presentation. The selection of the slides will be controlled by you. The audio of this event will be available soon after it's over. We'd like to remind you that the participants of the webcast may record via website questions to Brascam. They will be answered after the conference is over by the IR area of the company. Before moving on, we'd like to clarify that any forward-looking statements that may be made during the conference call As regards the business perspectives of the company, projections, operational, and financial goals are beliefs and premises of the company's management, as well as information currently available to Breskin. Overlooking statements are no guarantee of performance since they involve risks, uncertainties, and premises since they refer to future events, and these depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, sector conditions, and other operating factors may affect the future performance of Breskin and may lead to results that differ materially from those expressed in such forward-looking statements. I would now like to turn the call over to Ms. Rosana Boyd. Investor Relations Director, who will begin the presentation. You may proceed, ma'am. Good afternoon, ladies and gentlemen. Thank you for participating in Brecken's conference call to present our results for the fourth quarter of 2021 and also for the full year of 2021. Let's go to slide three with Brecken's highlights in the year. In 2021, Briscam delivered important achievements in its financial situation and ESG agenda. Starting with the financial highlights, we reported record high recurring operating result of $5.6 billion and net cash generation of 10.7 billion reais. We also returned value for our shareholders, delivering the third highest Motor shareholder return of companies in Ibovespa and S&P 500. And distributed anticipated dividends in the amount of 6 billion reals. Another important development was being upgraded to investment grade by S&P and Fitch. We continue to maintain a comfortable leverage ratio and a debt maturity profile concentrated in the long term. Another finish highlight was the conclusion of Breckin's ideas as debt refinancing plan, which was one of our priorities for the year. On our ESG agenda, a strategic priority for us, we made important advances on all three fronts, environment, social, and governance. On the environmental front, we advanced in our goal of reaching 1 million tons of green PE production capacity with the progress achieved on the capacity expansion project at the green ethylene plant in Triomfo, and with the signing of a memorandum of understanding with SCG Chemicals to perform feasibility studies to jointly invest in a new green ethylene plant in Thailand. We also signed an MOU with Lumus Technology for the joint licensee of green ethylene technology and on our commitments to circular economy. We started the operation of the mechanical recycling line in partnership with Valoran. On the social front, we implemented 146 social projects that benefited over 800,000 people globally and made further progress in our financial compensation and support for relocation program in Alagoas on safety, which to us is a non-negotiable value, We achieved the best performance in people safety since 2017 and the best historical process safety result. Lastly, I would also like to highlight our advances in governance, such as, for example, requests from shareholders to carry out studies on the company's migration to the novo mercado segment of B3, formation of a statutory compliance and audit committee, and the achievement of ISO 37001 certification. Moving on to slide four, we are going to comment on the consolidated results in the quarter and the year, full year. In the fourth quarter of 2021, consolidated recurring operating result was around $1.1 billion, 23% lower than that in the third quarter of the year. Results explained mainly by the lower international spreads for main chemicals, the PE and PP in Brazil, PP in the U.S. and Europe, and PE in Mexico, but which still remained above the historical average of the last 10 years, and also due to the lower PP sales volume in Brazil, the United States, and Europe. In the year, our recurring operating result was $5.6 billion, an all-time high, mainly due to better international spreads for the main chemicals and resins in Brazil. And for the PP in the U.S. and Europe. And on the next slide, we'll make comments on the net profit of the company. In 2021, Brisken reported net profit of around 14 billion reals. an important reverse in relation to the accumulated losses of 4.5 billion of rails in 2020. Thus, as I mentioned in the beginning of my presentation, in December 2021, the company distributed anticipated dividends based on the results for the year of 2021 in the amount of 6 billion rails. Let's move on to the next slide. we'll start about the highlights per segment. On slide six, we present the main highlights of Brazilian operations. In the fourth quarter of 2021, the petrochemical crackers in Brazil