Braskem SA Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Highlights: Recurring EBITDA in the third quarter of 2024 was $432 million, 35% higher than the second quarter and 130% higher than the third quarter of 2023. Operating cash generation was $75 million, with liquidity at $2.4 billion. Leverage was approximately 5.76 times, a reduction from the previous quarter.
• Operational Performance: In the first nine months of 2024, global accident frequency rate reduced by 17%. Brazil segment utilization increased due to resumption of operations after extreme weather. US and Europe had maintenance shutdowns, while Mexico had plant stoppages. Sales volume increased in the Brazilian market and exports from the Brazil segment.
• Alagoas Project: Progress on salt cavities with 16 cavities allocated to sand filling, 6 fully filled. Social and urban measures: 5 of 11 urban mobility projects completed, Mutange Slope project 82% complete. Provisions for Alagoas event totaled ~R$16.3 billion.
• Strategy Advances: Launched first leasing ship for ethane transport, Ethane port terminal in Mexico at 85% physical progress, Innovation Center in US inaugurated, Braskem Siam signed feed agreement for green ethylene plant in Thailand, ranked 2nd in Bloomberg's NEF 2024 circular economy ranking.

Segment Performance

• Brazil segment: Recurring EBITDA was $335 million in the quarter, a 45% increase from the previous quarter. Utilization rate of Brazilian petrochemical plants increased by 2 percentage points. Sales volume in the Brazilian market increased by 6%, driven by higher demand in hygiene/cleaning and civil construction/sanitation sectors. Green ethylene utilization rate reached 95%, a 60 percentage point increase from the second quarter.
• United States and Europe segment: Recurring EBITDA was $71 million, 53% higher than the second quarter. Utilization rates were 2 percentage points lower than the second quarter due to scheduled shutdowns in Europe, partially offset by increased production in the US.
• Mexico segment: Recurring EBITDA was $80 million, 44% higher than the second quarter. Utilization rate was 74%, 4 percentage points lower than the previous quarter due to plant shutdowns and reduced ethane receipts. Sales decreased 11% but were boosted by higher international polyethylene spreads.

Guidance

• Next Quarter Outlook: Brazil segment may have lower utilization due to maintenance shutdowns in polyethylene and PVC plants. US and Europe segment utilization expected to be in line with previous quarter, with sales volume remaining steady. Mexico segment production expected to increase due to stabilized ethane supply and return of maintenance-shut down polyethylene plant.
• International Spreads: Expect lower spreads in the international petrochemical market in the next quarter, with recovery expected in the first quarter of 2025. Polyethylene and polypropylene markets in US and Europe expected to be impacted by seasonality and supply/demand dynamics.

Risks

• Global Supply Chain: Red Sea conflict impacting global logistics, leading to higher maritime freight rates and affecting supply/demand balance.
• Maintenance Shutdowns: Scheduled and unscheduled shutdowns in various regions affecting production levels and utilization rates.
• Exchange Rate Fluctuations: Impact on revenues and costs, especially as segment revenues are linked to international references in dollars while costs are in reals.
• Tariff Changes: Potential changes in import/export tariffs affecting competitiveness and market share.

Question and Answer

Q: Working capital saw a significant increase during the quarter. Could it normalize in the next quarter?

A: Pedro Freitas stated working capital did consume more due to inputs, price/volume changes, and naphtha load, but expected normalization with potential drop in Q4 due to lower spread and scheduled downtime.

Q: Scheduled downtime for 2025 – will it make 2025 CapEx higher than 2024?

A: Pedro Freitas said no new number yet, maintenance CapEx likely in line with 2024, with some variance, and no major difference expected.

Q: Effect of increase to import tariffs?

A: Pedro Freitas mentioned partial compensation with market share recovery, and indirect effects on sales volume expected in Q4 2025.

Q: U.S. elections impact on Brazilian exchange rate and Braskem's position?

A: Roberto Bischoff said U.S. protectionism could have mixed impacts, with potential positive for U.S.-based operations but indirect negative effects on Brazilian market; Pedro Freitas added depreciated forex positive for EBITDA and potential acceleration of green polypropylene project in U.S.

Q: CapEx and cash generation for 2025?

A: Pedro Freitas said maintenance CapEx historically $500-600 million, working on neutral cash generation for 2025 with cost reductions and contract reviews, exchange rate considered at 5.47 BRL per USD.

Q: Alagoas effect on cash flow and provisionment?

A: Pedro Freitas said provisionment balance ~R$5.5 billion, cash disbursement over year ~R$3 billion, with consumption occurring and dynamic adjustments, expecting reduced importance of Alagoas disbursements by 2026.