Braskem SA ADR

Good morning, everyone, and thank you for waiting. Welcome to Braskem's fourth quarter and year 2023 results conference call. With us here today, we have Mr. Roberto Bischoff, Braskem's CEO, Mr. Pedro Freitas, Braskem's CFO, and Ms. Rosana Volho, Investor Relations, Strategic Planning and Corporate Market Intelligence Director. we inform you that this event is being recorded. All participants can choose which language to listen to and see the presentation using the show captions and view options buttons, respectively. After Braskem's remarks, there will be a question and answer session. At the time, further instructions will be given. The audio of this event will be available on the Investor Relations website After it ends, remind you that participants will be able to register via the website Questions for Braskem, which will be answered after the end of the conference by the IR department. Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding Braskem's business prospects, prospections, operational and financial goals, constitute beliefs and assumptions of the company's management, as well as information currently available to Braskem. Future considerations are not a guarantee of performance and involve risks, uncertainties and assumptions, as they refer to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand the general conditions industry conditions and other operational factors may affect Roscan's future results and may lead to results that differ materially from those expressed in such future conditions. Now, I will turn the conference over to Rosana Avoglio, Investor Relations, Strategic Planning and Corporate Market Intelligence Director. Ms. Avoglio, you may begin your presentation.

Hello, ladies and gentlemen. Thank you for participating in Braskem's earnings call. Today, we'll present the results for the fourth quarter and the full year of 2023. Following the agenda on slide three, I will start by presenting the company's main financial highlights in the period on slide number four. In 2023, the imbalance between global supply and demand caused by the addition of new polyethylene and polypropylene capacity in the United States and China, associated with a lower global consumption, resulted in international spreads reaching their historic lows throughout the year, pressuring the profitability of the global chemical and petrochemical industry. In this context, Braskem's recurring EBITDA was $211 million in the fourth quarter, reaching $743 million in 2023. The company recorded a loss of approximately $935 million in 2023, with a recurring cash consumption, excluding payments related to Alagoas, of $375 million in the year. The company continues to have a robust liquidity position, ending the year with $3.6 billion in cash, an amount sufficient to cover debt maturities over the next seven years. This calculation does not take into account the availability international revolving credit line in the amount of $1 billion up to 2026. In addition, Braskem's debt profile remains very long, with an average maturity of 12 years, with more than 60% due after 2030. The company ended the year with a leverage of 8.12 times a reduction of approximately four times compared to the previous quarter. Finally, it's important to note that Braskem is committed to the company's resilience and financial health. Therefore, in 2023, the implementation of resilience initiatives positively impacted EBITDA by about $390 million and cash generation by about $525 million. In the next slide, I will comment on the company's main operational and strategic highlights. Regarding operational highlights, the global accident frequency rate decreased by 2% when compared to the previous quarter, and in the year with a rate of 1.08 events per million hours worked, a result below the industry average. In math scope, Q4 2023 was marked by the recovery of production levels after the unscheduled shutdown in the third quarter of 2023, with an increase in the utilization rate by 18 percentage points when compared to the third quarter of 2023. In the year, Mexico's utilization rate increased by 5 percentage points to 75%. It's worth noting that this is the highest annual utilization rate in Mexico in the last five years. In the United States, polypropylene plants located in Oyster Creek, New and La Porte performed above the industry average in the period, reporting production records. Finally, I would like to present some of the company's strategic highlights in 2023. Brasca maintained its efforts balancing capital allocation, to continue advancing its growth agenda. In the year, the performance of the industrial decarbonization program was positive, totaling 80 initiatives predicted in the roadmap for 2030. On the technology and innovation front, around 554 million Riel were invested in 2023, reinforcing our commitment to this important pillar of our strategy. As for the growth avenues, important advances have been made. On the traditional avenue, the financing of the construction of the Atene import terminal in Mexico was completed by Terminal Químico Puerto Mexico. This investment represented another important step towards greater availability and stability of raw material supply for Braskem