Braskem SA ADR

Good morning and thank you for waiting. Welcome to Braskem's Q1 2022 Earnings Conference. With us today, we have Mr. Roberto Simões, CEO, Pedro Freitas, CFO, and Rosana Avoglio, IRO of Braskem. We'd like to inform you that this event is being recorded and that all participants will be connected in listen-only mode during Braskem's presentation. Following that, we'll open the floor for questions when further instructions will be provided. If you need assistance during this conference, please press star zero to reach the operator. This event is also being streamed online via webcast. and will be available at www.braskem.com slash ri, where the respective presentation can also be downloaded. The slide deck will be controlled by you. The audio of this event will be available right after its conclusion. Remember that webcast participants will be able to send its questions to Braskin via the website, and those will be answered after the conclusion of this conference by the IR department. Before we proceed, we'd like to clarify that any statement made during this conference about Braskem's business prospects, projections, operating and financial targets are based on beliefs and assumptions of the company's management, as well as information currently available to the company. Forward-looking statements are no guarantee of performance, and they involve risks, uncertainties, and premises, seeing as they refer to future events and therefore rely on circumstances that may or may not materialize. Investors and analysts must understand that General economic conditions, the state of the industry, and other operating factors may affect Braskem's future earnings and lead to results which are materially different than those expressed in said forward-looking statements. Now, I'd like to turn the conference over to Ms. Rosanna Avoglio, Investor Relations Director, who will begin the presentation. Please, Ms. Avoglio, you may proceed.

Good afternoon, ladies and gentlemen, and thank you for participating in Braskem's conference call to present our results for the first quarter of 2022. Let's start the presentation on slide three with the distribution of dividends. On the slide, you can see that Braskem remains committed to returning value to shareholders through the distribution of dividends. with a payment in May of 1.35 billion BRLs in dividends, based on net income for 2021. Therefore, combined with the 6 billion BRLs anticipated in December 2021, the total dividend distribution was 7.35 billion BRLs, representing 5% of adjusted net income for 2021. Remember that Braskem has a transparent dividend policy with guidelines for determining the distribution of dividends in compliance with or exceeding the applicable laws or regulations. Let's go now to the next slide, which shows our net income. In the first quarter, Breskin posted net income of around 3.9 billion reals, representing 4.88 reals per common and class A preferred share, and net margin of 15%. As I mentioned on the first slide of the presentation, Breskin has a transparent dividend policy and the proposal for distributing complementary dividends Dividends based on fiscal year 2022 will take into consideration the leverage ratio, which cannot surpass 2.5 times in dollars and without Breskin Intesa in the current year or in the subsequent two years, considering the best assumptions at the time of decision. Now let's go to the next slide. In the first quarter 2022 recurring EBITDA was $920 million, down 19% from the fourth quarter, with the decline explained mainly by the Expected normalization of international spreads for the main chemicals and resins in Brazil for PP in the US and Europe and PE in Mexico. The lower sales volume of main chemicals and resins in Brazil and the Brazilian real appreciation against the dollar of 6.3%. In Brazilian real, recurring EBITDA was 4.8 billion reals. down 23% and 30% lower from the fourth quarter and first quarter of last year, respectively, due to the currencies appreciation in the period. Let's go to the next slide, which covers or highlights by segment. Slide six shows the highlights of the Brazilian operations. In the first quarter, The petrochemical complexes in Brazil operated at a capacity utilization rate of 86% in line with the fourth quarter. In the Brazilian market, resin sales rose 2% on the prior quarter. This is due to the strong demand for PE and PP due to a restocking trend in the chain. Meanwhile, exports fell 16% explained by the priority on serving the local market and by the logistics constraints on export shipments. In this context, recurring EBITDA from Brazil in the first quarter was $477 million. Let's go to the next slide on the geological event in Alagoas. The chart on the left shows the balance of the provisioning related to the geological event in Alagoas at the end of the first quarter of around 7.2 billion reais. The chart on the right shows the disbursement schedule with 56% of the total amount provisioned registered in the short term and 44% in the long term. It is important to remember that Brascan