Unipar Carbocloro S.A. (UNIP6.SA) Earnings Call Transcript & Summary

Good afternoon, and welcome to Unipar Second Quarter 2025 Earnings Conference Call. Today, we are joined by Rodrigo Cannaval, CEO; Alexandre Jerussalmy, CFO and Director of Investor Relations, and the IR team. Please note that this event is being recorded and simultaneously translated. [Operator Instructions] The presentation is available for download on the platform and on the company's website at ri.unipar.com. [Operator Instructions] Before proceeding, we would like to clarify that any statements that may be made during the conference regarding Unipar's business prospects, projections, and operational and financial goals constitute the beliefs and assumptions of the company's management and are based on information currently available to the company. Forward-looking statements are no guarantees of performance as they involve risks, uncertainties and assumptions. And they refer to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that overall conditions, industry conditions and other operating factors may impact Unipar's future results. I would now like to turn the floor over to Jerussalmy, who will begin the presentation.

Hello, everyone. Welcome to our quarterly earnings call for the second quarter 2025. Please note that the presentation is already available on our IR website. And the figures presented here are adjusted to exclude the effect of IAS 29 accounting rules referring to hyperinflationary economies like Argentina. On Slide 4, we continue with difficult challenges with a highlight for the petrochemical cycle. That remains done with very tight margins. The PVC reference price fell 5% in the quarter, while the price of ethylene, which is the main input for PVC grows 5% further compressing margins. We also continue to face pressure from imported PVC, which has remained at historically high volumes for many months. This pressure will be partially mitigated in the coming months with the decision taken by the Brazilian government [indiscernible] to increase the antidumping on PVC imported from U.S. to 43.7%. Another challenge worth mentioning was the high level of pertainment declined by ONS, which reached 22% in the quarter of the total energy self-produced by Unipar Brazil. On the other hand, Unipar has demonstrated a resilient business model with a sale portfolio mainly composed of chemical products in relation to vinyl product and a focus on the local markets of Brazil and Argentina. The company has captured significant gains in fixed cost reduction through initiatives implemented since last year. Our plants in Camacari is now in full capacity in the second quarter, and we have proactively improved our debt profile by extending maturities, and reducing average cost. As a result, our recurring EBITDA reached BRL 306 million in the quarter, more than double that of the second quarter of '24, with a 23% margin versus 13% in the same quarter last year. We achieved a net profit of BRL 232 million in the quarter, 161% higher than the second quarter of '24. We generated operating cash flow of BRL 526 million in the quarter vis-a-vis BRL 158 million in the second quarter of '24. In terms of debt profile and liquidity management, we ended June with BRL 1.8 billion in cash, which allows us to cover 39 months of debt amortization. Our average debt maturity was 62 months, with 70% of our debt maturing after 2029. We ended the quarter with leverage of 0.76x. Our operating cash flow generation and comfortable debt profile allowed us to approve yesterday a new dividend distribution of BRL 400 million that will be paid in the month of August. In terms of an operational performance Slide 5, our consolidated capacity utilization rate reached 80% in the quarter. With the recovery of production in Argentina after the effects of the weather event in the first quarter and the new plant in Camacari operating at full capacity. Energy is one of our main inputs and it reached a self production rate of 54%, in line with the previous quarter. This percentage of self-consumed energy could have reached 76%. Had it not been for the curtailment effect established by ONS that reached 22% in the quarter. In June, however, we already saw a recovery and the level of self-produced energy in Brazil reached 61%. Going on to Slide 6, we have the evolution of our net revenue, which in the second quarter was 4% lower than in the first quarter of 25%, mainly due to the 3% exchange rate appreciation in Brazil, and slightly lower sales quarter-on-quarter. Unipar's cash generation is pegged to the U.S. dollar. When we compare the first half of the year to the same period last year, there is a 17% increase in 2025 due to a recovery in soda prices, and an increase in the sales volume of chemicals, especially chlorinated products. Unipar remains focused on the production and sale of chlorinated products, as this is a segment where we have a competitive advantage in terms of scale and proximity in the consumer market. On Screen 7, the comparison between COGS shows that the values for the second and first quarters of '25 remain practically in line despite the fact that in the second quarter, we had an increase in the price of ethylene and appreciation of the euro, we also had the negative effect of self-generated energy performance caused by the curtailment established by ONS. We had a greater volume of chlorinated products and soda produced from our new unit in Camacari. In the second quarter, we still had the Argentine inflation which has been declining month after month, but remains tight. And we also have the Argentine peso exchange rate, which continues strong. Despite these challenges, our performance of aligned COGS was possible because of fixed cost reduction initiatives at Unipar, we have captured relevant gains in reduction, mainly in Argentina and because of the operational excellence at all of our plants, with positive effects in our technical coefficient. Going on to Slide 8, our recurring EBITDA for the second quarter of 2025 was BRL 306 million, more than double that of the second quarter of 2024. Positively impacted by a higher sale of volumes of chlorinated products, higher international soda prices, the positive effect of a slightly weaker Brazilian real in this quarter vis-a-vis the previous year, and despite a lower PVC sales volume impacted by pressure from imports, and the reduction in the international price of PVC. When we add the positive effect of the conclusion in April of an arbitration process, EBITDA reached BRL 402 million in the second quarter with a margin of 31%. In the comparison of the second quarter '25 with the first quarter, our recurring EBITDA was somewhat lower especially because of a slightly lower sales volume in the second quarter and the negative effect of the depreciation of the real. On Slide 9, we reached BRL 232 million for net income, totaling BRL 382 million for the first half of the year. This performance reaffirms the resilience of our profitability despite the external challenges we face. Based on the results we feel comfortable distributing an additional BRL 400 million of dividends now in August without jeopardizing our financial health. Reminding you that in addition to dividends, we have repurchase shares in the market as a way to remunerate shareholders. Our buyback totaled BRL 53 million in the first half of the year. Regarding cash balance, as you see on Slide 10, we reached a balance of BRL 1.752 billion at the end of June, sufficient to cover 39 months of debt amortization. Our operating cash generation reached BRL 526 million in the quarter, with sales concentrated in the local markets of Brazil and Argentina. Unipar in fact, exports little to other countries besides these two. We had a CapEx of BRL 237 million in the quarter, of which BRL 208 million refer to our technological modernization project in Cubatao, and our net that funding in the quarter was BRL 394 million, mainly composed of disbursement from financing from the BNDES, and the structure involving the German ECA, Euler Hermes. on Slide 11, talking about our debt profile. We ended the quarter with BRL 1 billion in net debt, leverage of 0.76x, and an average debt term of 62 months, with 70% of the debt maturing in 2029 or later. 75% of our debt consists of debentures. And practically, all the rest is allocated to development banks and financing via ECA. In July, we completed a liability management transaction that combined a new debenture issue worth BRL 900 million with the reduction of all the debentures, which had shorter terms and higher costs. As a result, we were able to further improve our debt profile as shown on the pro forma chart on the screen. Our average pro forma debt maturity after the issuance of debentures increased to 75 months. And the percentage of debt maturing from 2029 onwards increased 91%. Now this new debenture issue had 7-year and 10-year series, making it impact the largest and longest term issue in our history. I'll now hand the floor over to Cannaval, who will comment a little on our strategic projects. Thank you all.

