Braskem S.A. (NYSE:BAK) Q2 2024 Earnings Call Transcript

Braskem S.A. (NYSE:BAK) Q2 2024 Earnings Call Transcript August 14, 2024

Operator: Good morning everyone and thank you for waiting. Welcome to Braskem’s Results Conference Call to discuss Second Quarter of 2024. We have us here today Mr. Roberto Bischoff, CEO of Braskem, Mr. Pedro Freitas, CFO of Braskem and Mrs. Rosana Avolio, 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, using the show captions and interpreting options at the bottom of your screen. After Braskem remarks, there will be a question-and-answer session. At that time further instructions will be given.

The audio of 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 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, projections, operational and financial goals or 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 Braskem’s future results, and may lead to results that differ materially from those expressed in such future conditions. Now, I’ll turn the conference over to Rosana Avolio, Investor Relations, Strategic Planning and Corporate Market Intelligence Director. Mrs. Avolio, you may begin your presentation.

Rosana Avolio: 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 2024, the petrochemical spreads 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 efforts to reduce costs and expenses, the recurring EBITDA was $320 million, 39% higher than the previous quarter and 128% higher when compared to the second quarter of last year.

In this context, operating cash generation increased by 9% compared to the last quarter, recording $ 214 million in the period, while recurring cash generation was positive in $ 69 million. Braskem maintained its robust liquidity position, with $ 2,8 billion in cash at the end of the quarter, without considering the international revolving credit line available in the amount of $1 billion, a sufficient amount to cover debt maturities over the next 61 months. In this context, Braskem’s 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 results in the period.

It is 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 $209 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 half 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 geographic diversification of Braskem’s petrochemical plants was fundamental to maintain 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 São 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 5 percentage points in the utilization rate in the quarter. In conclusion, the implementation of the company’s corporate strategy to 2030 continued to advance in the quarter.

On the traditional avenue, the construction of the ethane import terminal in Mexico reached a progress of 75% and its conclusion remains expected by the end of 2024, with the start of operations for the first quarter of 2025. In June, Braskem, Solví 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 of the common shares issued by Cetrel, which will result in a positive impact for Braskem of R$284 million. 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 industrial units in Rio Grande do Sul.

The two initiatives accelerate the decarbonization of the company’s operations, together contributing to potential reduction of 100,000 tons. At the end of this 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 Georg Utz. Lastly, industrial-scale tests for the development of light refinery hydrocarbons, the HLR from renewable sources, HLR were carried out through a partnership between Braskem and Petrobras, after positive results, preparing for commercial discussions of the new solution could start. Moving to the next slide. This topic, I will present the operational performance of the company’s segments, starting with the Brazil segment, on slide number 7.

The utilization rate of Brazilian petrochemical plant impacted by extreme weather event in Rio Grande do Sul, was balanced by 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 EBITDA – recurring 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 better spreads in the international market, the reduction of costs and expenses, in addition to the positive impact of positive depreciation of dollar [indiscernible] connected to different variations of dollars and part of the cost is calculated in reais. Moving on to the next slide.

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, result in stoppage and impacting the logistics for rail road transport ethanol. However, the company offset the lower availability of the product for sales by means of using levels of inventories of polyethylene in the quarter, resulting in volume of sales 3% lower in comparison to the first quarter of 2024. Moving to the next slide. In the United States and Europe segment, the usage rate in the last quarter was higher compared 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 scheduled shutdown scheduled for the second half of 2024, and partially offset by the realization of scheduled maintenance shutdown at one of the PP 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 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 scheduled 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 use of inventories, resulting in a higher sales volume in the quarter since the third quarter of ’17. 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 spreads in the international market.

Then as on slide 11 we are going to share with you the financial performance and consolidated terms. In the second quarter of 2024, Braskem’s recurring EBITDA was $320 million, an increase of 39% in relation to the previous quarter of 2024. The sequential improvement in the resulted – is resulted in an increase in an 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 conflicts in the Red Sea, which have influenced the increase in sea freight rates and as a consequence, the price of resins and spreads the international market.

In addition, the increase in sales volume in the Mexico segment and that geographical – the company also contributed to this increase in EBITDA. Moving on to the next slide, please. Operational cash generation was R$ 1,1 million in the second quarter, represent an increase of 15% when compared to the first quarter of 2024. The result is mainly driven by the increase in the EBITDA in the period and for the management of the capital in the period. The recurring cash generation was positive and R$ 357 million, higher than the first quarter of 2024 by R$ 856 million, mainly due to the higher EBITDA recurring in the quarter and the lower payment of interest, explained by the debt that were paid by the company that are concentrated in the first and third quarters of the year.