y Teza. Also on this avenue, in March, the company announced a new wind energy purchase agreement with Casa dos Ventos, which provides for supply for up to 22 years. In November, the biomass-based renewable energy production plant developed by Veolia in partnership with Braskem was inaugurated. The steam generated via renewable sources is already being supplied to the company's plant in Alagoas and will contribute to the potential reduction of about 150,000 tons of greenhouse gases annually. In the Biobase Avenue, the expansion of the green ethylene production capacity to 260,000 tons per year, an increase of 30% compared to the previous capacity. In addition, in August, Braskem and SCG Chemicals signed an agreement to form a joint venture to create Braskem-Siam, with the objective of producing green ethylene from Braskem's proprietary ethanol dewatering technology in Thailand. Finally, in the advances of the recycling avenue, we can highlight the conclusion of the acquisition of 61.1% of White Plastico, a Brazilian company in the mechanical recycling sector, and the formation of the upside joint venture between Braskem and Terra Circular in the Netherlands, which holds patented and proprietary plastic waste recycling technology. Finally, we have also signed contracts with suppliers of circular raw materials, such as Nexus in the United States and Vitool in Europe, ensuring strategic partnership in this value chain. Moving on to slide number seven, where I will present the operational performance of the Brazil segment. The utilization rate of Brazilian petrochemical plants in the fourth quarter was 66%, two percentage points lower than the third quarter, mainly due to the scheduled shutdown at the Bahia Petrochemical Plant. In the Brazilian market, the sales volume of resins was 11% lower than that in the previous quarter, mainly explained by the strategy of prioritizing higher value-added sales and the seasonality of the period. On the other hand, greater commercial opportunities for polyethylene and polypropylene in South America increased the volume of the company's export. As a result, the segment's recurring EBITDA in Q4 was $123 million, an increase of 7% from the prior quarter, representing 52% of the company's consolidated EBITDA for the quarter. Moving on to the next slide. The production of green ethylene was impacted by restrictions in the supply of ethanol in December. due to the weather conditions in the region of the petrochemical complex of Rio Grande do Sul. Thus, the utilization rate was 62%, a reduction of 46 percentage points compared to the previous quarter. It's important to note that the utilization rate in the third and fourth quarters of 2023 already reflected the addition of green ethylene capacity. With regard to sales in the last quarter, volume increased by 17%, mainly due to higher seasonal demand, supported by the availability of inventory built after the capacity expansion. As a highlight on this front, Breskin concluded the update of Green PE Life Cycle Assessment, confirming the product's negative carbon footprint. The update of the study shows that each kilogram of green PE avoids the emission of approximately 2.12 kilograms of CO2 equivalent. Moving on to the next slide. In the United States and Europe segment, the utilization rate in the last quarter was 82%, in line with the previous quarter and the average for the year, which ended at 81%. On the other hand, sales volume decreased by 6% compared to the third quarter. In the United States, the sales volume was impacted by the seasonability of the period and the destocking process in the transformation chain. In the fourth quarter, recurring EBITDA was $87 million, 45% higher than the third quarter of 2023, and representing 37% of the company's consolidated recurring EBITDA in dollars in the quarter. This increase is mainly explained by the optimization of the sales mix and the flexibility in the purchase of propylene in the United States. Moving on to the next slide, we'll talk about the Mexico segment. In Mexico, the utilization rate for the quarter was 84%, an increase of 18 percentage points compared to the previous quarter after the resumption of operations. It's important to note that the average supply of ethane by Pemex was 35,000 barrels per day in the quarter, above the minimum contractual volume, and the average import of ethane through the fast-track solution was 18,000 barrels per day. On the commercial front, sales volume was lower when compared to the previous quarter, mainly due to the recomposition of inventories. Recurring EBITDA in the period was $26 million, almost three times higher than the result of the third quarter, and represented 11% of the company's consolidated recurring EBITDA in dollars in the quarter. On slide 12, I will talk about the consolidated financial highlights. In the fourth quarter of 2023, recurring EBITDA was $211 million, an increase of 13% compared to the previous quarter. This increase is a reflection of the prioritization of sales with higher added value, the optimization of sales makes the higher spread in the international market of resins and chemicals for Brazil and polyethylene in Mexico. For the year, recurring EBITDA was $743 