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

Good afternoon, and welcome to Unipar's Third Quarter 2024 Results Conference Call. We have Rodrigo Cannaval, our CEO; Alexandre Jerussalmy, our CFO and Investor Relations Director; and the IR team. This event is being recorded. [Operator Instructions] which can also be accessed via the MZiQ platform and the company's website, ri.unipar.com. The selection of slides will be controlled by you. The audio of this event will be available on the company's website after it has ended. [Operator Instructions]. Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding to Unipar's business prospects, prospections, operating and financial targets constitute beliefs and assumptions of the company's management as well as information currently available to Unipar. Forward-looking statements are not guarantees of performance, and they 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 and other operating factors and issues may affect Unipar's future results and may lead to results that differ materially from those expressed in such forward-looking statements. Now I would like to hand the floor over to Mr. Alexandre Jerussalmy, who will begin the presentation. Jerussalmy, the floor is yours.

Hello, everyone. I'm glad to be here with you to once again discuss the quarter results of Unipar. Let me remind you that this presentation is already available in our RI website. So let's start with the global scenario in Brazil and Argentina. Well, in the world, what we see is a redirection of trade flows in the face of geopolitical tensions in Ukraine and the Middle East. We are still experiencing the effects of a very challenging global downturn, although we have the impression that the worst is over. And we are seeing countries and regions implementing more and more protectionist policies such as the U.S., Europe and more recently, India. In Brazil, local demand has proved to be very resilient, especially for chlorinated products, reflecting the country's growing economic activity. On the other hand, the volume of PVC imports has reached historically high levels according to ABIQUIM, the Brazilian Chemical Industry Association, with imports coming mainly from the U.S.A. and Colombia. Well, on September 19, 2024, the government approved a temporary change in the import tax rate for various chemical products, petrochemical products, too, including PVC suspension resin that Unipar produces. The rate went from 12.6% to 20% on October 15, and the increase is effective for 1 year. Now looking at Argentina, what we see is a continuous effort by the Milei government to control inflation and improve the country's fiscal equation. The reduction in imports rates from 17.5% to 7.5% since September is an example of this effort made by the government of Argentina. Local demand, on the other hand, is already showing a slow and gradual recovery with a positive impact on our local sales volumes. Here on the slide, you can see the international price evolution curve shown here on 100 basis from January 2018 for both PVC and soda, indicating some degree of recovery in the third quarter of '24 compared to previous quarters, but still reflects a challenging down cycle scenario. Now moving on to our next slide. Let's talk about Unipar's financial highlights for the third quarter. We once again showed resilience in the face of the challenges of the cycle, and our EBITDA reached BRL 233 million, 60% higher than the previous quarter. We achieved a net profit of BRL 119 million and had an operating cash generation of BRL 294 million, in the quarter, 87% higher than the previous quarter. This result means a robust operational and sales performance, a competitive cost matrix with an increasing share of self-produced energy and also the positive effect of the 6% currency devaluation in Brazil in this quarter. In terms of liquidity and debt management, the company remains focused on financial robustness, having closed the quarter with BRL 2.3 billion in cash, an average debt term of 4.4 years and a leverage of 0.77 fold, which gives the company peace of mind to face the challenges of the cycle. Yesterday, the Boards of Directors had a meeting in which we approved a new dividend distribution of BRL 300 million as well as the approval of fifth share buyback program. In terms of operational highlights, we had another quarter with a capacity utilization rate above the industry average according to data from ABIQUIM, the Brazilian Chemical Industry Association, reaching 80% of utilization on average between Brazil and Argentina. The share of self-produced solar and wind energy has been increasing in relation to our total energy consumption in Brazil, reaching an all-time high of 65% in September versus 51% in June. And we had 2 very interesting highlights from an ESG point of view. The first being an upgrade from BB to BBB in our MSCI ESG rating. And the other is a recognition by Suzano who was the best supplier in the ESG management category. So we remain here at Unipar steadfast in our corporate ESG agenda. The next screen shows the evolution of our net revenue, which grew by 17% in the third quarter of '24 compared to the second quarter. This result reflects a 3% increase in sales volume, the positive effect of the currency devaluation in Brazil in the quarter and also the strength of our sales profile distributed to more than 30 industries, several of which have significant expansion projects such as the segments of sanitation and pulp and paper. From the point of view of costs of goods sold, we had an increase of 15% in the quarter that is less than the 17% increase in net revenue. This is despite the negative effects of the currency devaluation in Brazil and the negative impact on cost of goods sold and also the inflation in dollar that still exists in Argentina. This result was possible due to our competitive cost matrix with, for example, the increasing level of self-produced clean energy. And we also have the results of a series of corporate initiatives being rolled out here at Unipar in the sense of reducing overhead costs such as some contract renegotiation by mutual agreements, some revisions of processes to make them simpler and also automation initiatives that are ongoing here in the company. Well, here in the next slide, you can better understand where the 60% growth in EBITDA came from. So we had a positive effect of BRL 10 million due to increased sales and a variation of BRL 77 million coming from the combination of the slight recovery in spreads, the currency devaluation of 6% in Brazil and also greater competitiveness in our operating costs. So our EBITDA margin ended the quarter at 17% higher than the margin in the second quarter, which was 13%. Our net profit reached BRL 119 million in the quarter, which accounts for an increase of 34% over the previous quarter. And that's now 18 consecutive quarters of profit here at Unipar, which really shows the resilience of our business model. With this, the Board felt confident enough to anticipate the distribution of dividends in the amount of BRL 300 million to our shareholders to be paid out as early as November '24. From the point of view of net debt, our balance was low in September compared to June, closing September at BRL 459 million despite the significant level of CapEx we had in the third quarter. This reduction in net debt was possible due to operational cash generation of BRL 294 million we had in the period. Regarding our debt profile, we have a cash position that can cover 54 months of repayments and amortization and 55% of our debt only matures from 2029 onwards. So this debt profile improved after the debenture issue we made in September. So BRL 750 million divided into 3 series, the longest with a 10-year term, which was unparalleled for Unipar. The demand exceeded twofold the amount issued. We had a significant rate compression. With this issue, we already prepaid BRL 385 million in debt with a shorter term and our liability management is ongoing, always trying to expand the average maturity date with an ever competitive or more competitive cost of our debt. We ended the quarter with an average maturity of 4.4 years and leverage of 0.75x -- 0.77x. In terms of debt profile, almost 80% of our debt is raised on capital markets, leaving credit limits available with banks and allowing us to manage our debt smoothly. So our goal is to make Unipar's debt profile increasingly comfortable in order to support Unipar's in its strategic moves and at the same time, allows shareholders' returns expectations to be met. Now I hand over to Cannaval, who will talk about our strategic projects and priorities. Thank you all. Cannaval, it's up to you now.