Lastly, considering disbursements regarding Alagoas, cash consumption totaled about R$325 million in the second quarter of the year. Moving on to the next slide. At the end of June, Braskem’s debt profile remained very quite long, with an average debt term of about 12 years, with 64% of the debt concentrated as of 2030. The company’s liquidity level is enough to cover its obligations 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, considering a net debt of $ 5.36 billion. The total rating of the company’s in June, Fitch ratings maintained, rating Braskem’s at ‘BB+, in line with 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 its investment grade.

Moving on to slide 15 now. Regarding the Alagoas event, the company continues to make headway in work fronts, where the main updates of the period will be presented below. Starting on slide 16. In relation to the socio-ourbanistic actions, out of the 11 projects that were planned, two have been concluded, together five projects are in the phase of move [ph] And in relation to the areas, the Mutange reached 75% of execution. As for the action plan, socio-ourbanistic area, 48 actions have been completed in June by the authorities signatory of the agreement. Up to the end of-June, together with the flexal, the financial support plan reached 99.3% of all the proposals that have been paid, while 14 of the 33 measures planed for the agreement have already been implemented.

On this front, R$ 1.9 billion have already been provisioned so far, of which about R$ 700 million have already been disbursed and R$ 1.4 billion 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 that total area risk – risk area 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 in balance at the end of the second quarter of 2024.

Now moving on to the next slide. We’ll present next the current status of the closure plan. The sand filling group has a total of 13 mines, of which 5 are fully filled, 2 are underway and 4 mines are in the activity planning phase. The natural fill group has a total of 6 mines, of which 5 are completely filled. Cavity 18 is in the evaluation phase, with an indication that no sand filling measures will be necessary. In conclusion, of the 16 mines moved to the buffering and pressurization group, 7 have already been pressurized and are being monitored, while 9 are under the preservation, confirmation stage and after this pressure check process, any additional measures may be necessary. On this front, R$ 3.9 billion have already been provisioned until March, of which R$ 2.7 million have already been disbursed and R$ 1.4 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 the Alagoas event were around R$ 15.9 billion, of which about R$ 10.6 billion have already been disbursed, approximately R$ 1 billion has been registered in other obligations to be paid line. Additionally, about R$ 500 million in performance of the present value adjustment. At the end of the second quarter, the provisioned balance was R$4.8 billion. Now let’s move on to slide 20. 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 rates will show an improvement in Brazil, in green [ph] polyethylene segment to the resumption of production after the weather event in Rio Grande do Sul.

Regarding sales, an increase in volume is expected for the quarter, due to the greater availability of products and also the improved demand mainly first by the consumer goods sector and also basic sanitation. In the United States and Europe segment, the expectation is that the usage rates will be in line with the previous quarter, due to the scheduled shutdown in Europe, offset by the increase in the utilization rate in the United States with the resumption of production after the planned stoppage that happened in second quarter of 2024. On the other hand, the greater availability of products in United States, combined with better sales expectation for our exports, may positively influence an increased number volume of sales. Finally, in Mexico, the trend for the second quarter is for an increase in production, as the expectation of stabilize supply of ethane.

In relation to sales, the demand in the region is very healthy, however the recomposition of inventories may impact 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 will 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 within in 2024, the company added more than 240 million tons of potential to reduce CO2 equivalent for the year. Taking into considering all the initiatives that we have already implemented since 2021, more than 10– 100 [ph] projects and also we count on varied portfolio, related to efficiency of the energy matrix, and improvement and reached a reduction that was higher than 900,000 CO2 equivalent per year in a horizon of.

The teams continue 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 are going to share the resilience of the company. Among the priorities defined for the year of 2024, the commitment with the 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 for and cash generation.

Lastly, $31 million were obtained by means of monetization actions. Moving on to the next slide. To end, we are going to provide an update on the main advances in the fronts [ph] and the priorities for the year. In Maceió, we made headway in all fronts fronts during the quarter, with a total balance disbursed of more than R$ 11 billion up to the end of second quarter of 2024. As mentioned earlier, financial resilience actions totaled a positive impact of about $ 129 million in EBITDA and about $ 181million in cash generation. On the front of optimizations in the asset operation strategy, the company has obtained significant progress in the decarbonization agenda, and in the quarter alone, two new initiatives contributed to an additional reduction of 100,000 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 competiveness of the Brazilian industry and this has been one of the main focus for the company, as a result of the challenges the company has been facing. In this scenario, we would like to show that – talk about the opening by the foreign trade secretariat of investigation to review the United States PVC antidumping law. In line with the company’s strategy, the strategic company with Solví and GRI was signed in June, with the transfer of Cetrel’s common shares. The partnership, designed for the efficient management of environmental solutions for the industry, will result in a return – positive impact for Braskem of R$284 million.