operated at an utilization rate of 85%, six percentage points higher than that in the third quarter, which is explained mainly by the higher feedstock supply in Rio de Janeiro, and the stronger demand of PE in the Brazilian market. In the Brazilian market, resin sales in the fourth quarter were practically stable in relation to the third quarter 2021, while exports increased by 13%, reflecting the higher product availability. In this context, the recurring operating results of Brazil in the fourth quarter of 2021 was $761 million in the year, and the operating, recurring operating result was $3.6 billion. Next slide will comment the geological event in Alagoas. The chart on the left shows the balances of the provisioning related to the geological event in Alagoas at the end of the fourth quarter of 2021 of around 7.7 billion rials. The chart on the right shows the disbursement schedule of the total amount provisioned. Around 57% was recorded under current liabilities and 43% of this amount was under non-current liabilities. It's important to remember that Brescan cannot predict with certainty future developments in respect to this matter or its related expenses. and the costs to be incurred by the company may be different than the currently estimated or provisioned. Moving on to the next slide, we will continue to talk about the Alagoas Geological Event. PlusCan continues to make progress on its relocation and financial compensation of the families in high-risk districts of Maceió until the end of February 2022. The number of reallocated was 14 and 49, about 97% of the real estate reallocated in the risky areas. Additionally, the number of proposals for financial compensation that were submitted reached 13,133, with maintenance of high acceptance index of the proposals that were submitted reaching 99.5%. In relation to the payments made under the program, about 2.2 billion reals had been disbursed up to the end of February 2020. And this value considers the values that were disbursed since the beginning of the program. Additionally, I would like to share some highlights made throughout 2021 regarding the other work fronts. Compliance with the Well Closure Plan, $48. percent advance in filling the first two cavities with sand, conclusion of the environmental diagnosis of the area, and significant progress in the social diagnosis, start of demolition works on Moutonje Hill, and urban mobility plan for the region completed, and start of the action scheduled for the next quarter. Now let's turn to slide nine. This slide presents the highlights of our operations in the United States and Europe. In the fourth quarter, the PP plants in the United States operated at a utilization rate of 73%, decreasing 21 percentage points compared to the third quarter, which is explained by the scheduled maintenance shutdown at one of the regions planned in the period and by the slowdown in the production to accompany the weaker demand in the region. In Europe, the utilization rate decreased eight percentage points from the third quarter, reflecting the lower feedstock availability due to the scheduled maintenance shutdown at the propylene supplier in the period. Moving on to sales performance, the United States registered sales volume in the quarter of 442,000 tons down 2% on the prior quarter. In Europe, we sold 137,000 tons of PPE in the quarter. The segment's recurring operating result in the fourth quarter was $281 million. In the year, the recurring operating result was $1.6 billion. Moving on, the next slide shows the highlights in Mexico. Mexico operated at an utilization rate of 81%, increasing 13 percentage points on the third quarter. And this is explained mainly by the higher feedstock supply by both Pemex and the fast track solution. Sales in the quarter increased by 20% year over year explained by the higher availability of product for sale, given the higher capacity utilization rate for the quarter. The segment's recurring operating results in the fourth quarter was $160 million, and in the year, the recurring operating result was $620 million. Moving on, the next slide details the feedstock supply dynamics of Briskam Edesa. In the fourth quarter 2021, Braskem-Ideza imported 20.9 thousand barrels of ethane per day, a quarterly record for the fast track solution, which represents around 84% of the solution's current capacity. Pemex also supplied 30.6 thousand barrels of ethane per day, which is in line with a new amendment signed in October 2021. Looking at the outlook for 2022, we believe that Brasca Medeza has the potential to continue delivering the good industrial performance observed in the fourth quarter of last year. Since the company is working to further expand the fast-track solution to reach maximum ethane import capacity of 35,000 barrels a day. as well as the expectation that Pavex will continue to supply feedstock volumes in line with the amendment. The next slide covers the ethane import terminal. In December, Braskemideza had approval of the final investment decision