Braskem SA ADR

Good morning, and thank you all for waiting. Welcome to Brascam's results conference call to discuss the second quarter of 2024. We have us here today, Mr. Roberto Bischoff, CEO of Brascam, Mr. Pedro Freitas, CFO of Brascam, and Mrs. Rosana Avoglio, Investor Relations, Strategic Planning, and the Corporate Market Intelligence Director. we inform you that this event is being recorded. The presentation will be held in Portuguese with simultaneous translation into English. All participants can choose which language to listen to and see the presentation in using the show captions and interpreting options at the bottom of your screen. After Brascam's remarks, there will be a question and answer session. At that time, further instructions will be given. The audio for this event will be made available on the Investor Relations website after it ends. We remind you that participants will be able to submit questions for Brascam, which will be answered after the end of the conference by the IR department. Before proceeding, we'd like to clarify that any statements that may be made during this conference call regarding Brascam's business prospects, projections, operational and financial goals all constitute beliefs and assumptions of the company's management as well as information currently available to Brascam. 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 that general conditions, industry conditions, and other operational factors may affect GRASCAM's future results, and may lead to results that differ materially from those expressed in such future conditions. Now, I'd like to turn the conference over to Mrs. Rosanna Avoglio, Investor Relations, Strategic Planning, and Corporate Market Intelligence Director. Mrs. Avoglio, you may begin your presentation.

Hello ladies and gentlemen, thank you very much for participating in Braskem's earnings call. Today we will present the results for the second quarter of 2024. According to the agenda on slide number 3, we will begin with the company's main financial highlights for the period, which can be found on slide number 4. during the second quarter of twenty twenty four the petrochemical spread scenario in the international market has improved when compared to the first quarter due to the better balance between global supply and demand associated with the effects of conflicts in the red sea which still impact global logistics resulting in higher maritime freight rates in this scenario added to the company's continuous effort to reduce costs and expenses the recurring avida was three hundred and twenty million dollars thirty nine per cent higher than the previous quarter and a hundred and twenty eight per cent higher when compared to the second quarter of last year in this context operating cash generation increased by nine per cent compared to the last quarter recording two hundred and forty million in the period while recurring cash generation was positive in sixty nine million dollars breskin maintained its robust liquidity position with two point eight million in cash at the end of the quarter without considering the international revolving credit line available in the amount of one million dollars a sufficient amount to cover debt maturities over the next sixty-one months In this context, Breskens' debt profile remains very long, with an average term of 12 years, with more than 64% of the debt maturing after 2030. Therefore, the company ended the quarter with a leverage of 6.8 times, lower if compared with the last quarter mainly due to the better result in the period. It's important to highlight Braskem's constant commitment to resilience and financial health, which has played an important role in managing results during the current petrochemical cycle. Over the second half of 2024, the resilience and financial health initiatives accumulated a positive impact of about $135 million in EBITDA and around $109 million in cash generation. In the next slide, I will comment on the company's main operational and strategic highlights. The safety of its members and its operations is a non-negotiable commitment of the company, and at the end of the first quarter of 2024, the global accident frequency rate was 0.93 events per million hours worked, a result below the first half of 2023 and from the sector average. With regard to operational performance, the GeoGrapho diversification of brass camp's petrochemical plants was fundamental to maintain the customer service and mitigate the effects of the shutdowns during the quarter in brazil production was impacted by the extreme weather event in rio grande do sul which was partially compensated with an increase in the utilization rate of the bahia and sao paulo plants In the United States and Europe segment, the lower production due to a maintenance shutdown at one of the polypropylene plants in the United States, which was partially offset by the better level of production in Europe. In Mexico, the lower availability of domestic ethane, associated with a scheduled shutdown at a polyethylene plant lasting around one month, impacted in a reduction of five percentage points in