Finally, in Mexico, we maintained efforts in completing the construction of the ethane terminal, achieving a physical progress of 77%, 13% higher than the stage of March 2024. We conclude the results presentation of the second quarter of 2024 for Braskem. Thank you very much for your attention. And we will continue proceed with the Q&A session.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Rodrigo Almeida from Santander. Please you can proceed.

Rodrigo Almeida: Hello, good morning, Rosana, Roberto, Pedro, and everyone from Braskem. 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 on 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 or 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 CAMEX? Do you have anything you could say about the technical aspects? Are your forecasts aligned with Abiquim? And also, could you mention something about ABP [ph] 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 Braskem. 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 have inputs been priced differently for you in your case? Thank you.

Pedro Freitas: 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 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 Abiquim argument, it was built along with the Associates, so our request, our argument is exactly the same in the PP, PVC imports up to and so on, up to the 20% level. So we do have the forecast that CAMEX will issue a position soon. This is not under our control or Abiquim’s, but we expect that in the third quarter we will see some kind of a definition from CAMEX 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 that is being applied by many countries around the world. So 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 propane and then there is the purchase of propane. Our mean propane 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.

Rodrigo Almeida: Perfect, thank you Pedro.

Operator: Our next question comes from Vicente Falanga from Bradesco BBI. Vicente, please proceed.

Vicente Falanga: 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?

Rosana Avolio: Hello Vicente, how are you? Thank you very much for the question. So first in relation to the freight rate, this is what we saw. In fact, as a result of the conflicts in the Red Sea, we saw an increase in sea freights and this has an impact in the resin and also impact in the freights, for example, from Asia to Latin America. So it’s a double effect, so as to say, this higher effect of the resins, as you have monitored along the second quarter. And we see that this is also reflected in the next months of the third quarter. And there’s a second effect, which is the import disparity. This is a market dynamic at the global level of the local producer of any country. They define the pricing in the regional and domestic markets using the import parity.

So whenever this freight rate is higher, the domestic price, the local price, naturally, since it’s a variable, the price goes up. So we saw freight rate, as I mentioned, and we follow the reference for PP, and PVC we follow the Asia reference. So we saw this increase not only in the international references, but also in the domestic prices as a result of the import parity. In August, however, we saw a lower price. If we compare year-on-year, we saw that the freight increased to 100 per ton. And in August, we saw this normalizing but still at a higher level. So those effects that have been providing support to those international spreads, we see that this is going to be carried over to the next periods. In relation to butadiene, we saw that the prices increased almost by 50%, and as an effect we saw some shutdowns in Asia, a lower offer in the global market, the prices impact in the important way, those central areas in Asia started the operation in the past few weeks and we expect that for the next weeks, but we see this price at high levels.

And based on the external consulting, we understand that those levels are going to be kept at high levels up to the end of this month or beginning of next year.

Vicente Falanga: Thank you, Rosana. Now let’s, if you’ll allow me, can we go back to the topic of shipping? If we look at container prices in June, they were $3,000 for 40 feet up to $6,000. So it seems that the delta there can still be captured, especially when we talk about import parity from Q2 to Q3. Is that correct?

Rosana Avolio: Yeah, that’s exactly that. We saw lower prices in August, but still higher than the average level. And I base myself from the prices of last year. So we still see this effect, positive effect in the third quarter. Thank you, Vicente.

Operator: Our next question comes from Henrique Drumond from BTG Pactual.

Henrique Drumond: Hey everyone, how are you doing? Good morning. Thanks for the chance to ask my question. I’d like to ask what you think about working capital and CapEx dynamics for the rest of the year, working cash, apology. What do you think that will mean for the results? And do you think we can capture that over the year 2024 still? And my second question is, I understand that you were not so strongly affected by the catastrophe in Rio Grande do Sul, but you mentioned the fabric infrastructure, so do you think we still have some impact to be seen in the rest of the year?

