Braskem S.A.
Q4 2012 Earnings Call Transcript

Published: 8 Feb 2013

[Operator:]

Good morning ladies and gentlemen. At this time we would like to welcome everyone to Braskem’s Fourth Quarter 2012 Earning Conference Call. Today with us we have Carlos Fadigas, CEO; Marcela Drehmer, CFO; and Guilherme Mélega, IRO and Corporate Controlling. We would like to inform that this event is being recorded and all participants will be in listen-only mode during the company’s presentation. After Braskem remarks are completed, there will be a question-and-answer section. At that time further instructions will be given. (Operator Instructions) We have simultaneous webcast that may be accessed through Braskem’s IR website at www.braskem.com.br/ir. The slide presentation may be downloaded from the website. Please feel free to flip through these slides during the conference call. There will be a replay facility for this call on the website. We remind you that the questions which will be answered during the Q&A session will 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 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 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’ll turn the conference over to Guilherme Mélega, IRO and Corporate Controlling Officer. Mr. Mélega, you may begin your conference.

[Guilherme Mélega:]

Good morning, ladies and gentleman. Thank you for participating in our Braskem earnings conference call. Today, we will be commenting on our results for the fourth quarter of 2012. First, we would like to remind you that pursuant to Federal Law 11638 from 2007, the results presented in today’s presentation reflect the adoption of International Financial Reporting Standards, or IFRS. Note also that as of the second quarter, the company began to recognize investments in jointly controlled companies using the equity method instead of the previous method delivered on proportionate consolidation. In addition, unless stated otherwise, for the periods presented, Braskem’s consolidated results reflect

[Operator:]

Thank you. This line is now open for questions. (Operator Instruction) Mr. Frank McGann from Bank of America would like to make a question.

[Frank McGann:]

Hi, good afternoon. Just two questions, one I’m sorry, I got cut off from the call for about 10 minutes. So I don’t know perhaps you discussed this. But, the SG&A, I think your selling expenses seem to rise quite a bit in the quarter. And I was just wondering what would account for that, and certainly relative to sales that seem to be up? And then the second question is, when looking at the future, looking at the next couple of quarter, how you see supply demand trends and overall pricing, I mean cost structure right now? It seems as your comments are – which have tended to be quite cautious over the last year, year and a half. You seem to be perhaps just a little bit less cautious, a little bit more optimistic now. I’m just wondering if that is how you see things.

[Carlos Jose Fadigas de Souza Filho:]

Okay, Frank. Thanks for the question. I’ll start with your second question and then pass to Marcela and few of the rest, the SG&A question you had. Yes, you’re right. We had been very cautious and I think there was reason for the year of 2012 that as much as we do are the very past year for the petrochemical sector. Apart from those correcting shale gas in the U.S. and the margins internationally were tight. The business in Europe, especially for those who have important exposure in Europe, not the case for Braskem, but again a very tough year and it reflected on maybe the petrochemical space on that is a very big case for Braskem. We saw a very soft market in the middle of 2012, especially around June and that’s why we had been cautious. I would say that in the beginning of this year, we are a little bit more optimistic about the bad economic environment, starting with economic and (inaudible) important things, I think that the general consensus about Europe is in a better position it was a year ago, nobody is now questioning the end of Euro zone. So although Europe will remain recession, the (inaudible) constructed scenario is much lower at this point. And the same way the U.S., there is no discussion about the U.S. going back to recession that has improved as well. In China the so-called shuffle in China I think it has been made nicely in forecast for China remains around 7.5% to 8% of growth. So I think that overall economically, you are not going to see a greater increase in economic activity. The risk of downside has been greatly diminished. So the risk of negative effect in every major economic area, region of the globe has been very much diminished and that has helped as well. We’ve seen price go up in January that’s happened in Europe, happened in Asia, happened in the U.S. We saw a (inaudible) go up roughly 7% to 8%, since new price go up less than that around 2% and that’s the positive news. So we do expect to have throughout the year better economic environment and therefore better strategy throughout the year of 2013. I’ll just mentioned again that these are the kind of forecast that is a very tough one for me, because it’s also impacted by the price of NASDAQ, and it’s also impacted by the price of the good products with the diamonds and several other one. So overall, I think we are going to have the better year ion 2013, just to go back briefly to 2012 out of the $R4 billion of 80,000 – almost $900 million came from one-time non-recurring item, so to reflect that we go back to a number of (inaudible) R$2 billion. So I do hope we have a better year in ‘13. Internationally from the economic perspective, in terms of petrochemicals spreads as well and to Braskem, it’s peaceful not only a better spread, but also coupled with a better market chain as we grow more share of the market from 65% to 70%. So if I was to say that overall – overall, I think we’re going to have a better year in ‘13 for these specific reason both Brazil market changes, but also globally with better spread. Marcello will comment on the SG&A.

[Marcela Aparecida Drehmer Andrade:]

Hi, Frank. And just to segregate my answer between the selling expense and MD&A, regarding the selling expenses, there are some expenses related to the third quarter that’s we recognize only on the fourth quarter. That’s why there was increment around the 12%. Just to remember, the third quarter sales were above this last quarter. So that was the main reason why it led to this increment. And regarding the G&A, basically the main sector, I mean the increment between the two quarters was around 4%. And the main sector was an incremental sellers and wage because of the quality bargain that was concluded in the last quarter but was reflecting the increments facing the third quarter. Okay.

[Frank McGann:]

Okay, great. Thank you very much, very helpful.

[Operator:]

(Operator Instructions) (Inaudible) would like to make a question.