the utilization rate in the quarter in conclusion the implementation of the company's corporate strategy to twenty twenty thirty continued to advance in the quarter on the traditional avenue the construction of the ethane import terminal in mexico reached a progress of seventy five per cent and its conclusion remains expected by the end of twenty twenty four with a start of operations for the first quarter of twenty twenty five In June, Braskem, Sovi and GRI signed a strategic partnership to create a national platform in the environmental solutions sector for industry. Through this investment, agreement, Braskem transfers all the common shares issued by Citrel, which will result in a positive impact for Braskem of 284 million Riyals. regarding the decarbonization agenda the industrial decarbonization program has consistently advanced the company expanded its partnership with veolia enabling a new investment in energy efficiency in alagoas and it has also developed the first project to use large batteries in the industrial units in rio grande do The two initiatives accelerate the decarbonization of the company's operation, together contributing to a potential reduction of 100,000 tons. At the end of the presentation, we will share the highlights of this agenda over the years of implementation. In recycling, the company made its first sale of circular PP produced from chemical recycling. through a partnership with a Swiss company, Georgiotis. Lastly, industrial scale tests for the development of light refinery hydrocarbons from renewable sources, HLR, were carried out through a partnership between Braskem and Petrobras after positive results, preparing for commercial discussion of the new solution. Moving on to the next slide. On this topic, I will present the operational performance of the company segments, starting with Brazil segment on slide number seven. The utilization rate of the Brazilian petrochemical plants impacted by extreme weather in Rio Grande do Sul was balanced by the production in São Paulo and Bahia, which contributed to a drop of only 3 percentage points in the usage rate for the quarter compared to the previous period. In relation to results, the recurrent EBITDA of the segment was $231 million for the quarter, an increase of 10% in relation to the previous quarter. The result was positively impacted by the impact with the spread in international market, the reduction of costs and expenses, in addition to the positive impact of positive appreciation of dollar, considering that they're connected to different variations of dollars, and part of the cost is calculated in reals. Moving on to the next slides. In relation to green polyethylene, the extreme climate event in Rio Grande do Sul was the main point that influenced the decrease of 63 percentage points, resulting in a stoppage and impacting the logistics for the railroad transport or ethanol. However, the company offset the lower availability of the product for sales by means of using the levels of inventories of polyethylene in the quarter, resulting in a volume of sales 3% lower in comparison to the first quarter of 2024. Moving on to the next slide. In the United States and Europe segment, the usage rate in the last quarter was higher to the first quarter of 24 by 2 percentage points, mainly due to the greater production volume in Europe, due to the formation of stocks, in anticipation of the schedule shutdown, scheduled for the second half of 2024, and partially offset by the realization of a scheduled maintenance shutdown at one of the PPP plants between the months of April and May in the United States. On the other hand, sales volume decreased by 2% due to the lower availability of the product in the United States and lower demand in Europe. In this scenario, in the second quarter of the year, the recurring EBITDA was $46 million, 33% lower than that of the first quarter of 2024. Moving on to the next slide, we will discuss the segment Mexico. The utilization rate was 78%, 5 percentage points lower than the last quarter, and impacted by the lower supply of ethane in Brazil and the schedule shutdown in a polyethylene plant in the second quarter of 2024. On the other hand, sales were higher by 12% due to the higher demand and the use of inventories, resulting in a higher sales volume in the quarter. since the third quarter of 2017. In this scenario, the recurring EBITDA for the period was $56 million, 53% higher than the result for the first quarter of 2024, driven by the higher sales volume and the increase in the spreads in the international market. Then, as of slide 11, we are going to share with you the financial performance in consolidated terms. In the second quarter of 2024, Raskin's recurring EBITDA was $320 million, an increase of 39% in relation to the previous quarter of 2024. This equation improvement in the results shows It resulted in an increase in the improved EBITDA of 59% when compared to the same period of 2023. This result was positively impacted by the increase in spreads in the global petrochemical industry, influenced by the greater balance between supply and demand in