Braskem S.A. (BRKM5) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for waiting. Welcome to Braskem's Second Quarter of 2026 Results Conference Call. With us here today, we have Mr. Helcio Tokeshi, Braskem's CEO; Mr. Carlos Brandao, Braskem's CFO; and Mrs. Rosana Avolio, Investor Relations, Strategic Planning and Global Market Intelligence Director. We inform you that this event is being recorded. The presentation will be held in Portuguese with simultaneous translation into English. All participants can choose which language to listen to and see the presentation using the show captions and view options button respectively. After Braskem remarks, there will be a Q&A session. Please be advised that questions must be sent through the Q&A button. I will now repeat the same instructions in Portuguese. We inform you that this event is being recorded. The presentation will be held in Portuguese with simultaneous translation into English. All participants can choose which language to listen to and see the presentation using the show captions and view options button respectively. After Braskem remarks, there will be a question-and-answer session. Please note that questions should be submitted in writing through the Q&A button. The audio of this event will be available on the Investor Relations website after it ends. We remind you that the participants will be able to submit questions to Braskem, which will be answered after the end of this conference by the RI (sic) [ IR ] department. Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding Braskem's business prospects, projections, operational and financial goals are beliefs and assumptions of the company's management as well as information currently available to Braskem. 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 that general conditions, industry conditions as well as other operational factors may affect Braskem's future results and may lead to results that differ materially from those expressed in such future considerations. Now I'll turn the conference over to Mrs. Rosana Avolio, Investor Relations, Strategic Planning and Global Market Intelligence Director. Mrs. Avolio, you may begin your presentation.

Good morning, ladies and gentlemen. Thank you for participating in the Braskem earnings release conference call for the second quarter of 2026. Today, we will present the main operational and financial highlights for the period, discuss the market environment that affected our business, detail the performance of each segment and share our market outlook for the coming quarters as well as the company's priorities for the second half of 2026. Following the agenda on Slide #3, we will begin by presenting the context observed in the second quarter of 2026, starting with Slide #4. In the second quarter of 2026, the global macroeconomic environment remained volatile due to the conflict in the Middle East, which restricted the global supply of feedstock, particularly to Asia and raised international market prices of oil and naphtha, the company's main feedstock. Given the above context, production costs among marginal producers in Asia were higher, which positively impacted the prices of resins and chemicals on the international market. Prices were higher when compared to the first quarter of 2026. As you can see, this trend is evident in the main PE and PP spreads which were significantly higher than the average from 2016 to 2025. In the U.S. PE market, for example, the spread was almost 40% higher, driven mainly by the temporary widening of arbitrage between the U.S. and Asia. This move opened up an export opportunity to the U.S. PE market with more attractive netbacks and higher margins, behavior similar to that observed in the U.S. PE-ethane market, which also saw significant increases given that the price of ethane in the U.S. market did not follow the price increases of other petrochemical feedstocks. It's worth noting that this improvement in international spreads results mainly from an on-off supply shock and not from a structural change in the dynamics of the global petrochemical cycle. Moving on to the next slide. The performance of each segment of the company will be presented below, starting with Brazil on Slide #6. The petrochemical plants in the Brazil segment presented an average utilization rate in line with the previous quarter, higher by 1 percentage point. This result is mainly attributable to the strategy of maintaining production levels in response to the high volatility of feedstock prices in international markets, resulting from the conflict in the Middle East. In relation to sales, the volume of resins in the Brazilian market was 2% lower compared to the previous quarter. This result is mainly attributable to a 6% decrease in polyethylene sales volume and a 1% decrease in PVC sales volume due to higher volumes of imported products during the period. This effect was partially offset by the 3% increase in polypropylene sales, in line with the growth in demand in the Brazilian market. Sales volume of chemicals, however, was down 4%, mainly due to the lower availability of gasoline and benzene for sale and lower demand for ethylene and styrene in the Brazilian market. Regarding the quarter's results, the segment recurring EBITDA was $869 million, an increase of 261% compared to the previous quarter. This result was mainly driven by the segment's higher contribution margin due to approximately 