Braskem S A : Transcription - 1Q24 Earnings Conference Call

International Conference Call

1Q24 Earnings Results Transcription

Braskem S/A (BRKM5 BZ)

May 9th, 2024

Operator: Good morning, everyone and thank you for waiting. Welcome to BRASKEM'S 1st quarter of 2024 results conference call. With us here today we have Mr. Roberto Bischoff - Braskem's CEO, Mr. Pedro Freitas - Braskem's CFO 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 "view options" buttons, respectively. 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 available on the Investor Relations website after it ends. We remind you that participants will be able to register 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, 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 for participating in Braskem's earnings call. Today we will present the results for the first quarter of 2024.

In slide number 3, you can check our agenda, which begins with the company's main highlights of the period, presented in slide number 4.

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During the first quarter of 2024, we observed an increase in the majority of the petrochemical spreads in the international market when comparing with the 4Q23. This increase is explained by the conjunctural effects such as the winter storm that affected the gulf coast of the United States, and the conflict in the red sea, impacting the international trade and positively impacting the resin prices.

In this scenario of better spreads, added to the company's efforts to ensure the resilience and the financial health of the recurring EBITDA in the first quarter of 2024 was of US$ 230 million, 9% higher compared to the previous quarter.

Additionally, in line with the depreciation of the Brazilian real against the dollar, the company recorded a loss of approximately US$ 273 million, while the operating cash generation increased by 189%, registering US$ 196 MM.

Also, during the period, Braskem maintained its robust liquidity position, with US$

3.3 billion in cash, a sufficient amount to cover debt maturities over the next 69 months.

Additionally, Braskem's debt profile remains very long, with an average term of 12 years, with more than 63% of the debt maturing after 2030.

Therefore, the company ended the quarter with a leverage of 8.12x in line with the 4Q23.

It is important to highlight that these results were reinforced by Braskem's constant commitment to financial resilience and financial health. In the quarter, we observed a positive impact of about US$ 38 million in EBITDA and about US$ 166 million in cash generation.

In the next slide, I will comment on the company's main operational and strategic highlights.

Regarding to operational highlights, the global accident frequency rate decreased by 23% compared to the previous quarter, with a rate of 0.78 events per million hours worked, below the industry average, reflecting the company's non- negotiable commitment to the safety of its operations.

During the first quarter, the utilization rates of almost all of the company's petrochemical plants were higher than in the previous quarter, with emphasis on the green pe segment, whose utilization rate increased by 36 p.p., reaching 98% of the installed capacity after the normalization of ethanol supply, which was impacted in the previous quarter by weather conditions.

In the Brazil segment, the resumption of operations at the Bahia petrochemical complex after a scheduled maintenance shutdown in the 4Q23 and better

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scenario conditions contributed to the increase of 8 p.p. in the ethylene utilization rate, totaling 74% in the quarter.

In conclusion, throughout the first quarter of 2024, Braskem maintained its efforts in the implementation of its growth agenda.

On the traditional avenue, the construction of the ethane import terminal in Mexico reached a progress of 62%. The project conclusion remains expected by the end of 2024, with the start of operations for the first quarter of 2025.

Regarding decarbonization, Braskem and Veolia announced another agreement to work together on the research and implementation of high-impact solutions for decarbonization at the Triunfo petrochemical complex, in Rio Grande do Sul. The solutions to be provided by the partnership have the potential for reducing the equivalent of 500 thousand tons of CO2 per year.

In recycling, we have advanced the feedstock diversification agenda with the start of bio-attributed and circular propyne supply in Europe and the United States, made possible through the partnership with Shell Chemicals.

Lastly, a new partnership with Lummus Technology was signed to develop an electrification study of the company's cracking furnaces. The expanded use of electricity and renewable materials will allow Braskem to reduce its carbon footprint in the production of ethylene, propylene, and other chemical products. This initiative is part of Braskem's ambitions to combat climate change.

Moving to the next slide.

Moving on to the next topic, where 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 plants, in the first quarter of 2024, was 74%, 8 p.p. higher than 4Q23, mainly due to the resumption of operations in Bahia after a scheduled maintenance shutdown.

In the Brazilian market, the volume of resins sales was higher than in the previous quarter by 7%, mainly explained by the higher demand for polyethylene and polypropylene due to the movement of inventory recompositon in the chain. On the other hand, the prioritization of sales in the Brazilian market reduced exports by 8% in the quarter.