the period, and by conjunctural factors such as logistical restrictions resulting from the conflict in the Red Sea. which have influenced the increase in sea freight rates and, as a consequence, the price of resins and spreads in the international market. In addition, the increase in sales volume in the Mexico segment and that geographical of the company also contributed to this increase in EBITDA. Moving on to the next slide, please. Operational cash generation was 1.1 billion rials in the second quarter, representing an increase of 15% when compared to the first quarter of 2024. The result is mainly driven by the increase in EBITDA in the period and the management of the capital in the period. The recurring cash generation was positive in 357 million reals higher than the first quarter of 2024 by 856 million reals, mainly due to the higher EBITDA recurring in the quarter and the payment of interests. Explained by the debt that were paid by the company that are concentrated in the first and the third quarters of the year. Lastly, considering the disbursements regarding Alagoas cash consumption total, the 325 million reals in the second quarter of the year. Moving on to the next slide. At the end of June, Brascombe's debt profile remained quite long, with an average debt term of about 12 years, with 64% of the debts concentrated as of 2030. The company's liquidity level is enough to cover its application for the next 64 years. At the end of the quarter, corporate leverage was 6.79 times a reduction in relation to the previous quarter as a result of the better EBITDA in the period considered a net debt of $5.36 billion. The total rating of the companies in June, Fitch Ratings maintain rating Breskens as BB+, in line with a S&P rating. Finally, the company reinforces its commitment to maintaining its liquidity position, cost discipline, and continuing implementation of measures to reduce its corporate leverage and recover investment grade. Moving on to slide 15 now. Regarding the Alagoas event, the company continues to make headway in the workfront, where the main updates of the period will be presented below. Starting on slide 16. In relation to the socio-urbanistic actions, out of the 11 projects that were planned to have been concluded together, five projects are in the phase of removal. And in relation to the areas, the project in Mutante reached 75% of execution. As for the action plan, socio-urbanistic area, 48 actions have been completed in June by the authorities signatory of the agreement. Up to the end of June, together with FLESHAL, the financial support plan reached 99.3% of all the proposals that have been paid, while 14 of the 33 measures planned for the agreement have already been implemented. On this front, 1.9 billion rials have already been provisioned so far, of which about 700 million rials have already been disbursed and 1.4 billion of rials in balance remain at the end of the second quarter of 2024. Let's move on to the next slide. Until the end of 2024, the percentage of execution of the program of relocation of the people reached 99.7%, considering the total area risk risk areas, according to the civil authorities, have been unoccupied. In relation to the financial compensation program and relocation support, more than 99.9% of the estimated proposals have already been presented, with about 98.4% have already been accepted, and about 96.9% have already been paid, with a general acceptance rate of 99.6%. On this action front, total provision to date was R$5.8 billion, which R$4.7 billion has already been disbursed, and R$1.2 billion are in balance at the end of the second quarter of 2024. Now moving on to the next slide. I will present next the current status of the closure plan. The sand filling group has a total of 13 mines, of which five are fully filled. Two are underway and four mines are in the activity planning phase. The natural fill group has a total of six mines, of which five are completely filled. Cavity 18. in the is in the evaluation phase with an indication that no sand filling measures will be necessary in conclusion of the sixteen mines moved to the buffering and pressurization group seven have already been pressurized and are being monitored while nine are under pressurization confirmation stage. And after this pressure check process, any additional measures may be necessary. On this front, R3.9 billion have already been provisioned until March, of which R2.7 million have already been disbursed and R1.4 billion are in balance at the end of the quarter of 2024. The actions mentioned are estimated to be completed by 2026. Now let's move on to the next slide. By the end of June 2024, the total provisions related to Alagoas event were around 15.9 billion reais, of which about 10.6 billion have already been disbursed. And approximately R$1 billion has been registered in the other obligations to be paid line. Additionally, about R$500 million are in performance of the present value adjustment. At the end of the second quarter, the provision balance was R$4.8 billion. Now let's move on to slide 28. We will present the perspective for the