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

Good afternoon, and welcome to Unipar's Third Quarter 2025 Earnings Call. Joining us today are Rodrigo Cannaval, CEO; Alexandre Jerussalmy, CFO and IRO; as well as our IR team. Please be advised that this event is being recorded and simultaneously translated. The translation is available by clicking the interpretation button. [Operator Instructions] The presentation is available for download on the platform and on the company's website at ri.unipar.com. Following the presentation we will begin the Q&A session when further instruction will be given. Before we proceed, we would like to clarify that any statements made during this call regarding Unipar's business outlook projections and operational and financial targets constitute the beliefs and assumptions of the company's management and are based on currently available information to Unipar. Forward-looking statements are no guarantee of performance and involve risks, uncertainties and assumptions as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that general economic conditions, industry conditions and other operational factors may affect Unipar's future results and could lead to outcomes that differ materially from those expressed in such forward-looking statements. Now I'd like to turn the call over to Alexandre Jerussalmy to begin the presentation. Jerussalmy, please go ahead.

Hi, everyone. Welcome to our third quarter 2025 earnings call. Our material is already available on our IR website, and the numbers in the presentation exclude the IAS 29 rule applied on hyperinflation economies, which is still the case of Argentina. Starting with the quarter's highlights. The external challenges remain similar to those of previous quarters, pressuring our margins and testing our ability to overcome them. The petrochemical cycle remains in a downturn with falling prices and historically low margins, a consequence of a persistent global supply-demand imbalance and our international price benchmarks for PVC and caustic soda fell 5% and 11% in the quarter, respectively. The flow of imported PVC into the Brazilian market remains at historically high levels. This quarter, we had Colombia and Egypt as main players this quarter. The curtailment level set by the national system operator for our self-produced power in Brazil also remained high in the quarter, reaching 17% and the domestic market in Argentina remains weak, both for PVC and caustic soda, reflecting the still sluggish Argentine economic activity amid the Milei's administration's macroeconomic reforms. On the other hand, Unipar has demonstrated resilience in the face of external challenges. This is achieved through a sales portfolio predominantly composed of chemical products, which accounted for 60% of our net revenue and 84% of the sales volume in the quarter, a large part of which is not exposed to the petrochemical cycle and also through a concentration of sales in the local markets of Brazil and Argentina, where our strategic commercial partners are and to whom we offer differentiated logistics and services. Additionally, we proactively executed a debt reprofiling during the quarter, extending maturities and reducing costs, and we'll comment on this later. As a result, our recurring adjusted EBITDA reached BRL 266 million in the quarter, up 14% year-over-year with an EBITDA margin of 20%. Our net income was BRL 107 million, and our operating cash generation reached BRL 269 million in the quarter. Considering the year-to-date EBITDA, we reached BRL 927 million, which is a 52% increase compared to the same period last year. Regarding our liquidity position and debt profile, we ended the quarter with a cash position of BRL 1.7 billion, enough to cover 47 months of debt amortization, and our debt reached an average term of 76 months with 90% maturing only after 2029. And our leverage measured by net debt over EBITDA ended the quarter at 1.12x. Regarding operational performance on the next slide, we ended the quarter with a consolidated electrolysis utilization rate of 77%, with 80% in Brazil and 67% in Argentina. Both in Brazil and Argentina, we actively managed production levels in response to local market demand, which led us at times to reduce operating rates during the quarter, especially in Argentina to control inventory levels. Regarding our self-produced power in Brazil, we reached 63% in the quarter versus 54% the previous quarter with a curtailment level set by ONS of 17% against 22% in the previous quarter. As a reminder, power is one of the main inputs at Unipar, and we have high producing partnerships here in Brazil and the effect of the curtailment in our results leads to a loss to self-producers. And this negatively affects our EBITDA because we have to pay higher power costs. However, the month of September already showed better performance than the 3Q average with 70% self-produced power in Brazil and 11% curtailment. Net revenue in 3Q '25 on Screen 6 was in line with the previous quarter due to high volumes in caustic soda, up 7% and PVC up 4%, which offset the negative effect of the decline in international prices for caustic soda and PVC of 11% and 5%, respectively, as I said earlier, and the 4% appreciation of the Brazilian real against the U.S. dollar. As a reminder, this negative effect from the real appreciation exists because of our revenues are mostly U.S. dollar linked. The production and commercialization of chlor-alkali derivatives remain a strategic focus for Unipar as it's a business segment that is not exposed to the petrochemical cycle and has higher added value, and Unipar has a differentiated scale compared to competitors. Moving on to the next slide, we see the evolution of our cost of goods sold, which is pretty much in line quarter-over-quarter despite the higher price of ethylene contracted by Unipar and the higher sales volume of caustic soda and PVC mentioned earlier. This was possible due to a lower curtailment percentage of self-produced power in Brazil compared to the previous quarter, although it's still high. The 16% depreciation of the Argentine pesos against the U.S. dollar, lower fixed costs resulting from a series of initiatives implemented since last year, and they were mainly implemented in Argentina and included an organizational restructuring among other measures. And we also had a positive effect of our operational excellence captured through improved industrial technical coefficients. Moving on to Slide 8. We have the quarterly EBITDA comparison, starting with the comparison between the third quarter of '25 and the third quarter of '24. We had a 14% increase due to a higher volume of caustic soda and chlor-alkali derivatives offsetting the 15% decline in PVC sales and lower fixed costs resulting from the implementation of a series of initiatives since last year, as previously mentioned, which had an effect on EBITDA. In Q3, we had a 13% decline in EBITDA, mainly due to the negative effects of the Brazilian real appreciation and the reductions in international caustic soda and PVC prices. Regarding net income on the next slide, we closed the quarter with BRL 107 million. And for the 9-month year-to-date period, we reached BRL 489 million, representing a net margin of 13% for the year-to-date. Looking at the shareholder remuneration, so far, we have distributed BRL 650 million in dividends, and we repurchased 1.2 million shares worth BRL 63 million without compromising our financial health. On Slide 10, we show the evolution of our cash balance. In the quarter, we had BRL 269 million in operating cash generation benefited from our sales mix and concentration of sales in our local markets, as mentioned earlier, a CapEx of BRL 281 million, which included BRL 142 million allocated to the Cubatão technology modernization project, net debt issuance of BRL 514 million and dividend distributions of BRL 400 million, resulting in a cash position of BRL 1.720 billion enough to cover 47 months of debt amortization. On the following slide, you can see our debt profile. with net debt of BRL 1.6 billion at the end of September, leverage of 1.12x and an average term of 76 months with 90% of our debt maturing only after 2029, 74% of our debt consists of debenture issuance in the Brazilian market and virtually all the remainder is composed of financing from BNDES, Banco do Nordeste and the structure with guarantee from Euler Hermes, the German export credit agency. Our debt profile improved significantly quarter-on-quarter with a new issuance of debenture worth BRL 900 million carried out in July, our largest one with 7- and 10-year series, which was in addition to the disbursements from BNDES financing lines and the completion of disbursing from the Euler Hermes guaranteed line. With this, we achieved a debt profile that gives us comfort to navigate external scenarios with their challenges. Now I turn the call over to Cannaval, who will continue the presentation. Thank you all, and I'll be back for the Q&A session. Cannaval, over to you.