50% increase in the spreads for resins and major chemicals in the international market, 50%, as mentioned previously. In addition to the positive impact of $115 million from PIS/COFINS credits on the purchase of feedstocks under the REIQ Insumos program. In addition, the recovery of nearly $27 million in credits related to vessel demurrage and the reversal of accounting provisions had a positive impact on the segment's results. These effects were partially offset by the 4% appreciation of the average Brazilian real against the average dollar for the period and by the lower sales volume of resin and major chemicals in the Brazilian market. Next slide, please. In the second quarter of 2026, the green ethylene utilization rate was higher by 2 percentage points compared to the first quarter of 2026, mainly due to the adjustment of production levels in response to higher demand. During the period, sales of green polyethylene increased by 49%, mainly due to greater commercial opportunities in Europe and the normalization of demand following the seasonal effect of the Chinese New Year in the previous quarter. Highlights for the quarter include the renewal of our commercial partnership with New Balance to use I'm green bio-based EVA in the soles of running shoes, strengthening our existing commercial partnerships. Next slide. The United States and Europe segment registered a utilization rate of 76% in the quarter. The reduction of 3 percentage points in relation to the previous quarter is explained by the scheduled maintenance shutdowns in plants in the U.S. and in Germany, lasting 35 and 30 days, respectively. It's worth noting that the higher sales volumes in the United States was offset by the lower sales volume in Europe, due to the inventory management and the processing chain in the region, which meant that the sales volume in the quarter was in line when compared to the first quarter of 2026. In the quarter, the recurring EBITDA of the United States and Europe segment was $147 million. The increase in relation to the previous quarter is mainly explained by the positive impact of the higher polypropylene spreads in the international market arising from the conflict in the Middle East. Moving on to the next slide. In Mexico, the capacity utilization rate for polyethylene plants was 43%, down 12 percentage points from the previous quarter, mainly due to the liquidity preservation measures adopted by Braskem Idesa. During the quarter, average ethane imports through the terminal amounted to 14,700 barrels per day, a decrease of approximately 3,000 barrels per day compared to the first quarter of 2026. Additionally, the supply of ethane by PEMEX in the second quarter was 11,800 barrels per day, a reduction of about 3,000 barrels per day when compared with the first quarter of 2026. Polyethylene sales were lower by 11%, impacted by the lower availability of product for sale due to the lower utilization rate. In this context, the recurring EBITDA of the Mexico segment was $57 million in the second quarter of '26. The improvement in relation to the previous quarter is mainly explained by the increase in the polyethylene spread in the United States by 73%, impacted by the uncertainties related to the conflict in the Middle East. Next slide, please. In this next chapter, I will present the company's consolidated financial results. Consolidated recurring EBITDA in the second quarter of '26 was $1.043 billion with an EBITDA margin of 24%, representing an increase compared to the previous quarter. This increase compared to the previous quarter is mainly due to the increase of 82% and 98% in the average international spreads of resins and main chemicals in the Brazil and South America segment, a 28% increase in the average polypropylene spread in the United States and Europe market segments and a 73% increase in the international polyethylene spread in the Mexico market segment. Additionally, results were positively impacted by $115 million or BRL 578 million result of PIS/COFINS credits for the purchase of feedstocks under the REIQ inputs program in Brazil. Such effects were partially offset by the average appreciation of the Brazilian real against the dollar of 4% during the period. Also, sales of resins and main chemicals decreased in the Brazilian market by 2% and 4%, respectively. Additionally, there was an 11% decrease in PE sales in Mexico. Next slide, please. The company presented an operating cash generation of $385 million, which mainly reflected an increase in chemical and petrochemical spreads in the international market, driven by the conflict in the Middle East. Negative variation in working capital was mainly due to the high volatility of feedstock prices in international markets, and an increase in inventory volumes due to prioritization of sales with higher added value. Recurring cash generation totaled approximately $210 million. Finally, when disbursements for Alagoas and payments related to lease purchase agreements are considered, the company presented a cash consumption of approximately $15 million in the period. Next slide, please. As of the end of June 2026, work fronts in Maceio continued to move forward as planned. The relocation and compensation work front ended the quarter with a 99.9% completion rate through the Residents Relocation program. The same percentage of proposals were submitted under the Financial Compensation and Relocation Support Program