cannot eliminate the possibility of future developments related to the topic or related to expenses, and the costs to be incurred could differ from their estimates or amounts provisioned. Moving on, but still on the geological event, The next slide shows the progress made on the work fronts. First, regarding relocation and compensation, BRESCAM continued to make progress on its relocation and financial compensation of families in high-risk districts of Maceo. the number of proposals for financial compensation submitted reached 14,495, with acceptance of index for proposal submitted at 99.6%. On the front of closing and monitoring wealth, until the end of April 2022, of the 35 wells, 9 belong to the sandbag filling group and the closing of three of them is in progress with a progress of 51.3% of cavities 7 and 19 and 35.2% of cavity 17. And last on social and urban development measures, The activities on this work front focus on urban mobility, social compensation and actions in relocated areas. In urban mobility, we are working on defining and detailing 11 mobility actions which were approved by the municipality of Maceió. In social compensation, we held meetings with the municipal government of Maceió to discuss priority topics. and on actions in relocated areas. We are making progress on activities related to demolition of the Mutangi slope. Let's turn to the next slide, please. This slide presents the highlights of our operations in the United States and Europe. In the first quarter, the PP plants in the United States operated at a utilization rate of 88%, increasing 15 percentage points from the fourth quarter, driven by the normalization of operations after the scheduled maintenance shutdown. In Europe, The utilization rate increased five percentage points due to the normalization of the production after the restarting of operations of a local supplier following a scheduled maintenance shutdown in the previous quarter. In terms of sales performance, the US registered sales volume in the quarter was 480,000 tons, up 9% on the prior quarter. In Europe, we sold 139,000 tons of PP in the first quarter. The segment recurring EBITDA in the first quarter was $295 million. Moving on, the next slide shows the highlights in Mexico. In Mexico, the utilization rate in the first quarter was 80%, in line with the fourth quarter. In relation to sales, there was an increase of 15% on the fourth quarter, driven by the production remaining stable at healthy levels and the consumption of inventory. The segments recurring EBITDA in the first quarter was $136 million. Moving on, the next slide shows our consolidated cash generation. In the first quarter, Breskin generated recurring cash of around 467 million reals. with the main impacts coming from the recurring EBITDA in the quarter and the continued monetization of Peace Coffin's tax credits. Including the payments related to the geological event in Alagoas, the company presented a cash consumption of R$176 million. Let's move on to the next slide, please. BRSS scheme ended the first quarter, maintaining a very long debt maturity profile. and strong liquidity position with most of its debts maturing in 2030 onwards. The average debt term was around 14 years and the current liquidity position covers all liabilities coming due in the next 69 months. This without considering the international rotating credit facility in the amount of $1 billion maturing in 2026. Let's go to the next slide where we will talk about the company's credit metrics. In line with the dynamics observed in prior quarters, Braskem continued to present solid credit metrics with corporate leverage remaining low in the first quarter, with the ratio in US dollar ending the period at 1.0 times. We are committed to maintaining a very efficient capital allocation. On the next slide, we'll discuss our ESG agenda. Recently, we have updated our investment policy With one of the main changes, the adoption of project classification based on ESG criteria. As a result, our assessment and selection of investments involving ESG criteria will be conducted globally and seek to support the long-term goals in sustainable development and the respective commitments undertaken by the company. Additionally, when applicable, the evaluation will consider the potential impact, benefit or costs associated with the relative CO2 emissions with any additional income or expense obtained from carbon pricing will be updated periodically by the sustainable development team. On the following slide, aligned with commitment to combat climate change, BRESKIN signed another wind power purchase agreement with EDF Renewables do Brasil, a leader in renewable energy. The agreement enables the construction of a new wind power complex in the southeastern Bahia state and guarantees the supply of energy to BRESKIN for a period of 20 years as of 2024. This is the fifth long-term contract for renewable wind or solar energy that Braskem has signed in the last four years, which together surpassed 150 average megawatts and positioned Braskem close to reaching 2.2 million