Braskem S A : 4T20 - Em 2020, o Resultado Operacional recorrente da Companhia foi de US$ 2.082 milhões, 38% superior a 2019 - Download da Transcrição

Braskem (BRKM3 BZ) March 11, 2021

Operator:

Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Braskem's 4Q20 earnings conference call. Today with us, we have Roberto Simões, CEO of Braskem; Pedro Freitas, Vice-President of Finance, Procurement and Corporate Affairs; Edison Terra, Vice-President of South America Olefins and Polyolefins, and Rosana Avolio, Investor Relations Director.

We would like to inform you that this event is being recorded, and all participants will be on listen-only mode during the Company's presentation. After Braskem's remarks are completed, there will be a questions and answer session. At that time, further instructions will be given. Should any participant need assistance during this call, please press *0 to reach the operator.

We have simultaneous webcast that may be accessed through Braskem's IR website athttp://www.braskem-ri.com.br, and the MZiQ platform, where the slide presentation is available for download. Please feel free to flip through the slides during the conference call. There will be a replay facility for this call on the website. We remind you that questions which will be answered during the Q&A session, may be posted in advance on the website.

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of Securities Litigations Reform Act of covid-1996. Forward-looking statements are based on the beliefs and assumptions of the Braskem management and on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to the future events and therefore, depend on the circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Braskem and could cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Rosana Avolio, Investor Relations Director. Ms. Avolio, you may begin your conference.

Rosana Avolio:

Good morning all. We would like to thank you for joining Braskem's earnings conference call. Today, we will present 4Q20 and 2020 results.

Please, let's move to the slide number 3 in which we will talk about Braskem main achievements in 2020. First, regarding financial results, the Company presented net cash generation of R$1.3 billion. Additionally, Braskem maintained a robust cash position in the amount of US$2.9 billion with sufficient liquidity to cover liabilities due in the next 84 months.

In relation to leverage, the Company continued committed to reduce its corporate leverage in order to be reassigned as investment grade company. For that, the Company implemented the initiative in the deleveraging plan, contributing to a 0.63x reduction in corporate leverage.

Furthermore, supported by the Company's cash generation and commitment to financial health, corporate leverage measured by the ratio of net debt to recurring operating result was 2.94x in USD, which represents a sharp reduction compared to 2019 leverage.

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Braskem (BRKM3 BZ) March 11, 2021

Regarding the geological phenomenon in Alagoas, one of the Company's priority in 2020, Braskem executed agreements for the compensation of residents, social and environmental remediation and reparation for workers and after the approval of those agreements by the court, the public interest civil actions filed against Braskem were terminated.

Another highlight about the geological phenomenon in Alagoas was the conclusion of the expert and independent technical studies contracted by the Company from international recognized entities for the evaluation of potential impacts in the surface of the region. In the operational front, the Company announced a resumption of chlor-alkali plant in Alagoas, which allows the Company to resume production of PVC and caustic soda with an integrated business model.

Moving to ESG positioning, and in line with the Company's focus on sustainable development since its creation in 2002, Braskem decides to expand its effort to achieve the goals associated with combating climate change and eliminating plastic waste.

In terms of combating climate change, the Company's goal is to reach carbon neutrality by 2050, while also reducing its greenhouse gases emissions by 15% by 2030. Regarding eliminating plastic waste, Braskem will work to expand its I'm green portfolio to include by 2025, 300 kt of thermoplastic resins and chemical products with recycling content and by 2030, 1 million tons of these products.

Moving to the next slide. On slide number 4, we will present the main measures taken by the Company in response to covid. Due to the spread of covid, a series of measures were adopted to minimize the pandemic's impacts on the Company's value chain, in production sales, as well as on the safety and health of the team members.

With the objective of support and cooperate with the value chain, Braskem made donations in the amount of around R$10.6 million, including hospital materials, protective items, tests, hygiene kits and more. Additionally, in order to support its customers, Braskem granted a credit line of R$1 billion to support mainly small and mid-sized companies in the chain.

In the operations and sales front, the Company reduced its utilization rates and sales in Brazil and in the US in the 2Q20, and then after demand recovered as from 3Q20, the Company presented record high sales in Brazil in line with the strategy to prioritize the Brazilian market.

Regarding safety, which is a non-negotiable value for the Company, Braskem adopted the following measures. Smaller teams for production and locking in the US, remote work for team members who work in their offices and medical support for team members with suspected or confirmed covid cases.

Moving to slide number 5, we will comment on consolidated 4Q20 and 2020 highlights. In the 4Q20, the Company's recurring operating result was US$833 million, 22% higher than 3Q20 and explained mainly by the better spreads for resins and main chemicals in Brazil, PP in the United States and PE in Mexico.

In 2020, recurring operating result was US$2,082 million, 38% higher than 2019 and explained mainly by the better spreads for resins in Brazil, PP in Europe and PE Mexico and also higher rising sales volumes in Brazil.

Braskem (BRKM3 BZ) March 11, 2021

Moving to the next slide. On slide number 6, we will present the main highlights of Brazil's operations. In 2020, the utilization rate was 4 percentile points lower than 2019, mainly to the temporary drop in demand and to the destocking trend in the petrochemical complex production change in 2020 caused by the pandemic. This effect was partially offset by the normalization of individual operations as from 3Q20.