and approximately 99.7% of the proposals were accepted and also paid out. In parallel, we continue to move forward with the closing and monitoring of salt cavities. Every effort has been made along this work front to ensure, if necessary, that these 35 cavities require 0 maintenance over the long term. 6 cavities were filled naturally during the second quarter of 2026. A further 8 cavities were completed and the technical fill limit was reached in 6 cavities. Finally, 3 are in the filling -- 3 cavities are in the filling process and 1 cavity in the planning phase. As a result, the total financial provision implemented for the event in Alagoas as of the end of June '26 was approximately BRL 18.2 billion, which approximately BRL 14.6 billion was previously disbursed and nearly BRL 1.2 billion were reclassified under other payables. As a result, the total provision balance as of the end of the second quarter of '26 was BRL 3.2 billion. Next slide, please. The next few slides will present the chemical and petrochemical scenario perspectives. Slide 15 presents the expected scenario for the second half of 2026 and 2027. The base scenarios prepared by consulting firms for these periods point to moderate spreads and potential occasional upsides. The gradual normalization of trade flows will tend to reduce the premium observed in the second quarter of '26. However, geopolitical, logistical and operational risks may continue to sustain volatility and value capture opportunities. This trend can be observed in the main spreads. With regards to Brazilian PE naphtha, external consulting firms expect a 59% decrease between the second and third quarters of '26, given that a reduction in arbitrage between the United States and Asia is expected starting in the third quarter. Similar results are expected for Brazilian PP naphtha and Mexican PE-ethane, which also saw a decrease. Consultants are predicting a base scenario marked by the normalization of spreads, driven by the redirection of flows, moderate demand and excess global supply. However, potential upsides remain possible if disruptions persist or intensify. I would, therefore, like to reiterate that we remain attentive to these potential trajectories, and we are ready to capture opportunities whenever the environment allows. Slide 16 presents an outlook for the global petrochemical industry from specialized external consultants. Despite improvements observed during the second quarter of '26, the petrochemical cycle is expected to remain structurally challenging over the coming periods. The increase in spreads in the second quarter of '26 resulted from a supply shock. Medium-term fundamentals, meanwhile, remain under pressure due to overcapacity and moderate demand. Global operating rates remain under pressure in both the PE and PP sectors, a reflection of global overcapacity, particularly in Asia and continued moderate demand. The structural challenges such as excess supply, a need for rationalization of capacity and greater operational discipline existed before the conflict and will tend to persist even after trade flows are normalized. It is, therefore, important to emphasize that the scenario for the second quarter of '26 should be interpreted as a tactical capture of value and not as a structural change in the cycle. Let's move on to the next slide. I will end off by commenting the company's priorities for the second half of 2026. Braskem review its targets and priorities for the second half of '26 in response to recent changes in the company's environment and business activities. These changes are due to external and internal factors within the global scenario in the petrochemical industry and Braskem new shareholding structure. I'd like to highlight our new priorities for the second half of the year, given the above context in relation to our pillars of action. We will move forward along 2 complementary work fronts under the restructuring pillars. These efforts will focus on optimizing Braskem capital structures, including Braskem Idesa, guaranteeing business continuity and activities. Additionally, given the ongoing challenges faced in global industry, the company remains committed to discipline in capital allocation, focused on preserving and optimizing financial liquidity. We are expanding our ambition to strengthen our business structure competitiveness under our operational and commercial pillar through the implementation of an operational excellence program, synergies and the strengthening of commercial value capture levers. Furthermore, we remain committed to reinforcing our institutional performance and promoting a more competitive business environment for the Brazilian chemical and petrochemical industries. Additionally, we will remain focused on completing the mapping of further value creation opportunities and beginning to capture these benefits through the transformation plan. Finally, we are moving forward with our commitment to fulfilling agreements related to geological event in Alagoas and with regards to safety, which remains as a nonnegotiable value at the company. We remain dedicated to guarantee reliable and safe operations, protecting people and safeguarding the integrity of our processes across all regions where we operate. We've reached the end of our presentation of Braskem results for the second quarter of 2026. I would like to thank you all for your attention, and we will now begin our Q&A session.