tons of CO2 emissions avoided over the duration of those contracts. Moving on to the next slide. In March 2022, Breskin signed a cooperation agreement together with Sojits Corporation to form a joint venture for producing Biomag, subject to development of the technology. The JV's business plan provides for, in the first phase of investment, the implementation of three industrial plants. Biomag is a raw material for making PET. and is essential in the sectors such as textiles and packaging. The partnership between Braskin and Sujits is aligned with the goals of net zero carbon emissions, geographic and industrial diversification, reinforcing global leadership in biopolymers, and in development of sustainable solutions in the circular economy. Let's go to the next slide, please. In this slide, we will talk about the petrochemical scenario. The beginning of 2022 was marked by geopolitical tensions, which brought a lot of volatility to the petrochemical scenario. As you can see, the external consultants have changed the expectations of the PE NAFTA-based spreads for 2022. on a recurrent form since the beginning of the war between Russia and Ukraine at the end of February. Despite the volatility, I would like to highlight that the expectation of external consultants for the PE NAFTA spreads for 2022 is already at level above the pre-war Russia and Ukraine. In addition, it's important to mention that Due to the feedstock and geographic taxation strategy that Breskin has implemented in the last decade, the company has become a more resilient company to these market variations. Today, we have a global operation in addition to a feedstock profile balanced between sources of oil and natural gas. Going to the next slide, let's talk about the expectations for the spreads that most impact Breskin's profitability. As I mentioned on the previous slide, for the remaining quarters of this year, pre-NAFTA spreads are expected to remain at healthy levels and above the recent historical average during the other quarters of 2022. External consultants also forecast gas-based BE spreads to suffer only slightly impacts from the current geopolitical context, and such forecasts continue pointing to spreads at levels above the recent historical average, remaining above $1,100 per ton in all quarters of this year. Regarding PP spreads in the United States, as we can see in the graph on the right of the slide, according to the external consultants, this spread should remain not just above the recent historical average, but also rather close to that observed in 2021, despite less than last year. Moving on, the next slide presents our short-term outlook. For Brazil, the expectation is for ethylene production to decline due to the scheduled maintenance shutdown at the petrochemical complex in Rio Grande do Sul in the second quarter of this year. However, resin sales volume is expected to grow mainly due to better demand in Brazil. For spreads, external consultants are calling for better PE spreads and lower PP and PVC spreads. However, PE and PVC spreads should remain at levels above the recent historical average. In the United States, sales volume should be in line with the previous quarter, despite the expectation of lower production, and US pp propylene spreads should remain at levels in line with the last quarter and above the recent historical average. For Mexico, the expectation is for higher production volume supported by higher feedstock imports from the U.S., but sales volume should remain stable. PE ethane spreads should widen from the first quarter of this year, then remaining above the recent historical average. Let's go to the next slide, please. This slide shows how Breskin remains an interesting investment opportunity in the global petrochemical industry. First, looking at recent stock quotes on the B3 compared to the market consensus, we also see the potential for price appreciation in Breskin's share. Based on this EV EBITDA multiple, Braskin remains discounted in relation not only to its peers in the United States, but also its peers in Latin America. We would like to reinforce that Braskin is a global company serving clients of all continents, is a leader in its market, makes concrete contributions to sustainable development, and is the world leader in biopolymers. Breskin has a robust financial strategy with consistent operating cash generation, a healthy financial position, and disciplined capital allocation. And risk management is part of Breskin's strategy by diversifying its feedstock and geographic profiles, which increases profitability and mitigates risks. Breskens also is highly dollarized, with its revenues and a large part of its costs denominated or pegged to the dollar. On slide 21, I'll go over our main goals for 2022. On this slide, I'd like to remind you of the main goals for 2022, divided in accordance with each of our strategic pillars. Starting with productivity and competitiveness, we will focus on capturing value through the initiatives of the Transform for Value program to reach recurring annual gains of $302 in a