As a result, the segment's recurring EBITDA in 1Q24 was US$ 210 million, an increase of 70% compared to the previous quarter and representing 66% of the company's consolidated EBITDA in the quarter.

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Moving on to the next slide.

With regard to green polyethylene, the utilization rate of green ethylene was 36

1. higher compared to the previous quarter, reaching 98%. The normalization of ethanol supply after the impact of weather conditions in the south of the country in the last quarter was the main factor that contributed to this increase.

During the period, green polyethylene sales decreased by 8%, mainly due to lower demand associated with the Chinese New Year period.

This event had impact on the segment, given that, historically, Asia represents about 40% of the sales volume of green PE.

Moving on to the next slide.

In the United States and Europe segment, the utilization rate in the last quarter was 76%, a reduction of 6 p.p. compared to the fourth quarter of 2023. The decrease is mainly explained by an unscheduled shutdown at a plant in the United States, lasting about a month between January and February, with resumption of the operation in February.

On the other hand, sales volume remained in line with the previous quarter.

In this scenario, in the first quarter of the year, recurring EBITDA was US$ 69 million, 22% lower than 4Q23 and representing 22% of the company's consolidated recurring EBITDA in dollars in the quarter.

Moving on to the next slide, we'll talk about the Mexico segment.

In Mexico, the utilization rate for the quarter was 83%, in line with the last quarter of 2023.

With regard to sales, the volume was higher by 17% mainly due to the recomposition of polyethylene inventories in the market and the seasonality observed in the previous quarter.

Recurring EBITDA in the period was US$ 37 million, 39% higher than the result of the fourth quarter of 2023, and representing 12% of the company's consolidated recurring EBITDA in dollar terms in the quarter.

Next, starting from slide 11, we will talk about the company's consolidated financial performance.

In the first quarter of 2024, Braskem's recurring EBITDA was US$ 230 million, an increase of 9% compared to the previous quarter.

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This result was positively impacted by the increase in most spreads in the global petrochemical industry. In the polyethylene market, the spread with respect to naphtha was higher by 21%, while regarding polyethylene ethane based, was higher by 20%. Conjunctural factors of the period, such as weather conditions in the gulf coast of the United States and logistical constraints in the Panama Canal and the red sea, influenced the increase in the price of resins and spreads in the international market.

The sales volume also contributed to the increase in EBITDA, with an increase in sales in the Brazil segment for main chemicals by 19% and for resins by 7%. In Mexico, the 17% increase in pe sales volume also had a positive impact on

EBITDA.

In addition, the reduction of 6% compared to the quarter's budget in disbursements with fixed expenses, as a result of corporate resilience and financial health initiatives, also contributed positively to the company's recurring

EBITDA.

Moving on to the next slide.

The company presented an operating cash generation of R$ 972 MM in the first quarter of 2024. The result represents an increase of R$ 636 MM compared to 4Q23 or 189%, which is mainly explained by the lower disbursement with operational and strategic CapEx by R$ 363 million, by the positive variation of working capital higher by R$ 181 million, and the increase of R$ 91 million of the recurring EBITDA.

Regarding recurring cash generation, Braskem presented a lower cash consumption by R$ 22 million compared to 4Q23, due to higher operating cash generation, mentioned above, and higher interest payments related to semiannual payments of debt securities issued in the international market by the company.

Considering the disbursements related to Alagoas, cash consumption totaling approximately R$ 939 million in the first quarter of the year.

Moving on to the next slide.

Braskem ended the first quarter of 2024, maintaining a very long debt profile, with an average payment term of about 12 years, with 63% of the debts concentrated as of 2030.

The company's robust liquidity level is sufficient to cover its obligations for the next 69 months.

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At the end of the quarter, corporate leverage was 8.12x, in line with the last quarter of 2023 and net debt at approximately US$ 5.3 billion.

Regarding to rating agencies, until March, fitch ratings and S&P rating maintained Braskem's rating at 'BB+'.

It is important to note that the company maintains its commitment to maintaining its liquidity position, cost discipline and continuing to implement measures to reduce its corporate leverage and to recover its investment grade.

During the quarter, we acted continuously on the work fronts in Maceió, focusing on the fulfillment of the established agreements. In this way, I will comment on the main updates of the period, starting with the relocation and compensation front, and socio-urban measures on the next slide.

