Good afternoon. Welcome to the conference call of the second quarter of 2024 for Unipar. We have here with us Rodrigo Cannaval, CEO, Alexandre Jerusalmy, CFO and Investor Relations Officer, and IR team. This event is being recorded, and all attendees will only be in listen-only mode during the presentation. The conference can be accessed through MZiQ platform and the company's website, ri.unipar.com, where you can find the slides. Selection of slides will be controlled by you. Audio of the event will be available on the website after its closure. After the presentation, we will start the Q&A session. Questions can now be recorded via webcast and will be answered throughout the session or after the conference, and they'll be asked, answered by our team. Before proceeding, we'd like to clarify that any statements that may be made during this conference call regarding Unipar's business prospects, projections, operational and financial goals, are beliefs and assumptions of the company's management, as well as information currently available to Unipar. Future considerations are not 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 the general conditions, industry conditions, and other operating factors can affect Unipar's future results, and can lead to results that differ materially from those expressed in such future conditions. I would like now to give the floor to Rodrigo Cannaval, who will begin the presentation. Please, you can proceed.
Thank you, Rachel. Good afternoon to all. Welcome to Unipar's second quarter 2024 earnings release presentation. I start with the information that we have completed the team of statutory directors of Unipar with the arrival of Ricardo Congro. He has over 23 years of experience in operation management. Ricardo has taken over as Industrial Director of the company, and he has been so since first of August. I'm sure that he will have a successful trajectory at Unipar, helping us to deliver the strategy of sustainable growth with safety and operational excellence. Moving on to our presentation, I highlight that the second quarter of 2024 was marked by the persistence of the adverse global scenario and the maintenance of the downward cycle in the chemical industry. This is all translated into the reduction of trade spreads. In addition, the combination of protectionist measures in some markets, such as Europe and crisis in other markets, boosted the flow of products to Brazil. Data from the Abiquim show record levels in the import of chemical products, especially PVC. This situation led the chemical industry to register, in May, only 58% of use of its installed capacity and 76% in the chloro- alkali industry, the lowest level since the beginning of the time series. The chemical sector in Brazil, through its associations, has been working together to recover the ability to compete in face of the global trade dynamics, facing the challenges and competitive advantages of other countries. This sectoral dialogue has been led by associations with technical foundations, with the representative authorities in the country, and within the scope of Mercosur, portraying primarily the positive impact of the installed industry in the generation of investments and local jobs. The positive point in the Brazilian market is the maintenance of solid demand, especially in the chlorinated market, which has the potential of the sanitation framework. It has already contributed to our resiliency strategy. In other words, diversification and service to vital industries in the economy. Looking to Argentina, we have faced an even more challenging scenario. The implementation of measures to contain inflation and fiscal deficit caused a retraction in local demand, especially with the stoppage of public works. Expectations for the resumption of demand in Argentina are still uncertain and depend on the success of the package of measures issued by the government. I would like to reaffirm that Unipar continues to stand out for its resilience and its ability to operate efficiently. At the same time, we face this downward cycle for which we are prepared. We continue to invest and believe in our vision of the future to ensure Unipar's sustainable growth in the upcoming years, especially with the prospects of sanitation in the Brazilian market. I'll now hand it over to our CFO and Investor Relations Officer, Alexandre Jerusalmy. He will go into details about the highlights and results of Unipar in the second quarter of 2024.