for the ethane import terminal, with investment in the terminal construction estimated at around $400 million. The next steps are the expectation that the start of the construction is likely to begin in the second quarter 2022. And additionally, we are going to continue working on the process of selecting potential partners so that the terminal starts operation in 2024. Moving on, the next slide shows our consolidated cash flow. In the quarter, Breskin recorded positive operating cash generation of around 3.1 billion reals. The main positive impacts were the recurring operating result and the monetization of the PIS and COFINS tax credits in the quarter. In the year, Briskin set a new record for the operating cash generation of 10.7 billion reals. Next slide shows our capital allocation strategy. In 2021, Briscan maintained its commitment to efficient capital allocation by focusing on creating value and return for shareholders, with the majority of our capital allocated to growth, debt reduction, dividend distributions, and investments. In relation to indebtedness for the year, Brisbane reduced its gross debt by $1.8 billion by carrying out various operations in debt markets. On remuneration shareholders, we distributed anticipated dividends for the fiscal year of 2021 in the total amount of 6 billion rials. On the investment front, we focused investments in the maintenance of existing assets such as scheduled general maintenance shutdown at the petrochemical complex in ABC in Sao Paulo, and on growth projects in biopolymers and recycled resins, which included the capacity expansion project of green ethylene production and the Triunfo plant and the new mechanical recycling line in Dayatuba, Sao Paulo, respectively. Let's move on to the next slide, please. On the slide, you can see that in 2021, Breskin presented return metrics above those of its international peers and the average of Ibovespa and S&P 500. On shareholders' return, Breskin delivered TSR significantly above its international peers with the third highest TSR of all companies in Ibovespa index and the companies listed in the S&P 500. In terms of free cash flow yield, Breskin delivered a record high free cash flow of 10.7 billion rials, resulting in a free cash flow yield above that of its international peers. In returning capital to shareholders, Breskin distributed record high dividends in 2021 of 6 billion rials, resulting in a dividend yield above that of its international peers. Moving on to the next slide, please. As of the end of 2021, Brisbane continued to maintain a very long debt maturity profile with strong liquidity position with maturities mostly concentrated in the long term. It's important to mention that in December last year, the company hired with a syndicate of 11 global banks an international standby credit facility in the amount of $1 billion with final maturity in December 2026 to replace the current facility. The average debt term remained around 15 years, and the current liquidity position is sufficient to cover the payment of all liabilities coming due over the next 72 months. Let's turn to the slide 17, which shows the company credit metrics. Briskin continued presenting solid credit metrics and low corporate leverage ratio, even after distributing anticipated dividends of R6 billion at the end of last year. The leverage ratio in dollars ended the year at 0.94 times. We'd like to mention that Briskin has the objective of maintaining a robust cash position a very long debt maturity profile, and we are committed to efficient capital allocation. Moving on to the next slide, please. At the end of last year, Brescan recaptured an investment grade after a rating upgrade by Fitch Ratings. In September 2021, S&P had already upgraded the risk level in global level of the company to triple B minus with a stable outlook. With these two upgrades by Fitch and by S&P, Prescam is now considered an investment-grade company. Going on to slide 19, we'll have a look at ESG highlights. Let's start with the ESG section with our renewable businesses. On the chart on the left, we can see that last year we sold 165,000 tons of green PE and 220,000 tons of ATPE. a gasoline bio additive that improves the performance and is partially made from ethanol. It's important to mention that we have assumed the importance of reaching 1 million tons of capacity of production of green PE production by 2030. And we are working to accelerate the delivery of this goal through strategic and financial partnerships. On the chart to the right, we can see that the net revenue from GreenPE and ETBE combined increased by 65% due to the higher availability of products for sale, due to stabilization of the ETBE operation, and also due to attractive prices international market. Moving on to the next slide, please. And this slide shows the projects related to circular economy in Brazil, into which Breskin is contributing capital of $130 million. Breskin is investing $20 million in the construction of an innovation hub jointly with clients, brand