next quarter, in addition to making some comments on the main advances in the priorities for the year in the company. The expectation for the third quarter of 2024 is that the company's usage rate will show an improvement in Brazil green polyethylene segment due to the resumption of the production after the weather event in Rio Grande do Sul. Regarding sales, an increase in volumes expected for the quarter due to the greater availability of products and also the improved demand mainly influenced by the consumer goods sector. and also basic sanitation. In the United States and Europe segment, the expectation is that the usage rate will be in line with the previous quarter, due to the schedule shutdown in Europe, offset by the increase in the utilization rate in the United States, with a resumption of production after the planned stoppage that happened in the second quarter of 2024. On the other hand, the greater availability of products in the United States combined with better sales expectations for exports may positively influence an increased volume of sales. Finally, in Mexico, the trend for the second quarter is of an increase in production as the expectation of a stable supply of ethane. In relation to sales, the demand in the region is very healthy. However, the recomposition of inventories may impact the sales. As to spreads in the international market, the expectation is that there will be a gradual balance in the global scenario influenced by the logistics restrictions that continue positively impacting the spreads in the international market. Moving on to the next slide. In this slide, I would like to share the advances we have been making in the decarbonization front, which is a fundamental aspect of the long-term strategy of the company. Considering the initiatives implemented in 2024, the company added more than $240 billion million tons of potential to reduce CO equivalent for the year, taking into consideration all the initiatives that we have already implemented since 2021, more than 10, 100 projects. And also we count on a very good portfolio related to efficiency of the energy matrix and improvement of and we reached a reduction that was higher than 900,000 CO2 equivalent per year in a horizon of... The teams continue to focus on planning and on the implementation of solutions together with our partners in order to make viable and also to boost initiatives such as electrification of equipment, the purchase of renewable energy, in addition to other structural... actions that can accelerate this journey. Moving on to the next slide, we're going to share the resilience of the company. Among the priorities defined for the year of 2024, the commitment with resilience and advances, approximately $51 million of positive impact on EBITDA, from the commercial strategy and $53 million by means of actions of cost reduction and also reduction expenses up to the end of the first quarter of 2024. And we captured about $119 million by means of prioritizing CapEx initiatives and $59 million with the use of working capital fork and cash generation. Lastly, $31 million were obtained by means of monetization actions. Moving on to the next slide. To end, we are going to provide an update on the May advances in the fronts and the priorities for the year. In my soil, we made headway in all fronts during the quarter, with a total balance dispersed of more than 11 billion barrels. up to the end of the second quarter of 2024. As mentioned earlier, financial resilience actions totaled a positive impact of about $129 million in EBITDA and about $181 million in cash generation. on the front of optimizations in the assets operation strategy the company has obtained significant progress in the decarbonization agenda and in the quota alone two new initiatives contributed to an additional reduction of a hundred thousand tons per year in emissions in addition the company has evolved in the competitiveness of its logistics process becoming a brazilian shipping company this was granted so that we can operate with our own fleet increasing competitiveness and reducing costs in the quarter there was also an advance in the competitiveness of the brazilian industry And this has been one of the main focus for the company as a result of the challenges that the company has been facing. In this scenario, we would like to talk about the opening by the Foreign Trade Secretariat of Investigation to review the United States PVC anti-dumping law. In line with the company's strategy, the strategic company with Solvi and GRI was signed in June with the transfer of Citraos Common Shares. The partnership designed for the efficient management of the environmental solutions for the industry will result in a positive impact for Braskem of 284 million reals. Finally, in Mexico, we maintained efforts in completing the construction of the ethane terminal, achieving a fiscal progress of 77%, 13% higher than the stage of March 2024. We conclude the results presentation of the second quarter of 2024 for breast cancer. Thank you very much for your attention. And we will continue to proceed with the Q&A session.

