Braskem SA ADR

Good morning, and thank you for waiting. Welcome to Brascam's earnings conference call. We will discuss the third quarter of 2024. With us here today, we have Mr. Roberto Bischoff, Brascam's CEO, Mr. Pedro Freitas, CFO of Brascam, and Ms. Rosana Avoglio, Investor Relations, Strategic Planning, and 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 these show captions and view options button inside the interpretation mode. After Braskem's presentation, we will begin the Q&A session. At that point, more instructions will be provided. The audio of this event will be available on the Investor Relations website after it ends. We remind you that participants will be able to submit questions for Braskem, 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 Braskem's business prospects, projections, 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 that general conditions, industry conditions, and other operational factors may affect Brascam's future results and may lead to results that differ materially from those expressed in such future conditions. Now, I will pass the conference over to Rosanna 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 BreastCAM's earnings call. Today, we will present the results for the third quarter of 2024. According to the agenda on slide 3, we will begin with the company's main financial highlights for the period, which can be found on slide number 4. In the third quarter of 2024, the petrochemical scenario continued to show a trajectory of increasing spreads in the international market. This trajectory is mainly explained by the better balance between global supply and demand, associated with the effects of the conflict in the Red Sea that still impact global logistics, resulting in higher maritime freight rates and therefore higher prices in the international market. In addition, scheduled and unscheduled shutdowns in several regions impacted the level of supply, contributing to the increase in spreads in the international market. In this scenario, combined with the company's continued implementation of financial preservation initiatives, recurring EBITDA was $432 million, 35% higher than in the second quarter and 130% higher when compared to the third quarter of last year. operating cash generation was seventy five million dollars in the period while recurring cash generation resulted in a consumption of a hundred ninety nine million dollars mainly due to the higher concentration of interest payments on debt securities issued in the international market which were partially offset by the receipt of approximately two hundred eight million in relation to the conclusion of the sale of control of Cetrelle. Regarding liquidity, Breskham cash position was $2.4 billion at the end of the quarter, sufficient to cover debt maturities in the next 52 months, without considering the available international revolving credit line in the amount of $1 billion. in the quarter the corporate debt profile remained very elongated with an average maturity of about eleven years and with more than sixty five per cent of the corporate debt maturing as of twenty thirty due to the better recurring the company's leverage was approximately five point seventy six times a reduction of one point zero three times compared to the previous quarter Throughout the third quarter, the company continued to implement initiatives focused on resilience and financial health, with a positive impact of about $212 million in EBITDA and about $279 million in cash generation, which has been fundamental for facing the petrochemicals low cycle. Moving on to the next slide, I will comment on the company's main operating results in the quarter. In the first nine months of 2024, the average global accident frequency rate was 0. 99 events per million hours worked, a reduction of 17% compared to the same period in 2023, evidencing the non-negotiable commitment that the company has with the safety of its members and of its operations. Regarding operational performance, the resumption of operations at the petrochemical plant of Rio Grande do Sul after the extreme weather event that occurred in May was fundamental for the increased utilization rate of the Brazil segment. In the quarter, highlighting the increase of 60 percentage points in the utilization rate of green ethylene. in the united states and europe segment the lower production in the segment is explained by the maintenance shutdown at the propylene plant in europe which was partially offset by the increased level of production in the united states in mexico the stoppage at one of the polyethylene plants associated with the lower ethane receipts due to the international suppliers turnaround contributed to a reduction of five percentage points in the utilization rate in the quarter when compared to the previous quarter finally The higher utilization rates of the Brazil segment contributed to a higher sales volume in the period, with emphasis on the sales of resins and the main chemicals in the Brazilian market, and total green polyethylene. Now let's move on to the next slide. I will now present the operational performance of the company segments, starting with the Brazil segment on slide number 7. The utilization rate of Brazilian petrochemical plants increased by 2 percentage points compared to the previous quarter, mainly due to the resumption of operations at the Triunfo Petrochemical Complex in the Rio Grande do Sul, interrupted in May due to the extreme weather event that hit the state. Sales volume increased by 6% in the Brazilian market, mainly due to the higher sales volume of polypropylene due to the higher demand from the hygiene and cleaning sectors. In addition, due to greater commercial