million. The decrease compared to 2022 is mainly explained by the lower petrochemical spreads in the international market in practically all segments. On the other hand, these defects were partially offset by the impact of the resilience and financial health action implemented in 2023, including the sales prioritization and optimization strategy, the reduction of approximately $60 million in general and administrative expenses, and $30 million in other fixed costs, and the gains from the monetization of credit rights and tax assets. Let's move on to the next slide. Regarding consolidated cash flow, Breskin presented the recurring cash consumption of approximately 1.9 billion rials, mainly explained by the 64% reduction in recurring EBITDA compared to 2022 due to the global industry's downturn. This effect was partially offset by the positive change in the working capital of 2.5 billion rials as a result of the implementation of initiatives of optimization of operating working capital and by the corporate investment of CapEx lower by 245 million Rios compared to the estimate at the beginning of the year as a result of the prioritization of investments and for the lowest income tax payment in the year. If we add the payments related to Alagoas, cash consumption totaled about 4.6 billion Rios in 2023. Moving on to the next slide. Braskem ended 2023 maintaining a very long debt profile with an average payment terms of about 12 years with 61% of the debts concentrated as of 2030. The company's robust liquidity level is sufficient to cover its obligation for the next seven years not considering the international revolving credit facility in the amount of $1 billion that is available up to 2026. At the end of the quarter, the corporate leverage was 8.12 times, a decrease of approximately four times compared to the third quarter. Net debt remained in line with the last quarter and the average of the last seven years, ending the year at approximately $5.1 billion. In relation to the agencies, Fitch Rating and S&P Rating downgraded Braskem's rating to BB+. It's important to note that the company has maintained its commitment to maintaining its liquidity position, cost discipline, and continuing to implement measures to reduce its corporate leverage and recover its investment grade. Let's move on to slide 16. Next, I will comment on the main updates of the work front in Maceió, starting with the relocation and compensation front. On the next slide. The residents' relocation program continues to advance, and by February 2024, 99.6% of the program had already been executed, with 100% being the level of evacuation in the risk area, and 98% in the area of monitoring, according to map number 4 of the Civil Defense. As for the proposals of the Financial Compensation and Relocation Support Program, the PCF, more than 99% of the estimated proposals have already been submitted, of which about 97.9% have already been accepted, and about 95.1% have already been paid with an overall acceptance rate of 99.4%. The total provision within this front so far was R$ 5.7 billion, of which R$ 4.5 billion have already been disbursed and R$ 1.4 billion in balance at the end of the fourth quarter of 2023. Moving on to the next slide. With respect to the closure and monitoring of the mines, I will present below the current status of the closure plan. The sand filling group has a total of 13 mines, of which 5 are completed and 2 are in progress. To achieve a definite solution, 6 cavities, which were prior to the monitoring group, were recently added and in the sand filling and are now in preparation phase. The natural filling group has a total of 6 targeted cavities, of which 5 are completely filled. Cavity 18. which was recently moved to this group, is in evaluation phase, with an indication that no sand filling measures will be necessary. Finally, from the 16 mines directed to the plugging and pressurization group, 7 are already pressurized and are being monitored, and 9 are in the confirmation stage of completion. Of this front, 3.8 billion reais have already been provisioned so far, of which 2.4 billion reais have already been disbursed and 1.6 billion reais are in balance at the end of the fourth quarter of 2023. The planned actions mentioned are estimated to be completed by 2026. Regarding the progress of social urban measures, six urban mobility projects are in the physical execution phase out of a total of 11 planned. The estimated completion is by 2026. On the Mutange slope, the overall progress of the project is 69% with the demolition activities already completed and the project expected to be fully completed in 2024. The social-urban action plan is underway with 23 actions validated by the authorities, of which two are in execution. In Flechaise, Of the 23 socio-economic measures provided for in the Term of Agreement, 12 were implemented in the social and services access, one step of work has been completed and another is in progress. In the financial support program, about 98.8% of the proposals were paid. On this front, 1.7 billion rials have already been provisioned so far, with about 500 million rials already disbursed, and R$ 1.4 billion in balance at the end of the fourth quarter of 2023. Moving on