Pedro Freitas: Hi, Enrique, thanks for your questions. So first, CapEx, we did post a CapEx for the year except for Mexico at $400 million [ph] We are still in line with that trend there may be a 5% difference, that’s what I think, for the year. The foreign exchange variation is also likely to have an impact there because of course there is dollar to BRL exchange, part of the CapEx is in BRL, part is in USD. The USD portion does not change equipment, but the other portions such as labor is going to have some variations. So there may be a slight increase there. But when we dollarize these numbers, there may be a higher increase, but we don’t know yet. But we think the year’s CapEx is going to be around $400 million. Now with regard to working cash, I think our perspective for the rest of the year when we look at the first half of the year overall, we did see a recovery in working cash.

With a rise in prices it is possible for there to be some usage of that, but we’re also working on inventory and that is likely to counterpose that. So my expectation is that there’s not going to be a material change to the working cash, but again, all of that variation in foreign exchange may have an impact. So it’s not likely that working capital is going to have a material impact, but for CapEx, it’s likely to be around $400 million. As far as deliveries in working capital, it’s in the order of $100 million, and that’s part of our package of measures to tackle the low cycle and we already delivered $59 million, and that’s found in one of the slides in our presentation. So there is a positive effect there on that front. As for Rio Grande do Sul, the units are already working at 100% again.

We did have approximately one month of downtime. And that, in accounting terms, has approximately $30 million in cost, fixed cost that we incurred without any production. We maintained that fixed cost in spite of having no production. And we have resumed the operation already. So now what did we lose? We lost very little polymer sales because we were able to supply from other plants in the country, and as far as chemical sales, we did lose out the entire center. Our region stopped. And fuel also, there was a regional stoppage there as well. Now our clients are making up for lost time right now. So they’re rebuilding their inventory. So part of the impact that we saw recently has been made up in July. So it’s being made up for to some extent.

As for infrastructure, what’s still pending is, I would say that the port has come back into operation, so the flow of sea transport has been almost fully resumed. As far as roads there’s some corrections there, some of that reconstruction is going to take a little bit longer. As far as ethanol and green ethane [ph] we did have a rail operation that was pending, and it was affected. We believe it should be normalized within the next two to three months, the rail situation. But for the time being, we’re seeing some impact in the ethanol supply for the South which has been generating some additional costs, as well as some reduction in volumes. So today overall the main impact that still remains is ethanol for the production of green polyethylene.

We have a resumed production, but we would like to produce at a bigger volume.

Henrique Drumond: All right. Thank you, Pedro.

Pedro Freitas: Thank you.

Operator: Our next question comes from Anne Milne from Bank of America. Anne, please you may proceed.

Anne Milne: Okay. Good morning. I had to unmute myself. Good morning, Pedro, Rosana, and Roberto. Thank you very much for the call. I was just hoping you could provide an update on the global supply and demand dynamics of capacity and what you might be seeing from China in particular and any other regions, Middle East perhaps. Are you seeing any capacity being shut down in any of the divisions or new plants coming online? And maybe what indicators you are monitoring so that we could see that. And the second question is really just if you could just give us an update. Is Kuwait Investment Authority still continuing to do due diligence on the company and is there any indication of other players who might be interested? Thank you very much.

Pedro Freitas: All right, I will first translate the question for everyone and then I will answer in Portuguese. So the question is, in our opinion, what is the global dynamic for supply and demand for products, especially when we look at China and the Middle East and any other regions where we see relevant changes in that sense. And also, what do we see for closing out capacity for new plants and as well as other indicators that we are monitoring as far as supply and demand. And her second question has to do with sales. Do we still have that due diligence for the company from Kuwait and any other topics? I’ll answer the second question first because it’s shorter. We do not have another company. That Kuwaiti company is still in due diligence process.

Anyway, today it’s the only company we are conducting that process with. And it is still ongoing, it has not ended. Now back to the first question about supply and demand. In polyethylene, we see new capacity coming in that’s more relevant than what happened up to last year. This year, I would say that we have a bit more balance in polyethylene between supply and demand. And in polypropylene, we see more capacity coming in, especially in China, up until next year. So there is a reduction in new capacity, and as demand for polyethylene grows, we are already looking at balance. At a global level, it’s still pretty low. But in polypropylene, we do think there are new capacities that are going to come in up before next year. Now when we look at how the industry is responding to that scenario, we see a lot of discussion between the players talking about competitiveness and also reviewing their industrial assets.