opportunities in the civil construction and sanitation sectors, there was an increase in the volume of PVC sales. Regarding the result, the segment's recurring EBITDA was $335 million. in the quarter an increase of forty five per cent when compared to the previous quarter the result was positively impacted by the higher sales volume and the higher spreads in the international market in addition to the depreciation of the average real of the period against the dollar since the segment revenues are linked to the international references in dollars while part of its cost structure is in reals Now let's move on to the next slide. Regarding green ethylene, it's important to highlight the utilization rate in the quarter, which reached 95%, an increase of 60 percentage points compared to the second quarter of 2024. which was impacted by the scheduled shutdown due to the extreme weather event that hit the state of Rio Grande do Sul in the period. In a sense, the volume of sales of green polyethylene increased by 6%, explained by the higher production and partially offset by the recomposition of inventories in the period. Next slide. In the United States and Europe segment, utilization rate in the last quarter was lower in relation to the second quarter of 2024 by two percentage points, mainly due to the scheduled shutdowns at the plants in Europe, partially offset by the production in the United States. As for sales, the volume traded remained in line with the previous quarter, considering higher polypropylene spreads in Europe and inline spreads in the United States. In this scenario, the segment's recurring EBITDA was $71 million, 53% higher than in the second quarter of 2024. Now, let's move on to the next slide, and I will comment on the Mexico segment. In Mexico, the utilization rate was 74%, four percentage points lower than that in the last quarter, impacted by the shutdown of the International Ethane Supplier Program and also the scheduled shutdown of a polyethylene plant during the third quarter of 2024. Sales decreased by 11% compared to the last quarter due to the inventory management in the transformation chain associated with a greater supply of polyethylene producers in the region and the expectation of a reduction in polyethylene prices in the international market in the following periods. on the other hand the increase of polyethylene spreads in the international market associated with a higher consumption of domestic feedstock in the period boosted the result of the third quarter of twenty twenty four in this context recurring EBITDA was eighty million dollars 44% higher than the result reported in the second quarter of 2024. Next, starting from slide 11, I will share the company's consolidated financial performance. In the third quarter of 2024, Braskem's recurring EBITDA was $432 million, an increase of 35% compared to the second quarter of 2024. It's worth noting that this is the company's best quarterly EBITDA since the second quarter of 2022. In addition, in the nine months of the year, the company's recurring EBITDA increased by 84% compared to the same period in 2023. The higher spreads in the international market positively impacted this result, with emphasis on polyethylene in Brazil and Mexico, PVC in Brazil, and polypropylene in Europe. This increase in spreads can be explained by the greater balance between global supply and demand in the period and by conjunctural factors such as the logistic restrictions resulting from the conflict in the Red Sea, which influenced the price of resonance. in the international market. In addition, the lower price of feedstock, such as naphtha and ethane, also contributed to this result. Finally, the increase in sales volume in the Brazilian market and exports from the Brazil segment also contributed positively to the increase in EBITDA in the quarter. Now let's move on to the next slide. Operating cash generation was R$416 million in the quarter. This result is mainly explained by the higher recurring EBITDA in the quarter, which was offset by the negative variation in working capital due to the higher inventory of feedstock in the period and the lower number of days of accounts payable, explained by the drop in the price of NAFTA in the international market. the recurring cash flow resulted in a consumption of approximately one point one million due to the lower operating cash generation and the higher interest payment explained by the semi-annual payments of debt securities issued in the international market by the company which are concentrated in the first and third quarters of the year. Additionally, in the third quarter of 2024, Breskin concluded the sales of control of Setrao for a total of approximately 293 million rials, of which approximately 208 million rials were received in the quarter. Finally, considering the disbursement related to Alagoas, cash consumption totaled about 1.9 billion rials in the third quarter of the year. Now let's move on to the next slide. At the end of the quarter, Braskem's debt profile remained elongated with an average debt term of about 11 years, with 65% of the debt being concentrated as of 2030. The company's liquidity levels is sufficient to cover its obligations for the next 52 months. At the end of the quarter, corporate leverage was 5.76 times, a reduction compared to the previous quarter due to the better EBITDA recorded in the period. In addition, it's important to highlight the issuance carried out by the company in the capital market in October 2017, The new bond, in the amount of $850 million, matures in 2034 with a cost of 8% per year. The operation was issued to the purchase of hybrid bonds, maturing in 2081, and increasing liquidity for the debt maturities