By March 2024, the residents' relocation program reached an execution percentage of 99.7%.

As for the proposals of the financial compensation and relocation support program: more than 99.9% of the estimated proposals have already been submitted, of which about 98% have already been accepted and about 95.7% have already been paid, with an overall acceptance rate of 99.4%.

The total provision within this front, so far, was R$ 5.8 billion, of which R$ 4.6 billion have already been disbursed and R$ 1.3 billion in balance at the end of the first quarter of 2024.

Regarding the progress of urban social measures, 7 urban mobility projects are in the physical execution phase, out of a total of 11 planned projects.

Regarding the actions in the vacant areas, the project on the Mutange slope reached 72.7% of execution.

On the social and urban action plan, 47 actions have already been validated by the signatory authorities of the agreement.

Until April, together with the flexal agreement, the financial support program reached about 98.6% of the proposals paid, while 14 of the 23 socioeconomic measures provided in the term of agreement have already been implemented.

On this front, R$ 1.7 billion have already been provisioned so far, of which about R$ 600 million have already been disbursed and R$ 1.3 billion in balance at the end of the first quarter of 2024.

Moving on to the next slide.

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Regarding the closure and monitoring of mines, I will present below the current status of the closure plan.

The sand filling group has a total of 13 mines, of which 5 are fully filled, and 2 are in progress. 6 mines were recently included after the conclusion of the monitoring actions and are in activity planning.

The natural fill group has a total of 6 mines, of which 5 are in full fill confirmation. Cavity 18 is in the evaluation phase, with an indication that no sand filling measures will be necessary.

In conclusion, of the 16 wells directed to the buffering and pressurization group, 7 have been pressurized and are being monitored, while 9 are under the pressurization confirmation stage and, after the 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$ 2.5 billion have already been disbursed and R$ 1.5 billion in balance at the end of the quarter.

The actions mentioned are estimated to be completed by 2026.

Moving on to the next slide.

Until March 2024, the total provisions related to the Alagoas event were around R$ 15.5 billion, of which about R$ 10 billion have already been disbursed, approximately R$ 1.2 billion has been registered in other obligations to be paid.

Additionally, about R$ 500 million in performance of the present value adjustment. At the end of the first quarter, the provisioned balance was R$4.9 billion.

It is important to highlight that the actions of the environmental plan, according to the provisions made, are still in progress and are expected to be completed in 2028.

Moving on to the next slide

Next, we will present the operational and spreads perspective for the next quarter, in addition to commenting on the company's main advances in its resilience and financial health fronts and also the priorities for the year.

For the second quarter of 2024, the expectation for the utilization rates in the Brazil segment and in green polyethylene remain in line with the prior quarter, as well as the sales volume, in accordance with the scheduled shutdown of the Triunfo petrochemical complex in consequence of the severe climate event that

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hit the Rio Grande do Sul state in the last few days. The impact from this event is being evaluated.

Regarding spreads, the trend, according to external consultants, is a maintenance for the next quarter.

In the United States and Europe segment, utilization rates are also in line with the previous quarter, due to a shutdown in the United States, offset by the increase in the utilization rate in Europe. In this way, the sales volume also remains stable compared to the previous quarter. Lastly, regarding spreads, the expectation of an increase in the next quarter is mainly explained by the reduction in the price of the raw material, propylene.

Finally, in Mexico, the trend for the second quarter is for an increase in production, as the expectation of a stable supply of ethane. As a result, increased product availability increased sales volume in the quarter. Spreads tend to fall slightly in the next quarter, due to the slight increase in commodity prices.

Moving on to the next slide.

During the first quarter of 2024, the company continued implementing the corporate initiatives with an impact on EBITDA and cash generation, totaling approximately US$ 20 million in gains through the commercial strategy and US$ 18 million with cost reduction, added to the company's EBITDA, and US$ 109 million through the prioritization of CapEx initiatives and US$ 37 million with the optimization of working capital added to cash generation.

Additionally, we captured US$ 109 MM through the prioritization of CapEx initiatives and US$ 37 MM with the optimization of working capital added to cash generation. In conclusion, US$ 20 MM were raised with the tax regularization carried out through the "paulista agreement" program, which impacted other revenues by about US$ 20 MM during the quarter.