Thank you, Cannaval. Hello, everyone. It's a pleasure to be here to talk to you about the results of the second quarter. Starting with the financial highlights, which reflect the resilience of Unipar's business model and the company's focus on maintaining financial health, we had an EBITDA of BRL 146 million in the quarter. Without considering the effects of IAS 29, the accounting effects, it shows the challenges of the petrochemical downturn cycle and macroeconomic reforms in Argentina. Our margin, historically, has remained above the margin of peers in the sector. We had net profit of BRL 89 million, despite all the challenges. Unipar has been obtaining positive net results for 17 consecutive quarters, once again, showing the resilience of our businesses. Our cash generation reached BRL 157 million in the quarter, and our financial leverage stood at 0.70 times, which reflects a conservative profile, considering our average debt term. Regarding operational highlights, our electrolysis utilization rate reached 82% in the quarter. Once again, higher than the industry average, according to data from Abiquim, the Association of Petrochemical. We have progressed according to plan in the construction of new electrolysis plant in Bahia, and in technological modernization of our site in Cubatão. Please bear in mind that these two projects will have relevant economic impacts to Unipar once they are completed. I'll make some more, more comments about that later in the presentation. We finally progressed in our ESG agenda. In the quarter, we achieved 51% of self-production energy use of self-production and energy coming from renewable sources in Brazil, versus 30% in the same quarter last year. We have also published in the end of July, our sustainability report. And there, you can find details about our ESG journey. I would like to invite all of you to access our report, which is quite good. Now, moving on to the next slide, we can see a progression of our occupancy rate of electrolysis, which reflects reliable competitive operation. We closed the quarter, as I said before, at 82% utilization rate in the consolidated data. 84% in Brazil, 75% in Argentina. Please bear in mind that the numbers of the second quarter 2023 still did not include the increasing capacity of 17% in our plant, Santo André. The numbers of the second quarter 2024 already include that expansions of electrolysis. Operational excellence at Unipar is based on some strategic actions, starting with CapEx, focused on safety, operational reliability, and modernization of our plants, in addition to an experienced, trained team in all our industrial units. We also have a series of digital transformation initiatives. They are all on the way and focused on industrial optimization. For example, we have applied artificial intelligence initiatives, focused on predictive maintenance, optimization of use of our pyrolysis furnaces, increase the quality of our PVC, operational calibration that ends up avoiding unscheduled downtime in our unit, and just to name a few examples. Finally, we have been developing for years, strategic partnerships with suppliers. All of our strategic inputs. For example, we have multi-year contracts for the supply of salt, ethylene, natural gas, electricity, with first-rate, reliable partners with proven competence. Summing up all these factors, it explains our capacity utilization rate above the industry average, according to Abiquim. Moving on the next slide, we see the evolution of our net revenue, which is quite diversified and focused on key sectors of our economy and society. We closed the quarter with net revenues of BRL 1 billion, BRL 159 million, out of which 23% was distributed in the sale of chlorinated products, 41% PVC, and 36% soda. When we add up the revenues from sales of soda and PVC, we reach 77% of revenue linked to dollar, which gives Unipar further resilience during moments of currency devaluation, both in Brazil and in Argentina. Please bear in mind that our results are adjusted by IAS 29, so they do not include accounting and non-cash effect of IAS 29. Giving you an overview of where our sales are going, let's say that 24% are directed to pulp and paper, metallurgy and petrochemical. 23% directed to civil construction and laminates. 15%, sanitation, cleaning, and hospital products. 14% for PVC composite industries, and the rest is distributed among many different industries. All in all, we sell to about 30 different industries, several of which have a high potential for demand growth and with expansion projects that have already been announced, such as the area of sanitation. There are also important industries to which we sell and have an export vocation, such as paper and pulp, and also steel industry. Going into the next screen, in terms of cost, our COGS reached BRL 835 million in the second quarter, 72% of which had variable costs and 22% fixed costs. Variable costs, 94%, refer to ethylene, gas, electricity, salt, and steam. For each of these inputs, we have a strategic positioning through multi-year stable agreements. Electricity, for example, 51% of what we consume in the quarter, came from self-production, self-generation of wind and solar energy in partnership with AES and ENGIE, with whom we have 20-year contracts for energy supply, which incorporates the benefits of self-production. In the area of salt, we have our own operation, Argentina, and multi-year