for 2024 and 2025. Now on slide 40, I will comment on the main advances in the work fronts in Alagoas, starting from slide 15. Regarding the plan for closing and monitoring the salt cavities, by the end of the third quarter, 16 cavities were allocated to the sand filling group. Following the recommendation of specialists, the decision was made to fill with sand three cavities previously planned to be closed by plugging. These are cavities 9, 12 and 16. By the end of September of this group, six cavities are fully filled, while three are in progress and seven are in the activity planning phase. The natural filling group has a total of six cavities, five of which are completely filled, and one cavity is in the validation phase of filling. Finally, of the 13 cavities that are in the buffering and pressurization group, 9 are already pressurized and are being monitored, while the pressurization of the remaining 4 is in progress. For this front, 4.3 billion rials have already been provisioned so far, of which 2.9 billion rials have already been disbursed, and 1.5 billion are in balance at the end of the third quarter of 2024. The current closure plan is estimated to be completed by the end of 2026. Moving on to the next slide. Regarding the progress of social and urban measures of the 11 urban mobility projects planned, five have already been completed. Regarding the actions in unoccupied areas, the project on the Mutange slope reached about 82% of execution. By the end of July, together with the Flechao agreement, the financial support program reached about 99.4% of the proposals paid. while 14 of the 23 socio-economic measures provided for in the Term of Agreement have already been implemented. By the end of September 2024, the percentage of execution of the residents' reallocation program reached 99.8%. As for the proposals related to the Financial Compensation and Reallocation Support Program, more than 99.9% of the estimated proposals have already been submitted, and about 98.7% have already been accepted, and about 97.8% have already been paid. Thus, at the end of September 2024, the total provisions for the alagoas event were about sixteen point three billion reals of which about eleven point five million reals have already been disbursed and approximately seven hundred fifteen million reals were was recorded in other obligations to be paid In addition, approximately 600 million rials were recorded in the present value adjustment. And finally, the total balance provisioned at the end of the third quarter of 2020-2024 was of 4.8 billion rials. Now let's move on to the next slide. Below, we will present the operating outlook for the next quarter. As for the company's operations, maintenance shutdowns scheduled for the next quarter in polyethylene and PVC plants may directly affect the use of ethylene. Thus, a lower utilization rate is expected in the Brazil segment. Regarding sales, the prospect of lower demand due to the typical seasonality of the period contributes to the expectation of lower sales volume for the quarter. In the United States and Europe segment, utilization rates are expected to be in line with the previous quarter due to the production management in the United States, which is in line with the lower demand expected in the period and partially offset by the higher utilization rate of the Europe segment explained by the resumption of operations after maintenance shutdowns. In this line, it's expected that the sales volume of the segment will will remain in line with the previous one finally in mexico the expectation for the third quarter is for an increase in production due to the expectation of stabilization of ethane supply due to the return of the international supplier after a maintenance shutdown in the third quarter and also the return of polyethylene plant that was under maintenance in the third quarter of 2024. Regarding sales, the higher product availability compared to the previous quarter and associated with expectation of lower demand in the period will result in a perspective of maintaining the volume sold. Below, I will comment on the perspective of international spreads. In general, the expectation for the next quarter is for lower spreads in the international petrochemical market due to the seasonality of the period followed by recovery in the first quarter of 2025. Regarding the polyethylene market in the United States, the seasonality of demand associated with greater availability of the product due to the resumption of the production in the petrochemical plant in the United States influenced lower prices in the next quarter. as for the price of naphtha the expectation is for its maintenance resulting in lower spreads in the period in the united states and europe segment polypropylene should also be impacted by the lower demand typical of the period In the United States, PP supply is expected to increase due to the resumption of petrochemical plants that were under maintenance, which could lead to a drop in prices. On the other hand, an increase in the price of propylene is expected, caused by the start of the scheduled shutdown season on propane dihydrogenerators in the United States, which contributes to lower spreads. In Europe, the higher supply of polypropylene expected, with highest import inflowing to the region, may also contribute to lower spreads. Regarding polyethylene spreads in Mexico, in addition to the prospect of lower prices of polyethylene, a gradual recovery of the prices of ethane is expected due to the return of operations in the petrochemical plants that were under maintenance and the gradual increase in export capacity from the United States for the beginning of 2025. Demand is expected to return to healthy