Braskem SA ADR

Good morning, everyone, and thank you for waiting. Welcome to Braskem's fourth quarter and 2022 results conference call. With us here today, we have Roberto Bischoff, Braskem's CEO, Pedro Freitas, Braskem's CFO, and Rosana Avoglio, Investor Relations, Strategic Planning, and Corporate Market Intelligence Director. This event's being recorded, and all participants will be in a listen-only mode during the company's presentation. After Braskem's remarks, there will be a question and answer session. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. This event is also being broadcast live via webcast and may be accessed through Braskem's website at www.braskem.com forward slash ri, where the presentation is also available. Participants may view the slides in any order they wish. The audio will be available shortly after the events concluded. Those following the presentation via the webcast may post their questions to Braskem via website. They will be answered by the IR team after the conference is finished. Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of Braskem management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that macroeconomic conditions, industry conditions, and other factors would also cause results to differ materially from those expressed in such forward-looking statements. Now, I'll turn the conference over to Rosana Avoglio, investor relations, strategic planning, and corporate market intelligence director. Mrs. Avoglio, you may begin your presentation.

Good morning, ladies and gentlemen, and thank you for participating in Braskin Conference Call. Today, we will present our results for the fourth quarter of 2022 and also for the year of 2022. Considering that, let's start with slide number three, which shows Braskin's main highlights in the period. Starting with our consolidated highlights, I will start talking about our achievements in our biopolymer business. We had an historical record of green PE sales volume in 2022 since the beginning of our operations in 2010. It should be noted that we are expanding our current green effluent capacity of 200 kT by 30%. This project is ongoing with physical progress of 86% by December 2022. Regarding our recycling business, there was an increase of 144% in the sales of products with recycling contact in 2022. In the fourth quarter of 2022, we made relevant advances related to the E10 import terminal in Mexico, with Brascanides announcing the conclusion of the investment agreement signed with Adivario. The construction started in July of 2022 and reached 25% of fiscal progress as of December 2022. I would like to remember that the terminal will have the capacity to import 80,000 barrels per day of feed tank, which will allow Bras Canideza to import all of its feedstock needs while enabling future expansion of PE production capacity in Mexico by around 20%. On the social front, Brastyn supported 153 social initiatives that impacted over 610,000 people all over the world. Moving to the financial highlights, during the fourth quarter of 2022, the industry remained impacted by the imbalance between global supply and demand, which resulted in compressed international spreads of chemical and petrochemical products. The dynamics of the sector were directly influenced by the startup of new capacity globally, by the geopolitical tensions, macroeconomic uncertainties, and the possibility of a slowdown in major economies. In this scenario, Braskin reported recurring EBITDA of $2.6 billion in 2022, and in addition to a cash generation of $654 million in the same period. reflecting in a cash flow yield of 18%. In 2022, BRAS can continue to present solid credit metrics with corporate leverage remaining under control and a strong liquidity position, sufficiency to cover debts coming due in the next five years, and supporting our investment grade by the rating agencies. Let's move to the next slide, please. In 2022, recurring EBITDA was around $2.1 billion, down 64% from the previous year, and explaining mainly by the lower spread in the international market, lower sales volume of main chemicals in the Brazil segment, PP in the US and Europe, and the accounting effect of inventory net realizable in the net amount of $84 million. Let's move to the next slide, which covers our highlights in Brazil segment. In 2022, the petrochemical crackers in Brazil operated at an average utilization rate of 78%, 3% at points lower than the previous year, mainly explained by the adequacy of production due to lower price in the international market by the scheduled maintenance shutdown at the petrochemical complex in Rio Grande do Sul and PVC plant in Alagoas. In the year, rising sales volume in the Brazilian market remained stable compared to 2021 due to our commercial efforts to prioritize the Brazilian market supply. The export volumes in the scenario also remained stable. In this context, recurring EBITDA from Brazil in 2022 was $1,211,000,000. Let's move to the next slide. First, it's important to mention that the green polyethylene is a biopolymer produced from Brazilian sugarcane ethanol. It is a differentiated product besides being renewable. It has a negative carbon footprint, the