Thank you all very much. Good afternoon, everyone. Thank you, Alexandre, for presenting the results. I also want to thank you all for joining us today. As noted, the scenarios both in Brazil and Argentina remain challenging. In this context, Unipar maintained its operational and financial discipline, which allowed us to preserve our focus on execution, efficiency and the delivery of resilient results. From a strategic standpoint, our main investment projects continue under execution, aligned with best sustainability practices and aimed at increasing efficiency, production flexibility and value added to the portfolio. In Cubatão, we have advanced to the final phase of the technology modernization project. The implementation of the unique membrane technology will enable a reduction of approximately 18% in energy consumption in addition to reducing waste and emissions, an important step in our decarbonization and competitiveness journey. In Santo André, we are progressing with projects, among which I highlight the 15% expansion of chlorine and caustic soda production capacity that will give us greater flexibility in the production of chlor-alkali derivatives and PVC in addition to increasing the availability of caustic soda for the market. The start of operations is scheduled for the second half of '26. We also have the expansion of PVC emulsion capacity, a higher value-added product with completion expected by the end of this year. With this expansion, we'll increase the current PVC emulsion production capacity by approximately 25%. These projects are aligned with our long-term agenda, which combines competitiveness, sustainability and value generation. On the regulatory front, we had a relevant development last week. The updated [indiscernible] was set for analysis in the Federal Senate. This is an essential instrument to reestablish fair competition conditions, especially in the face of increased imports with dumping practices. It's essential that the Brazilian industry in partnership with the authorities continues to strengthen trade defense mechanisms and advance public policies that promote competitiveness. We continue with an engaged team, robust assets and financial health, which allows us to maintain resilience in the face of the downturn cycle and conjunctural challenges. Our strategy remains consistent, focused on increasing future competitiveness and sustainable value generation. Thank you very much. I will now turn the floor over to Raquel who will moderate the Q&A session.