contracts with salt suppliers in Brazil and Chile for the Brazilian operation. Finally, we have long-standing, stable partnerships with ethylene supply in both Brazil and Argentina. On the next slide, we see the comparison of EBITDA on the second quarter with that of the first quarter. We've achieved EBITDA of BRL 146 million in the second quarter, without considering the non-cash effect of IAS 29. The EBITDA level is below Unipar's track record and clearly reflects the challenges of the petrochemical cycle of downturn and macroeconomic reforms in Argentina. Regarding net income, we reached BRL 89 million in the quarter, 59% above the previous quarter, showing resilience of Unipar's business model. Bear in mind that there are already 17 consecutive quarters of positive net results for Unipar. The next slide, our operating cash generation was BRL 157 million in the quarter, whereas CapEx was mainly focused on strategic projects of Camaçari and Cubatão, in addition to having amortized some debts in the quarter. We've reached the end of the quarter with cash balance of BRL 2.027 billion, which represents robust liquidity support considering our company's debt profile. Next slide, we can see a description of the main strategic projects which are underway in the company. Greenfield project in Camaçari and the technological modernization project in Cubatão will bring relevant gains to Unipar in upcoming years. In Camaçari, we are advanced in the construction of a new chlorine soda plant. There will be 20,000 tons per year of chlorine and capacity using 100% renewable energy and membrane technology, with the world's state-of-the-art for electrolysis process, the most eco-efficient technology in the world. In Cubatão, we are advancing the project to migrate the existing electrolysis technology into membrane, both mercury and diaphragm technology, because we operate in Cubatão, already part of it, based on membrane technology. And now we are going to concentrate 100% of the production using membrane technology. Once the project is completed, we will have 28% less energy consumption, 150,000 tons of reduction in solid waste generation, 70,000 tons per year reduction in greenhouse gas emission, and consequently, we will have a very positive effect on our production costs in the electrolysis operation in Cubatão from the moment the project is completely. We also have other projects in progress, all of them focused on operational efficiency and increasing the added value of our products. Our debt profile, going to the next slide, as you can see, remains quite conservative. We have enough cash position to cover 95 months of debt amortization. Our debt is concentrated primarily on the capital market, and as a consequence, the company maintains available lines with banks. We have also advanced in the strategy of extending the payment terms. In the quarter, we had disbursement of a funding line with ECA, with a 12-year term, and we are going to move ahead with our strategy of extending the debt term. We closed the quarter with 0.70 times leverage and conservative capital structure, with net debt to equity from 17 to 83. In fact, our debt profile vis-a-vis our liquidity support, gives us a privileged position to face the challenges of the down cycle, to face the macroeconomic challenges in Argentina, and also to consider some time of opportunity in the market that may present itself to Unipar. With that, I close. I hand it back to Cannaval, and I thank you all for being here with us during the presentation of results. Thank you, Cannaval, up to you.
Well, to conclude our presentation, I would like to highlight our priorities for the continuation of the year. We are committed to safety management and operational efficiency. We'll carry out the strategic projects in Camaçari and Cubatão. Together with the associations, we will keep on maintaining the agenda of strengthening competitiveness of national industry in Brazil, and remain committed to delivering solid and consistent results. And we also will maintain our strategy of sustainable growth with balance, selective actions, and preserving cash generation. We'll now open for the Q&A session.
Thank you very much, Cannaval. We are now going to start our question and answer session. There is one question by Helena Kelm with XP.
Hello, everyone. Thank you very much for the opportunity. These are our questions. First, can you please update about the next steps of the project, especially unit Camaçari, and about technological modernization in Cubatão? Can you please tell us what would be the total invested amount and the expected benefits?
Thank you for the question, Helena. Thank you, Raquel. About the projects in Camaçari and Cubatão, the following are our updates. In Camaçari, our project is ongoing. We have the expectation to complete by the end of the year. The modernization of technology in Cubatão will bring a number of benefits. It will become a safer plant, much more competitive and more sustainable, because the reduction of CO2 will be significantly reduced, 70,000 tons a year of CO2 less. The beginning of the operation is planned in the end of 2025.
Thank you. The next question is: we've seen margins under a lot of pressure in the quarter. Could you please give us more details about the main offenders? And still talking about margins, what about the business perspective in the third quarter? Any improvement there?