[Operator Instructions] Our first -- so the company may proceed, please.

Global macroeconomic and petrochemical sectors. Over the next few years, we are going to live in a very challenging scenario with a high level of volatility. This is a very important time for the industry. But I also see this with very positive view because we have a highly qualified team, a lot of institutional knowledge, and we're very serious about what we do. We are focused on building and strengthening relationships based on trust. And to that end, we will continue to share with you not just our results, but also our opinions about our outlook and Braskem's conditions. And so I would like to provide some context about Braskem's current status and outlook. Q2 was positive in terms of operations. We had favorable results given the conflict in the Middle East. And based on our team's agility and thanks to our institutional knowledge, we were able to capture many different markets with a positive reflection on our results. And so we closed the quarter in essentially neutral financials. We were able to capture energy as well, although due to the increase in feedstocks and lines of credit, things became a little bit more difficult. Now over the past few weeks, we've seen numbers return to levels close to what they were at before the war, which brings us back to a scenario where we can act with discipline in an environment we are accustomed to doing business in. And so in conclusion, we must consider the structural adverse environment that the petrochemical industry is in and also our need for financial restructuring. More than looking at just 1 quarter's performance, we now have an important moment where we can look at Braskem's future. This begins a new phase for the company. We are entering this new stage with a clear objective to build a company that is stronger, more competitive, financially solid and prepared to generate value consistently in the long term for our shareholders and other stakeholders. Our priority is to move forward in developing sustainable capital. We want to establish solid foundations that allow Braskem to generate value consistently in the long term. In parallel, we continue to move forward in our transformation project, which is focused on generating and capturing cash and EBITDA through operational excellence, cost discipline and capturing synergies throughout our organization. These agendas do not move separately. They move hand in hand. For us, Braskem's future necessarily involves 2 complementary pillars: a sustainable capital structure and the constant strengthening of our competitiveness. Going back to what I mentioned at the beginning, we have operational excellence, ability to innovate a global presence and most importantly, people with a huge ability to execute. Our work now is to transform these strengths into greater efficiency, greater cash generation and sustainable value generation. We know we have a lot of work ahead of us, and this will demand discipline, speed and consistency. Yet we are clear about our priorities, and we will continue to implement them. Thank you all for joining us once again, and we will now begin the question-and-answer session. Thank you.

Thank you, Helcio. This is Rosana. Well, the dynamics will be similar to other calls. We will welcome the questions. Some questions are similar. So we will answer your questions in block. Okay. So let's check the questions by some of the market analysts regarding the financial restructuration of the company. Basically, the main question has to do with the status of this process. So Mr. Brandao, our CFO, will discuss the status of this restructuring process focused on the company's capital structure.

Just a moment, please. Good morning, everyone. Thank you all for joining us this quarter for our earnings call, and thanks for your questions. As we've just mentioned, the restructuring efforts are one of the primary priorities for us in the short term. And we've been discussing this with some major groups of creditors. One has -- is majority composed of representatives of banks and others are bondholders who hold shares of the company. As we always reiterate, our goal is for a consensual restructuring, which is moving forward with dialogue from all parties. And I believe we are moving toward a development that will once again rebalance the company's capital structure in the long term.

Thank you, Mr. Brandao. Now we have a question about CapEx in the first half of '26 was different from the [ round 8 ] to get to reach to the guidance. Can we expect a full catch-up in the second half of the year? And could you detail what CapEx lagging -- is lagging and what will be majorly allocated through the year? I will answer this, and then Brandao can comment to. But historically, let me talk about the run rate of the company is around $500 million. There is an effort of the company to optimize to -- this is an important effort given the dynamics of the petrochemical industry, which was broadly discussed during the presentation. And as far as '26 goes, we have a global asset CapEx, excepting Idesa of $485 million. And up to this moment, we have spent 35% of what we expect for the year. Regarding your question, [ Mr. Caso ], if we go back to what -- to the '25 disbursement at the same moment by the end of the first semester was equal, 35%. So we are in line. When the company opens the year, we have a plan to follow the preapproved plan in the budget, which is broadly discussed and presented to the Board. And naturally, there's a major disbursement during the second half of '25, and we expect to reach what was shared as Braskem investment expectation. And next question has to do with the -- regarding Braskem Idesa. As we have discussed in the presentation, Braskem Idesa has reduced its operations to preserve liquidity. So the question has to do with that, whether the company expects, given the financial restructuring efforts that Brandao mentioned, if we expect to have the same initiative here in terms of utilization rate in Brazil. Brandao?