levels, while the cost of feedstocks such as naphthen and ethane will remain at the same levels as that of the end of 2024, contributing to higher spreads in the first quarter of 2025. Now let's move on to the next slide. As a last topic, I will comment on the main advances in the company's strategy, as of slide 21. The implementation of the long-term corporate strategy continued to advance throughout the quarter. On the avenue of growth of the traditional business, the launch of Braskem's first leasing ship took place. The brilliant future ship is in the final stages of construction and will enter service in January 2025. the dedicated logistics with an estimated duration of fifteen years will be used in the transport of ethane from the united states to mexico insuring stability for braskem also in on this avenue the construction of a thaining port terminal in mexico reached a physical progress of eighty five per cent representing an important advance towards the completion of the project Regarding biobased avenue, an important highlight was the inauguration of the Center for Innovation in Renewables in the United States, located in Lexington, in the Boston Biotechnology and Innovation Ecosystem. Through an investment of approximately $20 million, this new center expands Braskem's capacity in research and development in the areas of biotechnology, catalysis, and process engineering. In the same period, Bresk and Siam signed the Feed Agreement with Toyo Engineering Corporation, which will develop the extended basic engineering and CAPEX estimate for the potential construction of a green-eating plane of 200,000 tons in Thailand. Finally, in the Hesiklajing Avenue project, Breskenberg recognized for its performance on sustainability and circularity, being ranked second in Bloomberg's NAF 2024 ranking of circular economy. for the second consecutive year this ranking evaluated the circular economy objectives of forty companies including twenty brand owners and twenty plastic producers in the next slides i will comment on the progress of the company's twenty twenty four priorities Among the priorities defined for the year 2024, the commitment with resilience and financial health continued to advance, totaling at the end of the third quarter approximately $51 million in a positive impact on EBITDA due to the commercial strategy of prioritizing sales with better margins and $76 million through cost reduction and expense reduction actions. In addition, We captured about $220 million through the prioritization of CAPEX initiatives and about $59 million with the optimization of working capital. Finally, $85 million were obtained through the various monetization agenda. Now let's move on to the next slide. The defense of competitiveness of the Brazilian chemical and petrochemical industry is an important agenda of the company, which is the sixth largest chemical industry in the world, responsible for 11% of the Brazilian industrial GDP and capable of generating about 2 million direct and indirect jobs in the country. Despite its importance, based on 2023 data from the Financial Chemical Industry Association, It's observed that the average utilization sector reached the lowest rate in 18 years, continuously reducing over the period. In this scenario, we highlight the approval of temporary change in the import rate in Brazil for the chemical and petrochemical products by Camex, including the increase of 12.6% to 20% for polyethylene, polypropylene, and PVC produced by the company. This approval represents an important step towards defending the competitiveness of the Brazilian industry and will result in positive impact for the chemical and petrochemical industry. Now, moving on to the next slide. Finally, we will update on the main advances of the priorities for the year. In Maceió, progress was made on all work fronts, totally a disbursed balance of more than R$11.5 billion by the end of the third quarter of 2024. As previously mentioned, the financial resilience actions total a positive impact of about $212 million in EBITDA and about $279 million in cash generation. In the optimization of the asset operation strategy, the process of sale of control of Cetrel was concluded through the receipt of approximately 208 million reals of the 293 million reais related to the investment agreement signed with Sovi and GRI. In the quarter, the approval of the increase in the import rate in Brazil for some chemical and petrochemical products by Camex represented an important advance in the agenda to defend the competitiveness of the Brazilian chemical industry. Regarding the company's investment strategy, the inauguration of the Renewables Innovation Center in the United States is an important step forward for the bio-based growth avenue. contributing to the development and acceleration of new solutions additionally signing between brass kim sian and toyo engineering for the feeds execution of the construction project for the is also an important step in the company's growth trajectory. Finally, in Mexico, we maintained our efforts to complete the construction of the ETAIN terminal, achieving a fiscal progress of 87%. Now let's move on to the final slide. Before we close, I would like to invite everyone to participate in Braskem's Day 2024. an important moment of interaction between the market and the company's main leaders. The event will be completely virtual and will take place on November 25th. We will forward the invitation with more details soon for all participants of this call and subscribers to our mailing list. Thus, we conclude the presentation of Braskem's result for the third quarter of 2024. Thank you very much for your attention and we will now start the Q&A session.