Thank you, Helena. Good afternoon, everyone. Alexandre speaking. In the second quarter, what we've observed is a continuation of the pressure on margins because of the downturn cycle of petrochemical industry. We've felt the pressure, especially in the commercialization of PVC. For Unipar, we've also experienced the effect of the economic reform in Argentina. This was an additional factor, putting pressure on the margins, selling soda and PVC in Argentina. I would say the combination of the macroeconomic characteristic in Argentina because of the government change of the government Milei and the downturn of petrochemical cycle are the main factors that explain the margins that we reached in the second quarter. Now, looking ahead, what we expect for the next quarter is the expectation of some kind of recovery, despite being gradual, at Unipar. As we explained to you, we have a sale mix that takes into consideration not only PVC and soda, but also chlorinated products. The price dynamics will be different there, different from caustic soda and PVC. The logic of price are international market, but not for chlorinated products. For chlorinated products, we have our own local market dynamic with local pricing strategy. Therefore, the economy in Brazil has been presenting positive indicators. Therefore, the chlorinated market has been strengthening the logic and the resilience of our business model. This is how we've been anticipating the third quarter.
Have you talked about the reference prices of the international market?
Yeah.
Okay. Could you please give us an update about prospection of investment opportunities, especially M&A?
Thank you, Helena.
Unipar has been saying it publicly that it has a perspective of growth, it has the intention of growing in the local market, in the international market. Of course, the company will do things in a very selective fashion so that it does not put at risk our financial health, which is one of our priorities. Therefore, we are continuously analyzing and considering opportunities that may open to us in the market. Once we have any news about it, we are going to tell the market.
Thank you.
There is a comment by Mar Asset, by Alexandre Pádua and João Marcelo Copelli.
Good afternoon. Thank you for taking my question. The company has had expenses, apparently extraordinary, in legal and strategic consulting services, in addition to expenses with expansion studies which affected your OPEX. How can... What can we say about them in upcoming months? Are these expenses associated with new capital allocation in line with the strategic plan? Could you please tell us more about that? What vertical possibilities of growth are more heated? Greenfield, M&A, Brownfield, et cetera.
Thank you, Alexandre, for your question. Most of the expenses are related with some kind of assessment of market opportunities, indeed, legal and, strategic financial analysis of companies. But there were also other expenses, which we're calling expense, expenses with, consulting services, which are just our internal, agenda, improvement of processes, of position, and a number of other initiatives that we have to increase profitability when, negotiating our products. Most of the expenses are non-recurring. It's not something that is going to be reported quarterly. There was a concentration in the second quarter, but it's not something that is expected to be recurring.
Thank you. Let's see if we have any more questions. Please hold. There are three questions by Karina Trevizan with S&P Global.
"You've mentioned the imports of PVC. How do you anticipate the demand for internal product? Are your strategic projects going to increase the productive capacity of PVC? And what are the actions that you anticipate to strengthen national competitiveness?"
Thank you, Karina, for your questions. Strategic projects related to PVC, Unipar has been investing in improving competitiveness and quality of PVC, so that we can reach more profitable markets that use PVC. For strengthening Brazilian industry, Unipar and Abiquim have been working together with the federal government, talking about Brazilian natural gas. Historically, we know that it's not competitive, and our country needs actions that improve competitiveness of natural gas, the one used for a source of energy or raw material for the industry of agriculture applications.
Thank you for the answer.
There is one more question by Vidal Morato, shareholder.
"Could you please tell us about the exploitation of lithium in Argentina, Bolivia, and Chile because of the increased demand of batteries for electrification, would it impact positively the sales of soda?"
Well, lithium exploitation in Argentina brings two possibilities to chemical plants: a potential demand for soda and also for hydrochloric acid in China. The main point about exploiting lithium in Argentina is when exactly this is going to happen. It is an opportunity, but it depends on the timing. When is it really going to become a reality?
Thank you for the answer.