Braskem SA ADR

Good morning, and thanks for waiting. Welcome to Brascam's third quarter of 2023 results conference call. With us here today, we have Mr. Roberto Bischoff, Brascam's CEO, Mr. Pedro Freitas, Brascam's CFO, and Mrs. Rosana Avoglio, Director of Investor Relations, Strategic Planning, and corporate market intelligence. We'd like to notify you that this event is being recorded and all participants will be in a listen only mode during the company's presentation. After Brascam's remarks there will be a question and answer session. At that time further instructions will be given. Should any of you need assistance during this call please press star zero to request assistance from an operator. This event is also being broadcast live via webcast and may be accessed through Brascam's website at http://www.brascam-ri.com.br where the presentation will also be available. The selection of slides will be controlled by you. The audio will be available shortly after the event has concluded. We'd like to remind all participants that you may post your questions through the Brascam website. They will be answered by the IR team after the conference has completed. Before proceeding, let us also remind you that forward-looking statements are based on the beliefs and assumptions of BrassChem's management and on information currently available to the company. These forward-looking statements 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 could also cause results to differ materially from those expressed in such forward-looking statements. Now I would like to turn the conference over to Mrs. Rosana Evoglio, Director of IR, Strategic Planning, and Corporate Market Intelligence. She will begin her presentation.

Mrs. Avalio, you may begin your presentation.

Good morning, ladies and gentlemen. Thank you for participating in Braskin's earnings conference call. Today, we will present the third quarter 2023 results. Let's start the presentation on slide three with the quarter's highlights. In the third quarter 2023, Braskem's recurring EBITDA was $187 million with a non-cash loss of $497 million and a cash consumption excluding Alagoas disbursement of $69 million. I would like to emphasize that the company maintained a robust liquidity position ended the quarter with a cash position of $3.4 billion, which is sufficient to cover all of its debts for the next six years. This amount is not considering the standby revolving facility of $1 billion available until 2026. It's worth mentioning that Breskin's debt profile remains very long, with an average term of 12 years, and the net debt remained controlled at a lower level when compared to the historical levels of the company. Regarding operational highlights, the global accident frequency rate was 8% lower when compared to the previous quarter. Sales in the Brazil segment increased by 12% in the national market when compared to the second quarter of 2023. which represents a higher increase than the Brazilian demand in the period. I also highlight the green ethylene utilization rate, which reached 108% in the third quarter of 2023, due to the conclusion of the capacity expansion project and the implementation of industrial efficiency projects. On the strategic front, Breskin recently opened an office in Japan, which has a very important consumer market for the company's green PE biopolymer since the startup of our plant. I would also like to highlight the constitution of a Braskem Siam, a joint venture between Braskem and SCG Chemicals, which will be responsible for the construction project of green ethylene in Thailand. Lastly, the financing of Mexico's import terminal was concluded, and the fiscal progress was 48% by the end of October. Now let's move on to the next slide. The third quarter of 2023 consolidated recurring EBITDA was 34% higher than the previous quarter, totaling $187 million in the quarter. This increase is given mainly by the higher resin sales volume in Brazil, higher green PE sales, higher PEP sales volume in the United States and Europe segment, and the posting of special regime for the chemical industry tax credits, the REIC, which returned in the third quarter after the signing of the decree that regulated the program. Let's move on to the next slide. Regarding the results for Brazil segment, the utilization rate in the quarter was of 68%, 4%. percentual points inferior to the second quarter of 2023, mainly due to unscheduled shutdowns at Braskem and some major chemical customers. However, Brazil's segment presented a 12% increase in sales volume in the national market, above the demand in the period. The export volume was also higher, explained by better opportunities in the international market. In this regard, Recurring EBITDA in Brazil was $115 million in the third quarter, representing 63% of the company's consolidated recurring EBITDA and 42% higher than the previous quarter. Let's move on to the next slide. The green ethylene utilization rate was 108%, an increase of 24% when compared to the previous quarter. It's worth noting that the utilization rates presented are in relation to the capacity installed in each quarter. This increase is based on the conclusion of the Green Ethylene Capacity Expansion Project in Rio Grande do Sul and the result of the initiatives of industrial efficiency implemented by the company during the scheduled shutdown in the first half of 2023. In this scenario, the green PE sales volume increased 48% in the quarter. Recently, Braskem opened its first office in Japan. The country has been developing robust public policies for the renewable resins market with well-defined strategies, roadmaps, and goals. The company