owners, designers, startups, and universities for the development of packaging better suited to recycling and circular processes. In addition, we have two projects in Brazil. partnership with DeLoring, a technology development and waste management company specializing in transforming waste into recycled product. The first project is related to the construction of a medical recycling line to transform 250 million units of PE and PP post-consumer packaging into 14,000 tons of high quality recycled resin. And its operation started in December 2021. In addition, we have a project for the technological development and construction of the first advanced recycling unit in Brazil, which will integrate and capture synergies with a mechanical recycling line on the same site, which will use a pyrolysis process to chemically transform plastic waste that is difficult to be recycled mechanically into a certified circular raw material. These investments are aligned with Braskem's micro goal of eliminating plastic waste, which includes projects to develop circular packaging, mechanical recycling, and advanced recycling. Let's go to the next slide, please. In relation to renewable energy, Braskem entered into a purchase agreement for steam produced from biomass with Veolia Brazil. Investment in the project is estimated at 400 million rials considering the construction of an industrial and agroforestry park by Veolia and operational adjustments at Braskem's industrial units. The agreement will ensure the supply of steam to Braskem for 20 years and is expected to start in 2024. Braskem estimates that the supply agreement will reduce its greenhouse gas emission by around 150 tons a year, which is equivalent to 30% of its emissions in Alagoas when compared to 2020. We'd like to mention that this is another important project that will contribute for the company to reduce its CO2 emissions by 15% by 2030 and become carbon neutral by 2050. Moving on to the next slide, we will show our investments. The press can close last year with a capex of $691 million, which is 13% less than the estimate of $798 million for the year. Expenditures were affected mainly by the postponement of projects and the Brazilian burial depreciation against the dollar in the period. For 2022, CapEx is estimated at $1.2 billion, which will be concentrated in the scheduled maintenance shutdowns at the Rio Grande do Sul plants, preparation for the scheduled maintenance shutdown at Bahia plants in 2023, and catch-up of projects postponed due to COVID and strategic projects such as expanding the biopolymers business, expanding recycled resin production capacity, and the building of ethane import terminal with a potential partner in Mexico. know that part of the CAPEX for this year is related to brass canes sustainable development macro objectives in the amount of $236 million, around 75% of which is going to the macro goals of combating climate change and operating efficiency. Moving on, the next slide presents our short-term outlook. For Brazil operation, the expectation is for stability of ethylene production and sales volume regarding to spreads. The external consultancies expect lower PE and P-NAFTA-based spreads. PVC spreads should remain at levels above the recent historical average. In the United States, sales volume should increase due to the higher product availability and USPP propylene spreads. should remain above their recent historical average. In relation to Mexico, we expect higher PE production and sales volumes with Pemex supplying feedstocks at volumes in line with the amendment signed in October and with increased ethane imports from the United States and PE ethane spread should remain above the recent average. On the next slide, we can see that Breskin remains an interesting investment opportunity in the global petrochemical industry. First, analyzing from the view of multiples of EV recurring operating results, the multiples of the company continues to be discounted in comparison to its international peers. Moreover, last year, Breskin delivered profitability and credit indicators above the average of its U.S. peers, as in the case of the recurring operating margin, and leverage ratio. Lastly, when we look at the screen price of B3 compared to the market consensus, it's also possible to see that there's a potential for price appreciation in Breskin stock. Moving on to slide 25, we're talking about the improvement in the treatability index of our company. The chart on the left shows how BRKM5 is improving its position in the B3 tradeability index, which is calculated based on liquidity indicators such as trading volume and number of trades. With its improvement in the index, BRKM5 once again was included in the IBRX50, an index that tracks the performance of 50 stocks with the highest liquidity and weight on the B3 index. It's an interesting port because with increase of the shares outstanding, BRRRS can participate in the IPRX50 and in other relevant indexes such as MSI, FISPA, ISE, corporate governance, among