Many players are doing that. Earlier in the year, I was in Asia, so lots of discussion in Japan about assets. In Korea, we see the early stages of a discussion, it’s still slower but it does exist and another line that has been closed and perhaps with no forecast for coming back into operation. In Singapore, Shell sold their refinery that is linked to the cracker to another player. We don’t yet know how that will behave looking forward, but we see low operation rates. The information we have for China is that the mean operation rate is lower than 70%. So we see strong actions by the players to reduce offers. On the market, and more recently, in Europe we saw Sabic, Exxon, now Basell as well reduced their asset, their asset production in Europe, so we see reduction in the players in that sense.

So the indicators that we look at, of course, the supply and demand for the product, and the announcements made by the players, what they’ve been saying, what they’ve been publishing, and we also look at the expectation for capacity around the world. We do still see global rates around 80% in PE and PP for some time to come. It’s a slow recovery starting, going up until next year. In PE, a little bit more, PP as well, but a little bit slower. So currently, we are not seeing faster recovery because we don’t yet have all the effects, all the factors in increased production yet, in our production rationalization, we should say. But we don’t yet know where it’s going to come from or from whom. We think it’s going to come from Asia, but we can’t say who exactly is going to do that.

The spreads have stopped dropping. They are recovering at positive levels, so that’s another positive indicator. Again, it’s a slow recovery, but it is a positive indicator. And when we look at Braskem itself, we put one of our PP lines into hibernation, one of the lines we have in [indiscernible] it was due to the lack of inputs. It’s actually a very competitive plant when it comes to cost, but it lacked the efficient inputs to run both lines at 100%, so we decided to keep one line at 100% and pause the other one instead of let’s say, running both lines at 70% or 80%. Of course, looking at the NAFTA bases of ours, we do have discussions about the competitiveness of the industry and operations in Brazil. We see some players announcing the closure of some capacity in Brazil, and we do look at, that it’s not something that we currently have in the short term any have perspective for doing as a result of cost, again in the short term.

But this is an analysis of the type that we do perform in order to see whether it will lead to that decision at any given point. This type of a decision is going to strongly depend on demand growth. Brazil has seen interesting demand growth, as well as the rationalization of some other players within the global scope.

Anne Milne: Thank you very much.

Operator: Our next question comes from Gabriel Barra from Citi. Gabriel, please you may proceed.

Gabriel Barra: Hi, everyone. Good afternoon. I have two questions I want to mention. On the topic of capacity, I was thinking about what Roberto said about the rationalization of capacity here in Brazil, and especially his interview talking about competition here, especially in terms of import costs and competition with imports. So, could you please comment or add to your answer in that sense, or put it into context compared to what was mentioned in the beginning when you talked about import prices. Is that likely to have an impact? And if so, how on the company’s capacity and what is the timeline likely to be for that discussion? And also what about values? How would that influence the company moving forward? Second question, I remember in our last conference call there was a lot of discussion about cash generation for this year.

And unless I’m mistaken, I think this year we should think about a neutral cash flow, and for next year we should think about positive cash generation, looking at the improved spreads and perspective. So I’d like to get your opinion about whether we can still see those thoughts in mind. And putting into perspective the drop in foreign exchange prices, the depreciation in ForEx, is there likely to be an improvement in that perspective when it comes to cash generation?

Pedro Freitas: Well, Gabriel, looking at the rationalization all around the world and what that means for imports here in Brazil, I’d say that what we have today, first there is a recurring analysis and the decision to choose the rates, they do come from a contribution margin. So we don’t have a contribution margin in production then we do not produce. We only produce when we have a positive contribution margin. A variable one I mean. And there is a second level of analysis that involves fixed costs for CapEx and cash flow per asset. That analysis is a lot more complex. It is not a recurring analysis that looks at every month, but to date that analysis has been indicating that the assets we have generate positive cash. Some more, others less, but it is the type of analysis that we perform when we think about that type of a discussion.

What that indicates as far as tightening the spreads is that possibly some specific assets may be generating negative cash, but that’s a very segregated analysis. When we look at the São Paulo site, the Rio Grande do Sul site, or the Bahia site, they all have positive results, but within a specific site, some may have, some lines may have negative production. So we do look at that. But any discussion about rationalization is a long-term analysis. So in the scope of our discussion with the government, and that also involves looking at imports and defense mechanisms, our analysis of the imports is that it’s fleeting, the low, the lack of competitiveness in Brazil does not only apply to us. So it’s a more – it’s a specific thing that requires an acute intervention in industrial protection policies in the short term, whether that’s in commercial defense or in incentives for the petrochemical industry.