same properties and applications fossil polyethylene with 100% of recyclability. Braskem has more than 12 years of established industrial operation and it's a pioneer and world leader in green PE production. Considering that, in 2022, the utilization rate of green ethylene decreased compared to 2021 due to scheduled shutdowns at the polyethylene units in Rio Grande do Sul over the year. However, it's still at historically high levels. Braskem's green pea reached a record sales volume. These results consider the whole history of operation, which started back in 2010. Moving to the next slide, which shows the progress made on action funds related to geological event in Alagoas. The chart on the left shows total provision for the geological event in Alagoas of 13.1 billion Reais, of which 6.9 billion Reais was already being disbursed. the chart in the middle shows the outstanding amount of the provision which ended the fourth quarter of 2022 at around 6.6 billion reais with 64 percent of the total amount provision book under the short term and 36 percent under the long term it is important to point out that bruskin cannot eliminate future developments related to the matter or its associated expenses and the cost to be incurred by Braskem may differ from its estimated or accrued amounts. Moving on, but still on the geologic event, the next slide shows the progress made on action fronts. First, regarding relocation compensation, Braskem continues to advance with the process of relocation financial compensation of families located in neighborhoods in risky areas in Maceió. The number of proposals for financial compensation submitted reached 18,862 in February of 2023, 98% of the total estimated. We would like to highlight that the proposal acceptance rate remained high at 99.6%. On the closing monitory of Wells Action Front, as of end of February of 2023, of the 35 well cavities, nine are in the same backfilling group, with one already being concluded. Meanwhile, actions on the social-urban development are concentrated in the urban mobility, social compensation, and actions in relocation areas. On this working front, there were several important advances in the year. All 11 urban mobility actions are in progress, eight of which already have executive projects concluded, and three of them are already in the construction phase, conclusion of demolition process at Costa do Mutange, and progress in other stabilization activities. Let's move to the next slide, please. This slide presents the highlights of our operation in the United States and Europe. In 2022, the PP plants in the United States operated at a capacity utilization rate of 79%. down 70% at points from 2021, with the reduction explained by the adjustment of the production volume due to weaker demand in the region and schedule maintenance shutdowns. In Europe, the capacity utilization rate decreased 10% at points from the private year, reflecting the lower demand, weak economic performance in the region, and high inventory levels in the converted chain. In terms of sales performance, the US registered sales volume in the year of 1,589,000 tons, 4% lower than in 2021. However, our commercial efforts help with the sales decrease being lower than the reduction demand in the US. The segments recurring EBITDA in 2022 was $609 million. Moving to the next slide, please. The MAX unit operated a capacity utilization rate of 73% in 2022, seven percentage points higher than in 2021, reflecting the increased retaining supply by Pemex and higher retaining ports under the FastTrack solution. Sales volume increased by 20% compared to the last year, reflecting a higher utilization rate at BrasKinneyDesa. The segment recurring bid in 2022 was $212 million. Moving on to the next slide. Braskin is a company that has consistently presented positive operating cash flow, even in downturns in the petrochemical cycle, and our decision-making process aims to maximize the present value of our future cash generation. Considering that, cash generation in 2022 was around 3.3 billion reais. Excluding payments related to the geological event in Alagoas, the company delivered a recurring cash flow of around R$ 6 billion, resulting in a cash flow yield of 18% and a recurring cash flow yield of 33% respectively. Let's move to the next slide. Braskem ended the year maintaining a very long and matured profile and a strong liquidity position, with the majority of its debt coming due in 2030 onwards. The average debt term was around 13 years, and the current liquidity position covers all debts coming due in the next 60 months, not considering the international revolving credit facility of $1 billion available until 2026. In this scenario, Braskin continues to present solid credit metrics with corporate leverage at 2.42 times by the end of 2022. It is important to mention that we keep acting on conservative principles such as net debt in U.S. dollars as a head to measure exposure of the business to international prices, transparent dividend policy, and concentration of funding in the capital markets. I would like to highlight that on February of 2023, Breslin concluded the issuance of a bond in the international market in the amount