[Unidentified Analyst:]

Hi good afternoon guys. Just some follow ups from the discussions a little bit earlier. I’ve got really two or three quick questions here. I think Fadigas, I think some from myself, some are for you. But I just initially wanted to come back to the story of pricing of polymers and such things in Brazil. If we look back you guys have what was five straight quarters of falling prices in dollars. And this is really the first one that actually has ticked again. And I know you were mentioning that it was still early to know – say, what things were looking like in the first quarter. But I just really wanted to double check if you could say anything with regards to where prices were just going into 2013 relative to the quarter. Was it even higher, so you were in enough trend or kind of closer to average or something like that? Just try to get an idea of where we were in the beginning. And the second thing that I just wanted to check with you guys, I was looking at the break up of the costs of goods sold and just maybe even following up on the point that we saw there with regards to the selling expenses. Was there significant shift in the electricity build if you had from one quarter to the other because the matter of my data is wrong? But I’m saying, in some places, a 2% cost of electricity for the previous quarter rising to 3% and another saying that it was 3% and it continues to be 3%. I just wanted to double check.

[Carlos Jose Fadigas de Souza Filho:]

Let me start with your question along polymer. By understanding – if we start at 2013 at the better price point than we were on average compared to the last part of last year, is that your question?

[Unidentified Analyst:]

Yes

[Carlos Jose Fadigas de Souza Filho:]

Okay. So my answer is yes.

[Unidentified Analyst:]

Okay.

[Carlos Jose Fadigas de Souza Filho:]

Price went up nationally between the areas Asia, U.S and Europe and they went up for the three resins, polypropylene, polyethylene and PVC. And we entered the ER13 at better price points than the average of the fourth quarter of 2012. Having said that, I need to bring back also the fact that we also mentioned that lots of prices went up as well, not to around $930 in November, I don’t that’s exactly the fourth quarter average. But for sure it’s a wrong bet and right now it’s at $990. So although we are happy about the price and see that would be going up and that contributes to our results. A lot of the result was explained by the price of raw materials in NASDAQ, if this prices in NASDAQ translating to higher core products, especially benzene, butadiene and even propylene that we also we sell propylene to our customers. Then that will compensate that and we will last for better express over those spread. But it’s something – and that’s the point where I mentioned it’s too early in the quarter. Only one third of the quarter is gone. Just to say that overall, we are going to have a better results. The only part we are seeing that we’re sure about, but yeah the price of resins went up. We entered the year in a better position, but then we have to see the order. The rest of the features see extended results, we will be one that we save Braskem or not.

[Marcela Aparecida Drehmer Andrade:]

And Gustavo.

[Unidentified Analyst:]

Yeah.

[Marcela Aparecida Drehmer Andrade:]

You do have the wrong number. The number that we have in the previously leased is 322 regarding electricity.

[Unidentified Analyst:]

Okay. So the 3.2 to 3.0 zone, that is right.

[Marcela Aparecida Drehmer Andrade:]

Yeah. 3.2 were the previous quarter and 3.0 in this quarter.

[Unidentified Analyst:]

Perfect, perfect. And Marcela if I could just have a very quick follow-up on what Frank was asking about. You do mention in the press release that you had higher, I would say, sales cost, but if you said it righty now, we can able to catch it, are you disclosing more or less how much of an impact that was?

[Marcela Aparecida Drehmer Andrade:]

Yeah, but just and you are not providing at the sale number, the majority of thing, the 12% increment and this number regarding that. But we are not providing the number itself.

[Unidentified Analyst:]

Okay. So I would say lower volumes and I should think about the delta has been the 12%, or the move in unit costs would be mostly the impact?

[Marcela Aparecida Drehmer Andrade:]

Yeah. We have lower cost. And though I would say that we are supposed to have a lower sales cost in this quarter, let’s see what we can provide you with more details, Gustavo, okay. Let’s see what we can provide you later.

[Unidentified Analyst:]

That’s perfect. Thank you, guys.

[Marcela Aparecida Drehmer Andrade:]

You’re welcome.

[Operator:]

(Operator Instruction) I will turn over the floor over to Mr. Carlos Fadigas for closing remarks.

[Carlos Jose Fadigas de Souza Filho:]

Well, I’d like to thank again for participating the call. I’d walk through to answer more questions and it seems that the release was to deal and often the discussion we had in the column quarterly. We also have to clarify the doubt and I make two, three comments at the end of this call is just to say that we did everything that include in 2012 during the third fiscal economic environment to guarantee we have positive results for Braskem. I’m glad to finish the year with $R4 billion EBITDA. Although not all these EBITDA came from current operations that has found ways to generate EBITDA and to keep the company at a reasonable leverage even in a period when we’re finishing two new platform to deal when we’re investing in Mexico and that’s our company. We had a better intends of sales and market share. We had a better intends to production. We had intends to run our crackers close to 90% capacity. We get the investment base, so we kept building stronger more profitable Braskem going forward with Mexico and also discuss some point which compares as well. So I hope the economic environment improved. The year since in 2008, haven’t been particularly easy to any industry. 2012 was a 30 years petrochemical industry and I think we managed to do as good as we could in such as fast economic environment. Hopefully, 2013 will be a better year and we will remain being very positive through all different possibilities of generating additional results to Braskem and also to keep things that is in the base that which we are building, Mexico and in a short period, we’re going to start building and comparing as well. Thank you all again for participating in the call, we’ll see you again in the call of the first quarter. Bye-bye.

[Operator:]

Thank you. This concludes today’s Braskem’s earnings conference call. You many disconnect your lines at this time.