has as a national goal to introduce about 2 million tons of biopolymer products in its economy. by 2030. Those actions reinforce its position as a country with a relevant and strategic market for Braskem's IAM GreenPE. GreenPE operations integrate Braskem's corporate strategy to 2030 through its bio-based growth avenue, which I will update you in the next slide. In the quarter, Braskem-CM was incorporated a joint venture between Braskem and SCG Chemicals for the conduction of the construction of project of the green ethylene plant in Thailand. The site will have a production capacity of up to 200,000 tons of green ethylene. The project is now under predetailing phase of engineering and the expectation of investment will be made by the end of 2024. I would like to highlight that the technology adopted ETE Evergreen is owned by Brascan and provenient from a partnership with Lumus Technology. Besides representing Brascan's first industrial footprint in Asia, this project is an important step in our bio-based growth avenue, and it will contribute to the achievement of the commitment of expanding the capacity production of green products to 1 million tonnes by 2030. Let's move on to the next slide. We will then discuss the updates on Alagoas geological event. Regarding the financial compensation proposals, we already presented more than 99% of the total estimated proposals, which around 97% were accepted and around 93% were already paid. The relocation program continues to make progress and by the end of the quarter, 99.2% were executed. About closing and monitoring of wells of the sand filling group, four wells were concluded. One is waiting for the approval of the National Agency of Mining and four are in progress. The natural filling group was 100% concluded and the tamponaded and monitoring groups are still in progress. The work groups continue to make progress according to the schedule established with the authorities. On the next slide, I'll continue discussing about the Alagoas Geological Event. As for the social, urban, and environmental development measures, all the 11 mobility actions are ongoing. Of these 11, eight already have their executive projects concluded, three are under construction, and one project is planned to begin in the fourth quarter of this year. We are still making progress on the urban integration project and the development of the flex shell, with 11 urban requalification actions implemented from the 23 estimated actions. Lastly, the environmental plan continues to make progress. Regarding the provisions made for the geological event in Alagoas, the total amount provisioned was R14.4 billion, of which were already disbursed R9.2 billion by the end of September 2023. Therefore, the total amount of provisions registered by the end of the third quarter of 2023 was approximately R5.6 billion. Note that Braskem cannot eliminate the possibility of any future developments related to the matter or the associated expenses, and any costs to be incurred could differ from our estimates or cumulative amounts. Let's move on to the next slide when we'll discuss the United States and Europe highlights. In the United States and Europe segment, the utilization rate in the third quarter of 2023 was 81%, aligned with the previous quarter and 6 percentage points higher than the third quarter of last year due to scheduled shutdowns in the same period last year. Sales volumes also remained in line with the previous quarter and rose 7% when compared to the same quarter of last year due to destocking in the period. Recurring EBITDA of the segment totaled $60 million in the quarter and represented 33% of the companies consolidated recurring EBITDA. Moving on, we will talk about Mexico. Mexico's utilization rate was 66% in the third quarter of 2023, lower than that of the second quarter of 2023 and the third quarter of 2022 due to unscheduled shutdown in the region because of electrical failures in the national system and by the lower ethane availability by Pemex. Despite these challenges, the sales volume remained aligned with the previous quarter due to stock optimization in order to supply the clients in the period. The recurring EBITDA of Mexico's segment was $8 million, representing 4% of the company's consolidated recurring EBITDA. Moving on to the next slide, we will talk about the ethane import terminal in Mexico. Terminal Química Puerto México is a company created by Braskin Ideza in a partnership with Advario, concluded the process of financing, obtaining in the amount of $408 million. This is a syndicated project finance loan that involves six financial entities with a maturity of five years and usual guarantees for this kind of transaction. Considering this financing, the capital structure of the project will be 30% equity and 70% debt from all resources invested throughout the project. The ethane import terminal integrates Braskem's global strategy for 2030 through the traditional business growth avenue and will permit the supply of up to 80,000 ethane barrels per day to Braskem Ideza, around 120%, of its current need and should start its operation by the second half of 2024. The physical progress of the construction was 48% by the end of October 2023. Let's move on to the next slide, please. Regarding consolidated cash flow, Breskin presented the positive variation in working capital of 1.3 billion rials due to working capital optimization in the quarter. This positive effect was offset by operational and strategic investments carried out in the period, interest payments and the payment of income tax and social contribution due in the quarter, which led to cash consumption of $329 million in the