year. In sustainability, our focus will be on intensifying actions in recycling, expanding renewables, and reducing our carbon footprint. In the pillar of diversification, we have two important projects from the standpoint, not only of diversification, but also growth. Starting construction of the ethane import terminal in Mexico and defining the partner and advancing in the feasibility studies for investing jointly with SCG Chemicals in a new green ethylene plant in Thailand. In people, governance and reputation, we will remain focused on advancing on all work fronts related to geological event in Alagoas. We also will advance in studies for our potential migration to Novo Mercado listing segment of the B3. Lastly, In the pillar of capital allocation, we will be focused on returning value to shareholders by distributing dividends and maintaining our investment grade credit rating. I would like to close today's presentation with an invitation to all investors. to visit our new investor relations website, which was created to share clearly, reliably, and conveniently important information such as financial indicators, ESG actions, and presentations, as well as other highlights of Braskem's performance. I also invite everyone to listen to the first episode of our recently created podcast, Breskin Invest, where we will talk about our actions in strategic pillars and present analysis and perspectives about the company and financial markets. We conclude today's presentation of Breskin's results for the first quarter of 2022. Thanks everyone for your attention. Now let's move on to the Q&A session.

Ladies and gentlemen, we will now begin the question and answer session. To ask your question, please press star 1. To remove your question from the queue, press star 2. Our first question comes from Mr. Guilherme Livlavi from Morgan Stanley. Hello everyone. Thank you for taking my questions. My first question is about the potential migration to Novo Mercado. I wanted to understand at what stage the process is and what's the timeline the company is working with at this point. And also how has this timeline changed versus your expectations at the beginning of the year? My second question has to do with your raw materials. the relative spread between your NAFTA and your ethane basis, would that be very different today than it was a few months ago? I understand that it is. So I wanted to understand what your incentive is at this point, or if there's any study that you're working with increase the flexibility of your spreads in Brazil. I wanted to understand whether that's a possibility if you're looking into that and what would be the potential cost of that investment. Thank you. Hi, Guilherme. Good morning. Well, with regard to moving to Novo Mercado, well, first of all, Braskem has introduced to its shareholders the feasibility studies and a new set of bylaws that would be adjusted to Novo Mercado. We understand that they are talking amongst themselves about our proposal and also about a potential new shareholders agreement because what we have currently is not a appropriate or in accordance with Novo Mercado's rules. These are meetings that we do not take part in, but we believe that's something they are currently discussing. Now, we can't say much about our timeline. The plan that they've communicated and which we replicated to the market late last year was to sell our PN shares and then migrate to Novo Mercado to sell those shares. So within that plan, considering the state of the market, the offering of those PN shares has not been concluded. So we do not have an offering underway at this point. So my understanding of this situation is sort of, blurry. We did not have a very clear timeline. And the only thing I can say is that studies have moved forward and we already have a draft of what those bylaws would look like, but we still need the final safe from our shareholders. With regard to our raw materials, One of the stepping stones of our strategy for over a decade is diversifying our set of raw materials. In the current scenario where NAFTA prices are higher and we come to be more competitive, our operations in Bahia now operate with ethane to capture that competitiveness within the realm we operate. Also within that, uh, strategy of diversification, it's also important to remember Mexico, where the share of ethane is also increasing. We had 80% in the first quarter and the strategy of fast tracking that has picked up and we expect to increase by the end of June the availability and the export capacity for ethane as well. Because of that, our prospect for the second half of the year is to have Mexico running on ethane at about 100% of its operation. So at the end of the day, our flexibility and raw material diversification strategy ultimately puts us on a very interesting level where regardless of where oil prices go, we ultimately have a portfolio that's adjustable to different market situations with interesting profitabilities for our operations. Now, on the topic of spreads, I'll turn over to Rosana, who will be giving more details.