others may increase. Next slide, we'll talk about the strategy. On this slide, I would like to reinforce that we remain focused on implementing our strategy based on renewables, recycling, and productivity improvement. Starting with our growth strategy, today we have three main growth avenues. The first is renewables with a commitment to expand green PE production capacity to 1 million tons by 2030. Recycling with ambition to reach to 1 million tons of thermoplastic resins and chemicals with recycled content by 2030. And lastly, existing productivity and competitiveness project, build a new ethane import terminal in Mexico to meet all the feedstock needs of Bresciani-Tieza, and continue making progress on our global efficiency program, Transform for Value. To support in implementation of the growth initiatives, we have three main enablers. Innovation, we have an extensive innovation pipeline, with several projects contributing to the growth of our business, people, and culture. We have an experienced management team with technical teams with a strong entrepreneurial mindset, and we continue working on the migration to the Novo Mercado segment of B3, which includes the consolidation of our share classes. In terms of financial solidity, Britscan will remain firmly committed to its financial health and to efficient capital allocation. Lastly, we would like to reinforce that safety will always be the key focus of Bracken's operation, remaining a non-negotiable and permanent value of our strategy. That concludes the presentation of Bracken's results for the fourth quarter 2021 and for the fiscal year of 2021. I would like to thank everyone for their attention. We will now begin the Q&A session. Ladies and gentlemen, We are now going to start the Q&A session. To ask a question, please press star 1. To remove a question from the list, please press star 2. The first question comes from Pedro Soares with BTG Pactual.

Good morning, Roberto. Good morning, Rosana, everyone. Can you guys hear me well? Yes, we can hear you. Well guys, I have two quick questions. First and most obvious about the spreads after all the volatility that we've seen, especially in the oil industry, NAFTA spot prices have responded very aggressively to that, which really widened the spreads of the company in Brazil. I understand that much of that can be explained by the resident prices which are still not reflecting the potential passing on of that onto consumers. So I wonder if this, I believe this is new compared to next last year. So if you could explain to us how that will work, especially on the consumer front. And when will that really affect the company's bottom line? seeing as the company's current inventories are still below the spot ones. Now, the second question is about the CapEx guidance. If you could give us a longer-term view after 2022. A while ago, we talked about a maintenance CapEx, more than an operating CapEx of about $600 million, and correct me if I'm wrong on that, but it was also underscored that there's not an extraordinary pipeline, especially for the next two years. So my question is, of course, this increase in the operating capex in 2022 largely reflects some of the delays in investments, but does it make sense for us to imagine this operating capex moving back to levels closer to $600 million? Or do you guys understand now that It should be something more structural for the moment. That's it for now. Thank you. Well, Pedro, thank you for your questions. I'd like to say it's a pleasure to be here speaking to all of you. Thank you for being here. We've had extraordinary results in 2021, and we're happy about that. Now, on the issue of spreads, there are maybe two or three points that I'd like to clarify. more macro perspective considering last year this year and moving forward onto next year considering a structural supply-demand structure within the industry at this point we see no changes from what we already had seen since the beginning of last year which was we expected spreads to come back to normal still staying above the historical average but yes moving back from what we had in 2021 because of a series of non-recurring events we had in 2021, which led to a decrease in the supply in the international market. We had climate events, we had new bouts of COVID, which affected freight prices, which also helped lead to that increase in spreads above what we would call a regular level. And this return to normal, decrease we started seeing at the end of last year was widely expected, not only by us, but by the industry at large in 2022. And now, as of 2023, we expect to see some recovery already because of the investments that we expected for 2024, 2025, which have not been announced yet, either because of COVID or a number of commitments that companies have taken on in terms of carbon reduction or carbon neutrality. And all of that sort of raised the barrier for new investments because you have to invest more in order to fulfill those pledges. So about spreads in this longer term