Braskem S A : Transcription - Case Maceió

Conference Call Transcript

Conference with Investors

Braskem (BRKM3 BZ)

February 1, 2020

Operator:

Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Braskem's conference call with investors. Today with us we have Roberto Simões, CEO, Pedro Freitas, CFO, Marcelo Cerqueira, Vice-President of Manufacturing Brazil & Global Industrial Operations, Rosana Avolio, Investor Relations Director, Thiago Fontana Gemignani, Case Maceió, Leadership Team, Almir Viana Cotias Filho, Vinyls Leader, and Filipe Alves Tavares, Case Maceió Legal.

We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the Company's presentation. After Braskem's remarks are completed, there will be a question and answer section. 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, at 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 the Securities litigation reform act of 1996. Forward-looking statements are based on the beliefs and assumptions of Braskem's management, and on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on 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 Marcelo Cerqueira. Mr. Cerqueira you may begin your conference.

Marcelo Cerqueira:

Good afternoon, everybody. I will start with some introduction and some information, and then I will pass to my colleagues to compliment all the information.

If you can see in this slide, we started our operation in Alagoas in 1975. It was a company called Salgema at that time, that in the 90s it changed the name for Trikem, and in 2002, together, with another company, made it to form Braskem.

So we have two main assets in Alagoas, the chlor-alkali plant in Maceió and the PVC plant in Marechal Deodoro. In the picture on the right, you see the chlor-alkali plant on the center, it uses salt to produce chlorine and caustic soda, and DDC, which is the feedstock to produce PVC. The chlor-alkali plant also receives ethylene from the cracker in Bahia. So this is our production chain of the vinyl business.

Our commitment in Alagoas is to create value in the region, generate jobs, income, revenue and tax for the state. And even with the interruption of the activities in the chlor-

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Conference Call Transcript

Conference with Investors

Braskem (BRKM3 BZ)

February 1, 2020

alkali in May 2019, we decided not to cut the jobs and the people were working to restart the plant.

We generate around 2,000 jobs, 500 direct jobs and about 1,900 outsourced jobs. We generate a revenue of R$1.5 billion per year, and local taxes around R$150 million.

And we are the pillar of the production chain in Alagoas. We account for 3% of the whole GDP, and we support more than 60 companies in the plastics and chemical chain in the state.

Can you change the slide? This second slide, some technical details. On the right, you can see an example of a salt mine. The salt layer is about 1,000m down in the underground of the Maceió city. It is like a rock. So the way we extract it, it is with water that comes from a pipeline that you can see in blue. It promotes a dissolution, forming the brine that goes up because of the pressure, and then sent to the plant to produce chlorine and caustic soda.

On the left, you can see two pictures. This is how you can see the wells on Alagoas. So it is like a small tree of pipelines, very simple, and it is connected to the plant.

So we have 35 wells, all of them in operation. The depth is about 1,000 meters. All of them licensed by the Mineral Agency and the Environmental Agency, according to the Brazilian regulation. And we decided to stop the extraction of the salt in May 2019, last year in this region.

Can you change the slide, please? In March 2018, an earthquake happened and impacted some regions in Maceió. In the picture on your left, you can see the Maceió city. On the left is Lagoa Mundaú, and most of our wells are close to the lagoon in this green area, and the earthquake hit this area close to the lagoon, also.

Since them, we adopted a very responsible, transparent and active posture, and reinforced the commitment to protect people of this region, and also to understand the geological phenomenon.

Since then, we have been implementing many actions, including the mine closure plan and the actions defined with the authorities. If you look at the timeline, in 2019, we hired independent geological studies to support our decisions, and we decided to close the salt mine. We created a safe zone, a protection area close to our mines based on an international study made by the IFG, a German institute with high expertise in this kind of salt mines. And we signed cooperation terms with the city hall to develop several actions in order to protect the people in the region.

In 2020, we made a huge advance in the process. We signed an agreement with public defenders and with the prosecutors that established actions to relocate the residents of the region based on risk areas that were defined by the local civil defense.

And we started the compensation program of the residents that we call PCF. We had a huge advance in the PCF last year, with the relocation of many people of the region, including large structures. We have more detail in the other slide that you will see from Thiago.

We advanced in the areas with monitoring systems and the execution of the mine closure. We made many amendments to the agreement that we signed in the beginning of the

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Conference Call Transcript

Conference with Investors

Braskem (BRKM3 BZ)

February 1, 2020

year with the authorities, and that led to the termination of the civil action related to the residents in the end of 2020.

And we also signed an agreement with the federal and state prosecutor for the termination of the social and environmental public civil action. And also, we signed an agreement with the labor prosecutors for the termination of the labor PCA.