to the next slide on the financial provisions and other updates. The total of provisions related to Alagoas event registered so far is R$ 15.5 billion, of which R$ 9.5 billion have already been paid, approximately R$ 1.1 billion Billion rials are recorded in other obligations to be paid and about 500 million rials referring to the adjustments to present value. Finally, at the end of 2023, the provision balance was 5.2 billion rials. In addition, the actions of the environmental plan according to the provisions made are still in progress and are expected to be completed in 2028. Moving on to the next slide. To conclude this session about Alagoas event, I would like to emphasize that over the last four years, BRASCEM has permanently reaffirmed its commitment to Maceió with actions and programs on the social, urban and environmental fronts. Recently, the reaffirmation of these commitments were disclosed in order to bring more transparency in the monitoring of the actions and programs. It's important to highlight that, above all, BrastChem's priority is and has always been people's safety. Moving on to the last topic of our agenda on July 23, we will bring the company perspectives for the future. In the next quarter and in 2024, the outlook for Brazil's segment is positive, with an increase in utilization rate due to the resumption of operating levels after scheduled shutdowns in 2023, and the expectation of an increase in sales volume, especially in the Brazilian market. As far as spreads, the trend, according to external consulting firms, is for an increase in the next quarters due to higher resin prices in the international market, with a stabilization trend throughout the year. For green polyethylene, the expectation is also positive, both in the operation rate and in sales volume, due to the resumption of supply of the raw materials and the consolidation of the increase in production after the expansion project, reflecting a higher sales volume. In the United States and Europe, there is a stabilization trend in plant utilization rates both in the next quarter and in the year. On the commercial front, sales volumes are expected to increase in the short term, compared to the seasonality at the end of the year, but it should remain stable year on year. Regarding the spreads, according to external consultants, the outlook is for an increase in the short term due to the increase in the price resins, while for the year, the expectation is to maintain the levels of spreads. Finally, in Mexico, the trend for the first quarters to maintain production given the recent increase in utilization rate with greater product availability for sales and higher spreads due to the downturn trend in ethane prices and increasing in polyethylene prices. For the year 2024, the outlook is positive in all indicators. Moving on to the next slide. In 2024, Braskem will continue to focus on the value creation frauds, which seek to balance the optimization of the current asset portfolio and the execution of growth and transformation investments to ensure the profitability and financial health. Following, I will comment on those two axes of value creation for the company. In 2023, on the resilience and financial health front, the implementation of the MAPIT corporate initiatives positively impacted EBITDA by $290 million and cash generation by $525 million. For 2024, the company will continue to focus on implementing the MAPIT initiatives and identifying new opportunities. The combined initiatives have a potential to impact on approximately $280 million on EBITDA and $400 million on cash generation. Throughout 2024, we will reinforce this performance with initiatives such as strengthening the commercial strategy with the prioritization of higher value-added sales. Measures to reduce costs and increase productivity will continue to be part of the company's day-to-day operations, with a potential positive contribution of approximately $80 million through new initiatives. For 2024, the expected reduction in investments is approximately $300 million, 37% lower than the historical levels of the 11-7 years and with no impact on the reliability and safety of industrial assets. This reduction will be made possible by optimizing the investment portfolio and prioritizing initiatives based on return and the selection of partnerships. On the working capital front, the company will continue to work on various efficiency initiatives for the integrated planning cycle, seeking to generate results through the optimization of its operating cycle. Finally, the company continues to map and evaluate opportunities to monetize adjacent assets, such as credit rights, taxes to recover, and other assets, as well as evaluate structures to enable these monetizations. Moving on to the next slide. The company's growth strategy will continue to advance in the three avenues, namely traditional, decarbonization, bioproducts, and recycling. 