of $1 billion with a maturity in 2033. Also, in February, we made a total repayment of our bond due in 2024. Finally, regarding rating agencies, in the last few months, S&P and Fitch maintained our investment grade rating with a stable outlook. Let's move to the next slide, please. In 2022, Braski revised its strategy to support the investment prioritization and capital allocation for 2020. considering our long-term commitment in sustainable development, market trends, and demand for the coming years. Braskin's strategy consists of its foundation, strategic pillars, and growth avenues. The foundation of our strategy reflects the value we practice consistently, and they are fundamental to guarantee the achievement for ambitions in the different pillars and growth avenues, based on safety, people, and governance. Our strategic pillar reinforces our long-term ambitions in productivity and competitiveness, sustainability, growth and diversification, and innovation. Our ambition in productivity and competitiveness is to drive our assets towards the first quartile of the petrochemical industry cash cost curve, focusing on decarbonization initiatives and selective investments. Considering that, we will focus on operational efficiency and excellence, commercial logistics effectiveness, seeking cost leadership and differentiation through our relationship with clients and partners, while focusing on the transition into a more decarbonized industry. In sustainability, our ambition is to be a reference in sustainable development in the global chemical and plastic sector. And as part of our strategy, we made commitments for our next phase of transformation that creates value in the transition to a carbon neutral circular economy. In growth and diversification, since the beginning, Braskin's strategy was strongly based on the diversification of raw materials and geographies, looking towards a balance of raw materials profile, reducing our exposure, and growing our capacity globally. Now, our ambitions incorporate more focus on increasing our bio-base and circular feedstock and products, evolving with a portfolio expansion according to business strategy to support client needs and ensuring our adaptability to consolidate a leadership position and remain competitive. To do all of this, we must improve our efforts innovation, So our ambition in this pillar is to deliver high-value, sustainable solutions through chemical and plastic innovation. BRASC intends to deliver a tangible, sustainable solution through the development of disruptive technologies, processes, business models, and partnerships, guaranteeing the business future. Moving to our growth avenues, we define our pathway to growth based on three avenues. In traditional business, we intend to grow our current business through selective investments, including productivity and competitiveness improvements, as well as continue to implement the decarbonization of our current assets. These measures together will enable the delivery of our goal of achieving carbon neutrality by 2050 and reducing Scopes 1 and 2 emissions by 15% by 2030. In the biobased avenue, our ambition is to grow in biobased resins and chemicals in addition to expanding the use of renewable raw materials with the objective of achieving our goal of expanding the production capacity of green products to 1 million tons by 2030. Lastly, in recycling, we intend to grow in circular products through mechanical recycling and expand the use of circular feedstocks through advanced recycling. aiming to achieve our public commitment of grow the portfolio products with recycling content to reach 300 KT by 2025 and 1 million tons by 2030. So finally, based on our pillars, avenues, and foundations, we aim to continue to balance our capital allocation, returning value to shareholders while investing in our business and its growth opportunities generating positive impact for all stakeholders. Moving to the next slide. In the first growth revenue traditional business, Broskin will grow its business through selective high value-added investments with improvements in competitiveness and focus on current assets decarbonization. In 2022, we already delivered important achievements on this revenue. The first one is the E10 import terminal construction in Mexico. The company Terminal Química Puerto México is a joint venture between Braskem and Divario, with each company holding an interest of 50%. The terminal feedstock supply capacity will be around 80,000 barrels per day of ethane, which represents around 120% of the current feedstock needs for Braskem Indesa. The project's capex is estimated to be around $450 million, with the terminal startup expected for the second half of 2024. In the end of December of 2022, the project reached a fiscal progress of 26%. In the industrial decarbonization program, we already have prioritized initiatives that will allow Braskem to achieve our emission reduction commitment with positive NPV. the program is part of our governance strategy for a commitment to fight climate change lastly transform for value is our global efficiency program implemented to accelerate improvement in different areas of the company as well as