In 2024, Braskem made a commitment to six priorities for the year, and during the first quarter of 2024 we have achieved the following:

In Maceió, all fronts of action showed progress in the quarter, with about R$ 10 billion already disbursed by the close of the quarter, referring to the financial provision of R$ 15.5 billion. Regarding the priority of resilience and financial health, sales and distribution expenses decreased by US$ 13 million and the variation in working capital in the quarter was higher by R$ 181 million compared to the previous quarter.

In the asset operation strategy optimization, the company showed a quick response from the return of the maintenance shutdown in Bahia and from the

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impacts on ethanol supply in the south in the last quarter and increased its utilization rate in the Brazil segments by 8 p.p and in green ethylene by 36 p.p.. In addition, Braskem continues to implement initiatives that aim to reduce the carbon footprint in its operations, and in partnership with Lummus, as previously mentioned, will study the electrification of its cracking furnaces.

In the quarter, we also had ANVISA's authorization for the use of products developed from chemical recycling for food contact applications.

In investments, the company was able to optimize around R$ 363 MM in CapEx compared to the previous quarter, as a result of the company's global project prioritization strategy, while maintaining the same level of operations safety and reliability.

In conclusion, in Mexico, we continued our efforts to complete the construction of the ethane terminal, achieving a physical progress of 62%, 10% higher than the stage from December 2023.

Therefore, we conclude the presentation of Braskem's results for the first quarter of 2024, thank you very much for your attention. We will now begin the Q&A session.

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please click the "raise hand" button or submit your question via the Q&A window. To remove the question from the queue, please click the "lower hand" button or signal the Q&A window.

Our first question comes from Luiz Carvalho with UBS. You may proceed, sir.

Luiz Carvalho: Hello, everyone. Good afternoon. Thank you for taking my question. I'd like to start by asking Pedro, as you mentioned in your presentation, we see a spread scenario where perhaps the worst has already been behind us. The levels are or used to be quite compressed, but now looking to the future we're starting to see a scenario with low recovery in the 18-month horizon, and next year, as you mentioned, we expect to see the entrance of the Mexican Fast Track program. This seems like it will in some way contribute to improve the company's outlook.

Could you please give us a few words about the dynamics you're seeing in terms of the perspective of results, both in recovering the spreads and in the contribution of the Mexican facility? That would be great, please.

My second question - and of course we must ask, it's inevitable -, we need to ask about the shareholder situation. We had Adnoc participating in the process, they have left, and Lyondell also in the past participated and also gave up.

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Petrobras made some public comments that it could potentially increase its participation on Braskem to then later on spell them.

Could you please help us to understand what the situation is like in terms of what the management has been doing to contribute to this discussion? And are there any discussions, any due diligence processes underway? There was the Kuwait company as well.

And also, along those lines, if there is a question from Petrobras with regards to that Novonor stake, that 5%, would there be a tagalong in that case?

Pedro Freitas: Good morning, everyone. Thank you, Luiz, for your questions. It's a pleasure to talk to everyone here.

We recently presented our yearly results. It hasn't been very long since last time we met, but there have been some updates. Rosana presented the main ones, but to explore some of these topics that you asked, Luiz, specifically with regard to the spreads, what you mentioned is what we see; a slow recovery in the supply and demand scenario. So, this year, polyethylene is looking to have more demand than… sorry more supply than demand, and I think the scenario is going to reverse next year.

So what we have seen is slow recovery in our results. April was a month in which spreads improved compared to March. So we have seen a very gradual, very slow recovery, as you mentioned, but nevertheless the spreads have been improving over this year and we expect things to accelerate next year, and also with the polypropylene scenario.

And based on that, you asked a more focused question about the Mexico terminal, but I'll expand a little bit. Since the past year, we have been implementing a number of actions and initiatives to improve our results. Some came to maturity last year already, but even those that did have an impact last year, they do end up being reflected in the 12 months of 24. Many of them didn't have an impact on the 12 months of the year, and this year we forecast that they will have an impact over the 12 months of the year. So, part of the impact that we expect comes from those spreads, but also some come from having the full year of the measures in implementation. That is actually one of the slides in our presentation when we talk about the financial resiliency and rigidity plan.

This year we expect to see additional EBITDA above and beyond last year, approximately US$200 to 250 million as a result solely of these measures. And that adds to our strong cash generation as a result.

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