2030, the initiatives being implemented, mapped and under study, adapt to a potential for value creation of approximately $1 billion. The implementation of Braskem's corporate strategy for 2030, finally, based on our pillars, avenues and foundations, will continue to balance capital allocation with the creation of shareholder value and the generation of positive impact for all stakeholders. Now, going to the last slide. Finally, I would like to highlight Brescan's priorities for 2024. Firstly, the company remains focused on fulfilling its commitments established in the agreement signed in Maceió. As for assets, Brescan reinforces its strategy of optimizing asset management, maintaining cost discipline, and increasing productivity and competitiveness. We will also continue to promote discussions about the competitiveness of the Brazilian industry, seeking measures that guarantee the competitive equality of the Brazilian industry. Initiatives to preserve finances, leverage and reduce cash requirements continue to be priorities for the company's financial and resilience health. In addition, the prioritization of the company's long-term investments will continue to be a central part of our strategy, as well as the implementation of innovation and digital transformation initiatives that support such growth. In Mexico, we will continue our efforts to pursue value creation initiatives and to complete the construction of a think terminal. Finally, I'd like to reinforce that the safety is and will always be the focus at Brastem's operation, a non-negotiable value proposition. Thus, we conclude the presentation of Braskem's fourth quarter and the full year of 2023 results. Thank you very much for your 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 click on the raise hand button or Use the Q&A window to send your question. To remove your question from the queue, click in the button lower hand or use the Q&A window. Press star 9 if you're using the telephone. When your name or number is announced, press star 6. Our first question comes from Luiz Carvalho with UBS. You may proceed, sir.

Hello, Mr. Bischoff. Hi, Pedro. Hi, Rosana. Thanks for taking my question and also for sharing these cash generation and value generation data with us in the long term. Now, if you'll allow me, I have three quick questions. The first, I think Pedro was giving an interview, if I'm not mistaken, but he mentioned that there are two ongoing due diligence processes. Could you please give some more details about these processes, who they are? I have some thoughts as to what they are. One of them, I think, is Petrobras. Could you please give us more details about the timing to the end of these due diligence? My second question is about Alagoas. You made an additional provision of one billion reals in Q4 and Of course, I would appreciate any kind of an update as to what is yet to come, what is being discussed in the Senate Brazilian CPI process, and if you have any other estimates, because we're near the end of March now, so is there any information you can give us in advance? And lastly, we've been watching the threads using the CNA. And in fact, there was an improvement now in Q1, but the outlook is still for a drop. So the recovery is looking to be improved by 2025. So could you please give us some more information about the spread and what you see with your perspectives? Thank you. Hi Luis, this is Pedro. I hope you're doing well. Thanks for your questions. I will answer the first two questions and then I will ask Rosana to talk about the spread. With regard to the due diligence processes, we've got Petrobras that did their due diligence last year. It is materially it is finished. There's always one or two questions left over but as far as we're concerned it's pretty much done and then we have two other players one is adnok as you mentioned and the there's another one that is also doing their due diligence now we don't control their timing so i can't give you a specific date as to when it's going to and it really depends on their dynamic and to what degree they're going to want more information or not, and how much detail they're going to want. So we don't control that timing. But if you imagine that a due diligence typically takes something in the order of two to three months for a company the size of Breskamp, then you can have an idea as to what these timings might be for this process. But in fact, we don't control their timing, nor do we sit down with them to discuss the process or negotiate terms, what's going to be done and what isn't. So our role here really is to provide the answers to their questions. We don't really have visibility after the process overall. With regard to Alagoas, we did have an increase in provision in the order of 1 billion, as you mentioned. The majority of that is linked to the change in category, as Rosana explained. Some wells have been changed to filling, and also because of the downtime hours, because the operation did need to be paused for a number of months, that increases costs. On the other hand, we have an important consumption of the provision, payments that have been made, and so that's the source. as to the cpi inquest we are at their disposal we are available for them as we have always been to answer any and all questions about everything that's going on in maseo everything that has happened and that is happening now with regard to the spreads i will pass the floor on to rosanna thank you pedro thank you luis for the question i'm going to divide my answer