Thank you, Rosana, and thanks for the question, too. These things are all connected. Restructuring the capital structure in our operations, they're all connected. And so these measures protect the company and they protect the capital structure, too. And they allow the company to continue doing business. And so the company continues to seek opportunities that the market makes available. There is no indication that there will be any change to demand for our products. And to that end, we don't foresee any change to our operation rates.

Thank you very much. Moving on, let me take [ Safra ] question. How have you seen the inventory levels across the supply chain evolving since the end of the quarter? Has there been any recovery in demand alongside the drawdown of inventory? Is there any movement towards restocking yet? I will start answering this question, and then you can complement it. Well, in this quarter, [ Conrado ], we have seen a growth in demand in the Brazilian market. And before talking about the Brazilian market, let me talk briefly about the global demand dynamics. We've had this conflict that started in February 28. The initial expectation was that if there was a lack of products in the world, so those producers who have access to feedstock, input stock, dedicated feedstock, the case of Braskem, we expect it to be privileged. But what we saw is that in spite of this supply shock that was very particular, there is a dependency on Middle East and Asia for feedstock, especially oil and natural gas. So we realized that the world adjusted to the demand. So the spreads, should they get to normality, we have to see that as we presented. And now moving on to the dynamics in Brazil. As I mentioned, we saw a demand growth in the quarter also motivated by the conflict in the Middle East. We would imagine that we would lack products. But again, the world has adjusted. There is an expectation that this war will be ended. The company expects that aligned with external consulting firms, by the way. And then we have seen a, let me call, weakened demand in the world and also in Brazil. So we can compare this to demand expectation in Brazil. When we opened here by the end -- by the beginning of the year and up until now in the Brazilian market, if -- apart from PVC due to the Sanitation Law, but this is a particular thing. It's not a structural market change. We see that demand tends to be lower than the initial -- what was initially expected. And as far as your question go, we have seen a level of inventory that is balanced in the chain and import levels that are getting into the Brazilian market, especially in polyethylene with a cost of production that is more competitive than the Brazilian cost. Ethylene -- I mean, an ethane-based competitive for ethylene and also the price of the molecule. So the company, in this sense, as we have reported, has been trying to find a balance by looking for opportunity, but Braskem has -- can fully supply the Brazilian market. This is one of our top priorities when it comes to Brazilian production. We'll always try to meet the demands of the Brazilian market in meeting the demands of our Brazilian customers. Now moving on, let me take a question regarding working capital. The question is that given that commercial reduction of risk consumption of the company, how can you manage working capital to deal with decrease in utilization rates in petrochemical plants in Brazil and in Mexico. I will talk about Brazil specifically. In Brazil, utilization rate is already a function that captures the demand and also captures opportunities and even payment condition. It has to do with the industrial productive planning that has an important input. This reduction you mentioned has been taking place for a year, 1.5 years due to the downgrade we had of credit rating agencies, credit rating agencies. But we've been managing this from the operating standpoint, a commercial standpoint. We visit clients. We see them, trying to activate our long-term relationships. You can see in our quarter information, there is an explanatory note mentioning a reduction in the average price of clients' receivables. So that's how the company have managed -- is managing the working capital here in Brazil. Just one thing I would like to add. Regarding the volatility of the external scenario, it's not that the company could not increase the operation and we didn't. In fact, we have taken all the opportunities we could find, but we are pretty cautious because this volatile scenario requires us to be cautious and we've been doing so.