[Operator Instructions] Our first question is by Regis Cardoso with XP.

Cannaval, can you comment a bit on the company's plans to announce dividends before the end of the year due to the changes that are expected in taxation practices. Would that make sense for you or not? That's my first question. My second question, you described your projects briefly, but can you give us a timeline of the CapEx phasing? Let me explain why I'm asking. We saw a debt increase this quarter, which is motivated to the payout of dividends and also higher CapEx now that you're investing more to modernize the Cubatão plant and also in the new electrolysis equipment. So what can we expect in terms of this cash generation curve?

Thank you so much for your questions. Let me get started talking about the dividends that you asked about. On our side, throughout the whole market, I believe, we are keeping a close eye on the approvals of the government reforms. As I always say, the company is very much concerned with any types of moves related to dividends in order to maintain our financial health and our leverage under control. So for now, there is nothing concrete that I can share with you, but we're always keeping a close eye on the reform approvals. As a reminder, this year, we have already approved BRL 650 million in dividends, of which BRL 400 million were in August and BRL 250 million back in April. And for the dividends in August, this was mostly as an advanced payment for the 2025 results. Now about CapEx and projects. Indeed, the movement we saw this quarter was already anticipated by the team earlier this year. So we are now just completing the largest CapEx cycle at Unipar. The largest project is the technological modernization of electrolysis in Cubatão, migrating the mercury and diaphragm technologies to the membrane technology. This is a large project that we're completing and 90% of the amount has already been disbursed. That's why we saw an increase in the CapEx numbers in Q3 and an increase in our gross debt and net debt as a consequence. So this quarter, we had CapEx and dividends as factors that negatively impacted our leverage, but this was fully expected. From now on, what we can expect is the continuation of strategic projects, some of which are already ongoing, and we mentioned the main ones during the presentation, expanding the capacity of our PVC emulsion plant is one of them and also investing in an electrolysis equipment in the Santo André plant, which will help us with the chlor-alkali production. In case the chlor-alkali market is more attractive than the PVC market and vice versa. So our cash generation resilience in the Santo André plant will become stronger as a result. But what you will see next year based on the projects that are ongoing is a much lower CapEx level than the levels we had this year. So this lower CapEx level can be less than half. Just so I understand the magnitude we're talking about. We don't give guidance about this Regis, but it's a significantly lower level.

[Operator Instructions]. Regis Cardoso from XP. Do you have another question?

Yes, if you allow me to ask another question about the effect of pricing after the antidumping implementation.

Thank you for your question. Regis, about the antidumping pricing, we've been implementing the new pricing because of the antidumping measures. But right now, we should be looking at the Brazilian demand, which is heated because of the interest rates, lower utilization of PVC and high inventory levels in the market. So the full implementation of this antidumping approach will be postponed in time considering the current demand levels we are seeing right now. Thank you for your question.

We have a question by Ricardo [indiscernible].

What does Unipar expect in a 2- to 3-year horizon?

Well, Unipar has been doing its homework and working on its competitiveness agenda. So in 2 to 3 years, I see Unipar harvesting the fruits of this project. We will see the results of the CapEx investments in the next 2 to 3 years. And we still see an accelerated agenda and Unipar is the main supplier for the market. So in a 2- to 3-year horizon, I see Unipar as a competitive company growing organically in the sanitation market. Thank you very much for your question, Ricardo.