In the Brazilian market, resin sales increased in relation to 2019 due to the stronger resin demand in Brazil, to the Company's strategy to focus on serving the Brazilian market and also to the inventory rebuilding trend in the chain due to the acceleration in economic activity. Given that, Brazil's recurring operating result was US$1,641 million, 73% higher than 2019, representing 72% of the Company's consolidated recurring operating results.

In the next slide, we will provide an update on geological event in Alagoas. In this slide, we will talk about the latest update regarding the National Mining Agency official letter. In February, the Company informed the market that the National Mining Agency in Brazil has accepted a reconsideration request made by the Company requesting that the agency will consider its order directing the implementation of additional measures for the mine closure plan proposed by the Company.

As disclosed in November, such additional measures would have on a cost amount of around R$3 million if implemented. Additionally, the agency decision maintains in place the implementation of the measures complicated in the mine closure plan originally proposed by the Company. Lastly, considering that the mine closure plan is a dynamic process with complex execution, the agency will continue to oversight the results of the measures that have been taken by the Company and further evaluations, requirements and provisions may be necessary in the future.

Moving to the next slide. In this slide, we will talk about the financial impact of the geologic event in Alagoas. In the chart on the left of the slide, we present the disbursement schedule. Braskem estimates that expenses related to the case of Alagoas will be incurred over the next five years in the total amount of R$9.2 billion, of which R$4.4 billion we expect to be disbursed this year.

And then in the right chart of the slide, we present how the Company intends to fund the disbursement amount for 2021. The Company has already set aside R$1.3 billion in a specific bank account to support the residents program of the Company. That is also a R$1 billion that the Company expects this year to monetize related to tax credit of PIS/COFINS in Brazil, and also, we have US$300 million related to general liability insurance that the Company is currently in talks with insurance companies.

Moving to the next slide. In this slide, we will talk about the return of the chlor-alkali production in Alagoas and the benefit of operating the vinyl business in our new integrated business model. In February, the Company announced the restarting of chlor-alkali production at its units in Alagoas, which had been shut down since May 2019.

To restart the plant, Braskem concluded the project to produce brine as feedstock made from imported salt, which allowed the Company to resume production of PVC and caustic soda with an integrated model. In terms of spreads, for 2021, the integrated business model improved the spread by around US$200 per ton, impacting in a positive way the profitability of the vinyl segment.

Moving to the next slide. In the United States, the average capacity utilization rate of our PP plants increased in relation to 2019 explained by the normalization of operations as from 3Q20, which offset the temporary slowdown in the 2Q20.

Braskem (BRKM3 BZ)

March 11, 2021

In Europe, the capacity utilization rate also increased explained by the operational adjustments in 2019. PP sales increased 2% from 2019 due to the higher supply of finished products in the United States and also in Europe. Considering that, recurring operating results in the United States and Europe was US$352 million, 7% lower than 2019 and representing 15% of the Company's consolidated recurring operating results.

In the next slide, we will talk about the main highlight of Mexico's operation. In Mexico, the average capacity utilization rate of our PE plants decreased 2 percentile points in relation to 2019 explained by the shutdown of the complex in December due to an interruption of natural gas transportation by the Mexican government agency that is responsible for the natural gas pipeline and transportation system in the region. In 2020, Braskem Idesa imported an average of 6,400 barrels per day of ethane from the United States to complement the supply of ethane from Pemex, which corresponded to 10% of the capacity utilization rate of PE, which ended the year at 74%.

In December 2020, Braskem Idesa completed an expansion of the Fast Track operation, which currently has an expected capacity of 20,000 barrels per day of ethane or about 30% of the total ethane requirement of the petrochemical complex. Polyethylene sales in

Mexico increased by 4% when compared to 2019 due to the higher supply of finished products available for sale. Mexico's recurring operating result was US$283 million, 22% lower than 2019 and representing 12% of the Company's consolidated segment results.

In the next slide, we will provide an update on Braskem Idesa operation. In this slide, we will talk about the last update regarding Braskem Idesa operation. In March, the Company informed the market that Braskem Idesa has signed with PEMEX and Cenagas the following documents to enable Braskem Idesa continued operation: a memorandum of an understanding with PEMEX setting out respective understandings for the discussion of potential amendments to the ethane supply agreement and for the development of an ethane import terminal subject to negotiation, entering into definitive documentation, approvals of Braskem Idesa shareholders and creditors and with reservations of rights; and an agreement for natural gas transportation service with Cenagas with a term of 15 years, such term conditioned upon the execution of the definitive documentation that I mentioned before.

With the execution of those documents by Braskem Idesa, Braskem Idesa immediately start to receive the service of natural gas transportation, which had been terminated in December 2020. Additionally, the ethane supply contract between Braskem Idesa and PEMEX remains in full force. At the time, Braskem Idesa cannot predict the outcome of the discussions with PEMEX, its shareholders and creditors.

Moving to the next slide, where we will talk about free cash flow generation. In 2020, we had a positive free cash flow generation of R$1,276 million mainly explained by the strong operating results of the Company, the monetization of PIS/COFINS credit of R$1,786 million and the reduction in estimated investments by 23%. Those impacts were partially offset by the impact of working capital on cash flow in the 1H20, which explained by the cash consumption due to the shift in the feedstock profile with lower volumes of naphtha being imported.

Moving to the next slide, we will talk about debt profile. In the end of December, the average debt term was around 19 years with around 50% of the total debt due after 2030.

Also considering its cash position, the Company has sufficient liquidity to cover debt maturities in the next 84 months.