redesign our process structurally generating value for the company through process optimization the program and the 2022 on pace of capture around 353 million dollars per year in initiatives that have reached more advanced stages of maturity. Let's move to the next slide which shows Braskem by Obey's Grove Avenue. In this growth avenue, we would like to highlight our main initiatives that will support us to achieve our commitment to reach a production of 1 million tons of green products by 2030. These initiatives are the bottlenecking project of our green ethylene planting tree in Triunfo, in Rio Grande do Sul. This project is ongoing and will result in an additional production capacity of 600 KT per year. We will continue to move forward with feasibility studies for the construction of a green ethylene plant in Thailand together with SCG Chemicals, with the potential to even double our current green PE capacity. Let's go to the next slide, please. Regarding our sustainable product portfolio, we have 40 grades of PCR for different applications. In 2022, our sales of products with recycling contact reached 54 KT, an increase of 144% from 2021. On the technology development front, Braskem also signed several partnership agreements for the development of new technology with a high potential for plastic waste recovery. Regarding the environmental and education and consumer engagement, we accounted for 33,500 tons of recovered plastic in the year, an increase of 156% compared to 2021. Lastly, on the circular design of applications front, we inaugurate the Casulo, the first packaging development center for the circular economy in Brazil. Let's go to the next slide, please. In the fourth quarter of 2022, the petrochemical spread reached its bottom, impacted mainly by the dynamics between global supply and demand. For the coming years, there is a market expectation of a recovery path for the petrochemical cycle as a consequence of demand growth being higher than the expected supply additions globally, as you can see in the chart. Moving to the next slide. Considering the moment of the cycle, Braskem has established several initiatives to improve EBITDA and cash flow generation. Regarding our EBITDA initiatives, we would like to highlight the optimization of global trade management, the global optimization of fixed and variable costs with cost-conscious targets for all team members of the company, and also the continuous progress of our Transform for Value program. These initiatives together have the potential to increase EBITDA by around $350 million in 2023. Among the initiatives impacting cashflow generation, we would like to highlight the working capital optimization across the integrated production planning, the prioritization in the investment process for corporate CapEx without impacting maintenance CapEx and the reliability of our assets and the generation of cash through no recurrent monetization throughout the year. Summing all these initiatives, we have a potential for additional cash generation of $500 to $600 million in 2023. Moving to the next slide. For Brazil segment, the expectation for first quarter of 2023 is for an increase in net length production. On the commercial front, the expectations for resins volume to increase and for spreads, external consulting firms are expecting high spreads for resins and low spreads for main chemical products. In the United States, capacity utilization rate should increase compared to the fourth quarter 2022. However, the sales volume should keep stable and the USPP minus propylene spreads should decrease. Lastly, in Mexico, the expectations for maintaining C&P production with higher P sales volume and higher spreads in the region. Let's go to the next slide, please. On this slide, I'll go over our five priorities for this year, taking into consideration our strategic pillars. The first one is optimize operations of assets and focus on cost discipline to capture synergies across the regions. The second one is to implement initiatives on financial preservation focused on creating value for all shareholders. The third one is to prioritize investments for eliminating plastic waste and combating climate change and focus on initiatives related to social responsibility and human rights. Regarding innovation, we want to expand in strategic innovation and digital transformation. And finally, advance on all our action fronts related to the geological event in Alagoas, fulfilling the commitments established in the agreements. Finally, we would like to reinforce that safe operations are and always will be the focus on brass canes operation as a permanent and non-negotiable value of our strategy. So that concludes today's presentation of Braskin results for the fourth quarter of 2022. Thank you all for your attention and let's go to the question and answer session.

Ladies and gentlemen, we'll now begin the question and answer session. If you have a question, please press the star key followed by the one key on your touchtone phone now. If at any time you would like to remove yourself from the questioning queue, press star 2. Our first question comes from Vicente Falanga with Bradesco BBI. Please, Vicente, go ahead.