period. Adding the payments related to the geological event in Alagoas, Cash consumption in the period totaled around 1.4 billion in the third quarter of 2023. Let's move on to the next slide, please. Breskin maintained a very long debt profile with an average payment term of 12 years and an average weighted cost of exchange variation of an additional 6.2%. I also highlight that two-thirds of the company's debt is concentrated in 2030 onwards. Braskem's cash position is sufficient to cover its obligation for the next six years without considering the international standby credit facility of $1 billion, which is available for the company until 2026. It's also important to highlight that Braskem continues to be an investment-grade company by S&P and Fitch rating agencies. Moving on to the next slide, we will discuss the corporate credit and leverage metrics. By the end of the quarter, Braskin's corporate leverage was 12.2 times due to the lower EBITDA in the last 12 months. The indebtedness level remains stable, aligned with the previous quarter, and lower when compared to the quarterly average of the last six years. Braskin continues to present solid credit metrics in a healthy and comfortable level of liquidity. Let's go to the next slide, please. Petrochemical spreads in the international market continue to be pressured during the period as a result of the historically low levels of global demand combined with the entry into operation of new capacities and consequently greater supply of products on the market. However, The path of some spreads during the quarter was upwards between July and September as for polyethylene, mainly due to the increase in the price of petrochemical resins in the international market as a result of the increase in the price of Brent and NAFTA following the OPEC production cut announcements, which impacted the cost of production for marginal producers. The expectation is that 2024 should present a gradual recovery of the petrochemical spreads in the international market, according to the sector's main external consultants, guiding the industry profitability from a down cycle to an average cycle over the next few years. Let's move on to the next slide. Regarding Brazil's segment, we expect a reduction in the ethylene production levels in the fourth quarter of 2023, due to the maintenance shutdown in the petrochemical complex in Bahia. On the sales front, we expect a reduction in the resin sales volume due to the seasonality of the period and a reduction in the main chemical sales volume due to a lower ethylene utilization rate. Spreads may grow considering the increase in the resins and the main chemical prices in the international market. For the United States and Europe segment, the utilization rate may remain stable. The sales volume may be lower in the quarter and the spreads may remain stable. Lastly, for Mexico, we expect an increase in the production. Sales volume may remain stable considering the inventory recomposing and spreads are likely to increase due to higher prices of PE in the international market. Moving on to the next slide, please. We will comment on the updates of the initiatives with the impact on the company's EBITDA and cash generation. Regarding commercial initiatives which impact the company's revenue through optimization in global commercial management. So we have the intention of maximizing the synergy among the commercial areas. An example of delivery in this front is the optimization of the sales mix of the company. Moving on to the initiatives that impact the fixed and variable costs, the company has been implementing several actions. In addition to a transversal target of reducing fixed costs in the company, which is on track, we are also working on the asset management strategy globally, which resulted in the hibernation of 1PP line at the Marcus Hook plant in the United States. In the renegotiation of contracts with suppliers, and optimization of the company's logistics costs. On the working capital front, the company has been working with several efficiency initiatives for the integrated planning cycle, which is generating results through the optimization of its operational and financial cycle. Regarding CapEx allocation, the company estimates a CapEx for the year of 2023 22% lower than last year's capex and its achievement is on track. This is due to improvement work in the budgeting and project prioritization process. The company is also working on reassessing its scheduled shutdown strategy. It's worth highlighting that the efficiency initiatives in capex allocation do not impact the security of the company's assets or operations. Finally, The company continues to map and evaluate opportunities to make monetization of adjacent assets, such as credit rights, taxes to be recovered, and other assets, as well as the valuation of structures to make this monetization feasible. The company reinforced its commitment to continue identifying and implementing opportunities to improve its results and generate value for its shareholders. Let's move on to the next slide, please. Finally, I would like to invite everyone to participate in our Breastcam Day. It will be a great opportunity to understand better the company's diverse businesses, its levers, and Breastcam's value creation strategy. The event will be fully virtual and will take place on November 27th. We will forward the invitation with more details soon to all participants in this call and all those subscribed in our mailing list. That concludes today's presentation of Brascom's results for the third quarter of 2023. Thank you for your attention. Now let's move on to the question and answer session.