And these are topics that Abiquim has been frequently and strongly bringing to the federal government, as well as the development of a long-term program. And that’s something we do already see in many countries around the world, both those things, both the increase in commercial defense barriers and also the country moving toward an energy transition decarbonization and improving their product portfolio. So, we have been bringing those two pillars to the government in discussion. In the shorter term, strengthening the discussion of defense mechanisms in the short term as well, and looking at the medium and long term, a restructuring program to restructure the petrochemical industry, and that’s more structural and long-term strategy. So in the first, the former, there is the anti-dumping dynamic I mentioned, import taxes that we are discussing with the federal government, there is the REIC as well and strengthening the REIC to levels that it has already been at in the past.

And more structurally in the long term, that means investments in new renewable plants, and Brazil does have that strategy, and it makes total sense to convert part of our fossil base into renewables. We also have investments in energy efficiency, and also new capacities when we look at the pre-salt and ethane. For instance, in pre-salt we can double or even expand the Duque de Caxias unit. So there are structural discussions as well that involves inputs from the pre-salt as well as converting part of the production into renewables. That requires investment. The current state we’re at in cash and leverage in the point we are at in the cycle, if we don’t have support from the government to promote that transformation, it’s going to take a lot longer.

So we are focusing strongly on those two pillars for the short term, looking at investments in production, and in the long-term restructuring structuring the production of the country, it makes total sense for it to happen. What we really need is the political will for that to occur. And we do see other countries doing that. We see it in the US, Europe, Japan, and I could actually mention many other countries that are all coming on board into that plan. But right now we’re looking at the specific vocation that Brazil has in renewables, it is very strong. So it’s almost a sure thing I should say. Now as for 2024, our forecast was to have neutral cash generation except for the state of Alagoas. Alagoas consumes cash this year. The obligations we have in Alagoas, it’s important to highlight that and there’s also an investment in cash it’s Braskem Idesa, not Braskem.

But the Mexico terminal it also has contributions from Braskem Idesa to build that terminal. And that’s going to come from the funding that was built up there. I should highlight that without Alagoas, if we exclude Alagoas, this quarter did have positive cash generation in our operations. For 2025, of course, it does depend on the recovery of our spreads, but our outlook is that it should be a little bit better than 2024 in that sense. But there’s still a lot of uncertainty when it comes to ’25. There’s been lots of internal discussions here at the company. When we look at PE and incoming capacity for PP, what does that mean for the ’25 scenario? Right now, we are beginning our discussions about the 5-year long-term scenario that’s going to occur in the coming months.

So we will soon have a clearer outlook for 2025. And with regard to ForEx and oil, it’s hard to say still. There may be an impact. On the one hand, the drop in oil removes working capital from the operation and the opposite is also true. Our target is still to reach $100 million in working capital recovery. We’ve currently hit $59 million, but as far as that balance goes, we still need to understand how that’s going to occur. Remember that devalued, lower ForEx improves our EBITDA in dollars, but it increases our financial expenditures in BRL, so there is a 2-pronged effect. There’s an impact both in dollars and in BRL in different indicators on both sides of the equation.

Gabriel Barra: All right, Pedro. Thank you.

Operator: Our next question comes from Luiz Carvalho from UBS. Luiz, please you may proceed.

Luiz Carvalho: Hello, Bischoff, Pedro, Rosana. Thanks for taking my question. And kudos for your work during this very challenging past few months in the industry. My question is for Pedro, I’d like to get a bit more depth on this topic, because when we look at ’25, as you mentioned, we have the elections in the US coming up, over the past week, we’ve had, let’s say, some fears in the market about a potential recession, economic recession globally, and I’d like to understand a little bit about what your thoughts are as far as the company goes, thinking about a scenario that is, let’s consider, a more challenging scenario for the industry. Let’s say we don’t see spreads recovering in ’25. In that case, how would you prepare for a scenario that is even longer involving spreads that are at more compressed, more strongly compressed levels, whether it’s liability management or closing capacity?

What kinds of exercises are you running? What simulations are you running? And the second question, and maybe you can combine both things, what do you see in terms of feedstock and capacity being rationalized abroad with regard to feedstock? So, talking about NAFTA, ethane. And if you could follow up on your last comment about the availability of gas here in Brazil. And of course, we invariably discuss that with Abiquim, let’s say, various different parts of the industry are clamoring for cheaper gas prices. But we see appetite from major consumers in assuming long-term contracts even at prices that are linked to international references. And we see a gap, let’s say, in the oil and gas producers and the risk of building infrastructure without having guaranteed demand.