Good afternoon, everyone. Thank you, Alexandre, for presenting the results. I would also like to thank everyone for attending this content. As highlighted, the second quarter remained challenging for the chemical industry, but Unipar maintains its focus on execution, efficiency and delivering resilient results. From the strategic standpoint, we made progress on fronts that support our future competitiveness. The investments are making -- are aligned with our long-term vision with CapEx guided by ESG best practices and a focus on operational efficiency and production flexibility. I would like to highlight the successful ramp-up of the Camacari unit, which expands our regional presence and our ability to serve essential factors such as sanitation and agri business in Cubatao. The technological modernization project is on schedule with completion expected in the fourth quarter. This project represents a significant advance in our decarbonization journey and competitiveness. Additionally, we made strategic investments geared to efficiency and the flexibility of our business model. They have an increase of 15% in our chlorine soda production capacity in Santo Andre. All of these products are linked to a clear long-term agenda focused on competitiveness, sustainability and value creation. Operational excellence and responsible management continue to be the pillars of our business. The global scenario remains volatile, marked by industry downturn, inflationary pressures and the growth of projection and practices. In this context, it is essential that Brazilian industry, in partnership with the authorities, continue to strengthen trade dividend mechanism and advanced public policies to foster competitiveness. [indiscernible] is a concrete example of an initiative with great transformative potential for this sector. Unipar moves forward with a committed team, robust assets and a clear and consistent strategy. Thank you very much. I will now give the floor over to Raquel, who will lead our question-and-answer session.

Thank you, Cannaval. We will now go on to the question-and-answer session. [Operator Instructions] Our first question is from Rodrigo Almeida from Santander.