curve, we do not see a return. But in the near term, both because of the war and how much it has impacted fuel oil prices, spreads are likely to widen. Last week, we saw the spike and spreads are not adjusting yet. This week, we saw NAFTA coming down and oil prices coming up. So we still... expect to see some increased volatility in the near term. But in the longer run, this is something about Russia and Ukraine, both countries that have a small share of the international market. It doesn't seem sufficient to sort of change the entire landscape we had been expecting. Now, about the passing along of prices, the logic is still the same. We want to pass along international prices. We have a structure for that in terms of residents and the most basic terms. We want to follow the same international logic. Our policy, our pricing policy is still the same, and we continue to pass those changes along according to international as international prices change. Not one early sign. It's still early, but everyone knows that China is now experiencing a new round of lockdowns. So we are seeing a rise in freight prices of products coming from China. So that could make things a bit more complicated for them, as was the case last year. But it's still difficult to say to what extent and for how long. that will persist. That's hard to say now. And ultimately you raised the point of how Braskem's results are structured. Braskem's CPV is calculated using a moving average. So the cost we're capturing now in March is the average of NAFTA prices and feedstock prices from the last few months. So as prices go up, our inventory price levels go down. So part of our operating management policy is to understand that logic. And based on that, we adjust our production levels to provide for this carryover of our inventory price. carry over effect on our inventory. This is something we do really well with a positive impact on our bottom line, lowering the costs of our inventories on our sales. I may have, uh, spoken more than I should, but annually we don't see a significant change because of the current landscape, but considering the uncertainty and volatility, especially in the near term. And also considering our inventory and production management and procurement management is being revised at very short intervals to allow for those market shifts. Now, going back to CapEx, I'd only like to mention something because you mentioned a 600 a million dollar operating capex. And we would like to shed more light on that. Our operating capex includes the maintenance capex, but it also includes innovation and technology capex. It includes our competitiveness and productivity capex. And in previous calls, whenever I say that our maintenance capex is between 500 and 600, uh, a million dollars, I'm thinking only of maintenance. So to reconcile those figures, you'd need to think, oh, I have 600 million in recurring operating CapEx plus an innovation technology CapEx plus a competitiveness and innovation CapEx. So that requires thinking of those projects which need a positive EPL. So the innovation plus EPL continuity and competitiveness, that's around $100, $150 million this year, which is why our operating capex looks higher. And it is also higher because in the last two years, 2020 and 2021, we invested less in maintenance because of the pandemic. We carried forward with everything that was mandatory or that impacted implied higher risks, but there's a lot of things that you could postpone. So if you have a car, you can leave maintenance in your car for later if you want, unless there's a problem. But over time, those are things you have to do. So these are things we've postponed. And when we look at the program, the CapEx we've programmed for 2022, we see that within the operating CapEx logic, We are running higher numbers, but you must understand that within those 193, you have 600, which are about maintenance, plus 150, which is for this year with competitiveness, innovation, and continuity. And there's another 20 to 2040, which is about catching up with what we failed to do in maintenance over the last few years and maybe improving even an additional or an extra in competitiveness. That's where the figures come from, but our baseline $600 million in maintenance remain unchanged. Now, I just wanted to add something to Peter's point. There's some volatility in the baseline NAFTA-based CapEx, but I only wanted to stress all the ways work that we've done in diversifying our raw material base. We have an important base in Mexico and even the business has a dynamic nature. In the United States, we remain with the same baseline. So I only wanted to stress that. And the second point I wanted to make is that as oil prices go up, we see that basic petrochemical Uh, petrochemicals are also going up, which also help us here in Brazil. So raw material, uh, sales plus everything else that Pedro commented play into your point. Yeah, that was very clear. Uh, guys, thank you for your answers.

Our next question comes from from Citibank.