Moving to the next slide, our action, we are based in two man pillars. The first one is safety of the people in removing the residents from the risk areas with our financial compensation program, psychological support, actions to maintain that areas and protect the residents that are living there, and actions to prevent disease proliferation through pest controls and monitoring. Those are some examples of the first pillar, which is safety of people.

And the second one to understand the geological phenomenon. So, as I mentioned, we hired studies to support us in our decision. We made many actions around the drainage works, we are monitoring the soil. Now we have a robust system that is monitoring the area. We continue to study with sonars to access the condition in our salt wells, and we are working permanently to close the site wells, aligned with the Mineral Agency.

In the next slide, please, we are working in four main fronts, legal fronts with the objective to provide legal certainty to the actions implemented by the Company, and the technical front, conducting studies to understand the phenomenon for directing actions focused on safety, and also the implementation front, which the objective is to implement all the actions that comes from the legal front and the technical front. And we are also working in restarting the chlor-alkali plant. This is a relevant front that our intention is to restart it in a few days.

Now I will pass to Thiago to complement the information.

Thiago Fontana Gemignani:

Good afternoon. I hope you all can hear me. I am part of the leadership team of the Maceió case. I will try to bring additional color to some of the things Marcelo mentioned in the introduction.

Beginning with slide 12, we try to frame the main workstreams of our action fronts that we have going on in the Maceió case. The first one is the relocation and compensation that encompasses all the support for relocation, compensation of the residents, and also large structures that are located either on the risk area, protection area, the safety zone that Marcelo mentioned, and also the monitoring areas. So we will talk a little bit more on the map afterwards to give more color on that.

The second works front is more on the tech side, it is related to the closing and monitoring of salt wells. As Marcelo mentioned also, we have 35 salt extraction wells and there are a lot of studies that are going, that we have already been conducting for some time, and based on the findings of the sonar studies and experts, there is a plan for stabilizing and also closing those wells. We will also talk a little bit more about that.

The third action front is related to social-urbanistic measures. We have been doing some in this workstream in 2020, but it is actually something that we will be a lot more focused 2021 onwards, given the agreement that we made at the end of the year.

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Conference Call Transcript

Conference with Investors

Braskem (BRKM3 BZ)

February 1, 2020

The fourth workstream is related to environmental study, and it is also related to the agreement we made at the end of the year and relates to the study to understand if the salt extraction activities created any environmental impact in the region.

And the final one, the additional measure relates to additional aspects that support in many ways the first four workstreams that I mentioned, and also some of the additional agreements and cooperation agreements we made with the city hall to give us some support.

The structure of the presentation, I will have one or two slides to give more details on each one and try to also give a summary in terms of final considerations in each one of them to give an overall context of the action fronts on the case.

Moving to slide 13, this is the first aspect to understand on the relocation compensation. Actually, here we have the risk evaluation map, and we can say that this defines a lot, the scope of action on relocation and compensation.

If you look on the left side of slide 13, we have the green area, yellow area and gray area. All these areas are the ones that are focus of the relocation and compensation program. The yellow one and the green one, they were added actually in the agreement that we made at the end of the year. The gray ones, you can see that there are different zone definitions. They are part either of the original agreement that we made in January 2020 or a couple of amendments that happened throughout the year.

A few messages related to the risk evaluation map and the relocation and compensation program. First one is that, in our understanding, this risk evaluation map, and that relates again to the scope of action of Braskem, of the Company, represents a comprehensive and conservative view of the Company once it encompasses all the recommendations from the civil defense. It is based not only on risk areas, but also on what civil defense defines as a monitoring area, and also includes the recommendations from technical experts and technical studies on potential long-term scenarios of impact in the region.

Again, the risk that is foreseen now by the civil defense, the monitoring areas by the civil defense, and also potential long-term scenarios. So it is a very comprehensive, understanding and conservative view.

Another message here is that these areas, again, as is the knowledge of the market, they were additions throughout the year, and this is because everything begins on the technical side. So there were new developments on the technical, new understandings from the civil defense or new studies that came throughout the year, and they led to conclusions on technical, on the on the scope of action. And to give security also on the legal side, there were also results of amendments with the authorities.

The last message on this slide is that it is important that we believe we made significant progress in the relocation in the areas in the map, and we can see, there is the caption here, there is a percentage of relocation with some of those areas.

The green-yellow area, again, we do not have percentage related yet because they were just included as part of the December 30th agreement, but the other areas are close to 100%, 95%, 97%, 98%, and the other one that is 79% is actually the one that entered in October. So we can see that we already have a way of operating that is being successful, we believe, in a very sensitive topic. So it is very important that we are being able to move forward. And I will give an emphasis on this 100% relocation in the areas that are, since the beginning, considered the most priority areas.

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