And now, ladies and gentlemen, we will begin the question and answer session. To ask a question, please click the raise hand button. or submit it in writing through the chat or Q&A window. To remove the question from the queue, please click on the lower hand button. Our first question comes from Rodrigo Almeida from Santander. Please, you can proceed. Hello. Good morning, Rosana, Roberto, Pedro, and everyone from Bratcam. I have two things I want to ask about. First, I want to talk about Brazil. You mentioned a little bit about some of that, but I'd like to hear a little bit about your opinion when it comes to demand. Now, usually this is a stronger quarter, third quarter, so we'd like to hear about what you believe is going to occur for July and August. I'm interested in that. And when it comes to Brazil, could you please share with us a little bit about any updates when it comes to the import tariffs for COMEX. Do you have anything you could say about the technical aspects? Are your forecasts aligned with Abhi Kim? And also, could you mention something about ABP? I'd like to get your take on that topic as well. Now, the second thing I want to ask about is the United States. You mentioned in your outlook some very interesting points about the flat spreads. And I'd like to hear what that means specifically for Brascom. I think last week one of your competitors mentioned in their results call the higher prices for July. So I'd like to get your opinion on whether you've seen some price changes in there and how has inputs been priced differently for you in your case. Thank you. Hello Rodrigo. How are you doing? Thank you for your questions. Well, first I'll start with demand. We don't measure demand specifically. What we do measure is apparent consumption, apparent usage. So that's a consumption plus imports minus exports. So it's a less reliable metric than demand. But for this year, our forecast for growth in polymer demand is in the order of 13% in Brazil. So it's very expressive growth. Part of that comes from higher imports under that formula. But when we look at our own sales, we have been seeing sales recovering more slowly for the year in the order of 2% to 3%. So we see that the competitiveness of imports are higher, are stronger. And that links with your other question about import tariffs and anti-dumping and commercial protection. Now, Abicam's argument, it was built along with the associates. So our request, our argument is exactly the same. in the PEP, DVC imports and so on up to the 20% level. So we do have the forecast that Chemex will issue a position soon. This is not under our control or Abikim's, but we expect that in the third quarter, we will see some kind of a definition from Chemex on that topic. The arguments have been made the rationale, all the explanations, and now it's up to the government to make their decision. With regard to anti-dumping, what we have concretely is PVC anti-dumping, which we requested a review for now in May and June for PVC anti-dumping. There was a remedy, an 8.2% tariff there, And we requested that to be increased. Historically, that level is 16%. And in association with Unipar, we submitted a request to increase the current level because the 8% remedy is not being successful given the level of dumping that we see. Today, it's at 49% of PVC. That's what we measure. So there is room there. We believe that there is technical room for that anti-dumping remedy. And it is a legitimate defense mechanism and it's being applied by many countries around the world. And we do think it can be reviewed in the case of PVC. And lastly, when it comes to the spreads in the United States, there is a spread between PP and propene and then there is the purchase of propene. Our mean propene purchase price is lower than the value that you see on screen in your document. And there are many different contracts that we have with vendors and suppliers, but we do have the flexibility to consume a greater portion of the contracts. We have flexibility within the contract minimums and maximums. So we do have the flexibility to find a mix that is more profitable for the company. Specifically, when we look at the short-term scenario in the PP scenario in the United States, we see a little bit more demand growth than what we expected. So it is possible that the spread may turn out to be better than what we posted here, but nothing revolutionary. It's not really going to be a game changer. But it is possible that as a result in the improvement to demand that we've been seeing, that the spreads can improve a little bit more. And talking about the company overall, when we look at the July results, we haven't yet closed the July numbers, but we have indications when we look at how the business has been doing, and it is a rather good month, July I mean, compared to the year-to-date history. It should be a higher month. So the seasonality in the third quarter typically is the best quarter in the year. And it seems that this year that is holding true as well when we look at our expected seasonality. Perfect. Thank you, Pedro. Our next question comes from Vicente Palanga from Badesco BBI. Vicente, please proceed. Good morning, everyone. Good morning, Pedro, Rosana. Thanks for taking my questions. I'd like to ask you to comment about the spike in container prices. How have you been dealing with that in your internal market pricing? Have you already started equalizing the prices, balancing them out? My second question is, could you talk a little bit about the spike in the price of butadiene and to what extent should that is likely to be recurring?