Congratulations to the Unipar team. We have three topics to explore with you. I'll begin with the first one relating to Cubatao. What should we expect in terms of volumes for the second half of the year because of the technology you're using? What is it that we should think about in terms of volume for the second half of the year? Which will be the CapEx disbursement for Cubatao? While, you do have the disbursement of the funding from BNDES to help you through the semester as well. My second topic refers to price. We've already spoken about the antidumping policies for PVC. We have also seeing some discussion regarding caustic soda. I believe it was last week that ABIQUIM proposed an increase of the rate for caustic soda. If you could speak about these price hikes for caustic soda and what ABIQUIM has decided? And third of all, if we could discuss the news regarding Braskem. I think it's important to comment on this. Which is the price of the asset? We have spoken about this on other occasions, it would be very good to hear from you again here.

Rodrigo. Good afternoon. This is Jerussalmy, and thank you for the questions. I'm going to begin with our CapEx and Cannaval will clarify the other questions. The CapEx for Cubatao. Up to present we have used 70% of the project's total CapEx. As you mentioned, we have been using the funding from the BNDES and the full funding from ECA Hermes. In terms of next CapEx expense vis-a-vis what we should still disburse from the BNDES. This year, we will have an amount from the BNDES that goes beyond what we still have to spend on the project because funding of the BNDES comes as a reimbursement of what we have already spent. We're not concerned with liquidity until the end of the year. I'll give the floor to Cannaval to answer the other question.

Rodrigo, to speak about volumes of our projects in Cubatao. The company has been restructured with a supply plan. Now the impacts considering the interconnection of the project will not be very representative, especially in the fourth quarter, which is a moment of connection regarding the price we had the approval of the antidumping policy. But there is a large inventory in the chain at present which means that it is very difficult to transfer the antidumping effects. And the price of PVC internationally has been dropping. So there's a positive aspect of antidumping policy. But a negative aspect, which is the speed of implementation of antidumping, which is quite reduced and given the market conditions. You spoke about acquisitions. At the end of the day, the answer is always the same, where a company to always be healthy, structure to seek out opportunities, and we're constantly seeking out different opportunities that may appear.

Our next question comes from Regis Cardoso from XP.

I would like to insist on the topic of the U.S.A. I don't know if the specific deal that you launched a material fact, but because of the moment, is there any synergy with polypropylene and propane? And another more conceptual doubt in moment low cycles for this commodity. It's very difficult to be able to close a deal unless the seller, of course, really wants to get rid of the assets. There's a dispersion of value, and it's also very difficult to leverage this with third-party capital if you don't have EBITDA. So I wanted to pose this question. It's a conceptual question, but perhaps we can see how to interpret this type of opportunity for the company?

Reis, this is Jerussalmy. We have just published a material fact through which we clarified that we signed a confidentiality agreement with Braskem. It was -- Cannaval has commented, we have been speaking about this for years. The company is ever more prepared to grow. This growth can happen abroad, of course, but what we do very carefully, and very cautiously, is to -- judiciously and selectively analyze everything. Not to put our business model at risk. It is a very resilient model. You spoke about leverage, about the cost of assets, the business, the market which would be the impact on leverage and allocating capital in the company is activity carried out with a great deal of caution. Therefore, when we began speaking about this mission of growing, if no business has appeared, it's not due to a lack of analysis. It's because the right opportunity at the right conditions has not appeared. So we prefer not to do business. And the material fact is simply one more initiative in this direction to verify if there are opportunities or not, as other there opportunities that we assess in the market.

Now if you allow me a follow-up on this question and another one that Rodrigo touched upon is the topic of M&A. I think that preference therefore, would be for lower stakes, or for assets that will fit into the company balance, and not significant transactions that would require raising capital. At least this is my interpretation, and please correct me if I am wrong. This shows your preference for assets. Another topic refers to the antidumping tariff. If you have identified what would be second best? There's a limitation in the price transfer because -- perhaps there are other means of importing a triangular import process? Are there foreign players that would capture the gains from this anti campaign?

Now regarding the M&A topic, I would say that it's still very premature to consider which is the company's intention. If it is for larger businesses, or smaller businesses, this will vary case by case. The company will not deleverage excessively in an irresponsible fashion. And we're not going to set up for a growth if we don't have full capacity to integrate and make the most of the assets. So it's still premature to speak about size and type of acquisition precisely because there is nothing concrete regarding any asset. What I can say is to convey tranquility, we're very cautious in capital allocation, and nobody here is grown to accessibly leveraging the company because of a growth strategy. Cannaval will speak about your other topic.