So, what do you think about the petrochemical industry’s behavior? And also about sidestepping, perhaps, to complement the gas market?

Pedro Freitas: Hello, Luiz. All right. The international scenario touches on what I mentioned earlier about the scenario for next year and the discussion we’ve been having now about what our budget outlook is for next year and the start of the cycle. We are looking at alternative scenarios that are exactly in that line. US, for instance, that may result in more protectionism or less. If it’s more protectionism, there will be a bigger impact on our US operation. And this holds true around the world. If the world becomes more protectionist, then our local operations, we do have flows between countries, but most of our sales are local sales in the different markets where we operate. So that reinforces competitiveness and capacity for the operations that we have locally at different countries.

Conversely, a recession will reduce demand, or it will at least reduce the growth of demand, and that equation, the supply and demand equation I mentioned may be worse than a baseline scenario. In our scenarios, we are already considering lower growth worldwide. We’ve been doing that since last year. It would need to be a very strong recession in order to have a negative impact on our forecast. Everything we’ve been doing, all the forecasts and scenarios we’ve been working on since last year already consider, they do already consider a lower scenario, a lower level around the world. So everything Rosana mentioned with the reduction in fixed costs, reduction in CapEx and working capital, other asset monetization strategies, all of that ends up being wrapped into our process, our preparation process, which started over a year ago, well over a year ago.

So I would say it is already ongoing. Sometimes, of course, a new idea will arise, oh, we could do this or that, and then we implement that. We are changing some operating parameters, some business assumptions that we have, we are reassessing, and sometimes we have new cost opportunities, we have been striving to talk to our vendors and suppliers much more closely, whether that means reviewing and revising contracts, which will improve our costs, but also working on different technologies and new ways for them to provide services for us, which again, will be interesting for our side of the contract. So we don’t have specific actions in mind, we have hundreds of tiny different actions, as Rosana mentioned a few, and every new idea that comes in gets put into the treadmill for us to put it into work.

As for NAFTA, as you mentioned, there’s also coal in China, but I would say that is primarily NAFTA. As for natural gas in Brazil, we always talk about natural gas, but it is important to separate natural gas from ethane. Ethane is a fraction of natural gas. Sometimes people say, actually say gas, broadly. There are some industries that consume methane gas, that’s the standard cooking gas we have here in Brazil as inputs, but what we consume is ethane. That is not cooking gas. That is a fraction of what we consume. So for us, natural gas means energy. We burn it to produce energy and steam. So that is an important distinction, because when you talk to Abiquim, they talk about everything at the same time, and they use the word gas broadly. However, in the case of Braskem, we constantly assess gas for energy, methane.

That is something we always assess for opportunities. We do have shorter-term and longer-term contracts. We’re always discussing with different producers in attempts to make that gas more competitive and more available for the industry. We do believe there are regulatory developments that are important for the country that are yet to occur that will mean reductions in those costs. Just to give you an idea, in the US, gas delivered to the address physically, it’s $2 per Btu. Here in Brazil, that value is $14. So Brazilian costs are seven-fold the US. So there’s definitely, without a doubt, opportunities to improve competitiveness here. And for other players, that’s going to mean drops in inputs. That’s part and parcel of having a strong petrochemical industry in the country.

Now for us, in addition to all of that, we also have ethane. And that also comes into the topic of regulating the ethane market. We have countries where players are required to remove ethane from gas, or countries where conditions actually mean that that happens. In the US, that’s very clear, but in the Middle East, they could burn ethane or energy, but they remove ethane from the street gas, and they sometimes even apply a discount to the price of the gas that they sell. Here in Brazil we had a change in the ANP national regulator regulations. That means that that volume was limited to 12%. We think it should be lower. We think ethane should be removed from gas more strongly, but the ANP defined 12% ethane as their level. But there’s more ethane yet to be removed from that overall gas volume, and that’s likely to mean more inputs, but that will require investments into ethane extraction plants.

And as more locations are made available along the shore, I think we’re going to have improvements. The expansion in Rio de Janeiro that we’ve been discussing for very, very long and that we believe is going to be very positive for the country and that will add value to the inputs is something we believe has a potential to occur and it becomes easier with that regulation. But it’s not yet a given because that volume now needs to be extracted from the overall gas volume and made available for the industry.

Luiz Carvalho: All right, that’s very clear, Pedro. Thank you.

Operator: Our next question comes from Till Moez [ph] from Schroeders. Please, you may proceed.

Unidentified Analyst: Hello, thanks for taking my question. I’d like to dive in on the topic of ethane a little bit more. I’m looking at the Montville [j benchmark price here and it seems to be plunging quarter to date to $30.5 per gallon. Besides the escalation in the Middle East that limits the competitiveness of exports, are there any other deflationary factors that you’re looking at that impact the price of ethane? And what do you assume for ethane prices in the third quarter and fourth quarter of this year?

Pedro Freitas: All right. So Till’s question is with regard to ethane. He sees the price of ethane drop very strongly in the US market, and that is true, it’s at $88 per ton or $0.30 per gallon, so in fact it is an expressive drop in the price of ethane, and this represents competitiveness. And so his question is how do we see that scenario for the future, especially considering the recession scenario? So what do we think about Q3 and Q4 for those prices? So, first, the price of ethane in the US is strongly linked to the price of natural gas. And there’s a lot of natural gas production in the US, so that ends up creating a very strong offer, a very strong supply of ethane because natural gas supply grows, the US is exporting more and more natural gas and that means more ethane is available.

That does exist in the US, but there are logistical bottlenecks. There are new terminals that are being built, but until they are ready, we think the price of ethane is still going to be strongly linked to the price of natural gas in the United States. Looking now at Q3 and Q4, on average, it’s $130 per ton, which is approximately a 50-fold increase compared to what we have today. But it’s still a very low level. If we look at NAFTA, it’s $600. So we’re looking at a competitiveness difference in 500 per ton in inputs. For the second half of the year, we think $130 per ton, which is roughly 50% higher than the level it is currently at today. And we think it’s going to remain at this lower level until our new export capacities increase. And there’s also an effect from the Panama Channel, I think you’ve all been following the Panama Channel levels, the very low water levels there limits the passage of ships.

So ethane exports from the US to Asia are now more strongly limited. So that means more accumulation of ethane in the Gulf of Mexico and consequently lower prices.

Unidentified Analyst: All right, thank you very much.

Operator: We now conclude the question-and-answer session. I’d like to pass the floor to Mr. Roberto Bischoff for his final remarks. Please, sir, you may proceed.

Roberto Bischoff: Hello, good afternoon, everyone. I’d like to thank everyone for being here at our earnings call and I’d like to conclude with a few remarks. As far as our results, as Pedro mentioned, we had a quarter that had better results when compared with the last few quarterly results here at the company, especially when we look at EBITDA. I see these improved results as a combination of three main factors, none of them are very strongly structural. The first one is linked to the foreign scenario, where we see better spreads abroad, internationally, but still clearly lower than expected. And that’s due to the lack of rationalization at relevant levels by the industry. So there’s still an imbalance between supply and demand that is very clearly present.

The second one, which for the past few quarters has been mentioned in our reports, is linked to the financial preservation initiatives, which in the year to date have already added up to something in the order of $300 million, and that includes the impacts both of EBITDA and cash flow. And we have regularly shared those results with you. The third and last one, this one is related to the profile of our production capacity, especially in Brazil, which despite the weather event in southern Brazil, in Rio Grande do Sul, we were able to leverage one of our strategic competitive advantages, which is the geographical diversity of our petrochemical centers, which has allowed us to respond to an emergency, which did lead to a very significant drop in production.

And the results were felt at different other centers, and this allowed us to become a better player, especially in the resin market. In any case, I’d like to conclude by making a comment about the Brazilian chemical industry overall, which still suffers from issues linked to input competitiveness. And that’s something we discussed at length today. Infrastructure and also productivity. And this, as a result, has been reflected in usage rates of the installed capacity that the Brazilian industry has. So usage of installed capacity. In the first quarter of this year, usage of installed capacity by the Brazilian chemical industry was at 63%, as low as 63%, which is the worst level seen in the past 18 months, according to a report prepared by Abiquim.

If we look specifically at the month of May, that number was even lower. It dropped as low as 59%. In this scenario, it is important to highlight the need to have a broader industrial policy and one that seeks to strengthen the chemical and petrochemical and also the plastics chains as a way of mitigating the effects of increased competitiveness from abroad if we look at the current scenario where we have significant overcapacity. Lastly, I’d like to thank all of you once again for the trust you have in us, for taking part in our call. And we look forward to seeing you all in November when we publish the results for our third quarter. Have a great afternoon, everyone, and see you in a few months.

Operator: Braskem’s video conference is now complete. We’d like to thank everyone for being with us and have a great afternoon.