Good afternoon to all. Thank you, Jerussalmy, for detailing our results. To complement and complete our presentation, I would like to point out that even in this downturn in the chemical industry, we have maintained our vision and strategy of sustainable growth. Times like these require resilience and efficiency, but above all, they require investment in structuring projects that pave the way into our future and long-term growth. I'd like to point out that we are carrying out our important growth and technological modernization projects with discipline and on schedule. Among the main projects is our new unit at the Camaçari Petrochemical Complex in the state of Bahia. We have already started commissioning the plant, and we will end this process this year with the start-up completed. In the city of Cubatão, the technological modernization of the plant is also going according to plan. We will complete it in 2025. This project will bring significant gains in operational efficiency and reduced emissions, boosting our competitiveness and sustainability. We also have a new expansion project in Santo André at the PVC plant, where it is important to note that for this investment, we have been included in the hike, the special regime for the chemical industry. So this special tax system provides the exemption, the wavering of PIS/COFINS taxes on the purchase of the main products used in the first and second-generation petrochemical industry. Concluding this presentation, I would like to emphasize that we remain firm and steadfast in our 2024 priorities, among them, operational safety and efficiency, strengthening our competitiveness. Another important and top priority we are pursuing is financial health and liquidity management, guaranteeing the company's financial security and stability in any economic scenario. And finally, we continue to evaluate growth opportunities in a highly selective manner, always in line with our long-term strategy and trying to find balance. In-house, we see continuous improvements by reviewing processes and cost structures as well as adapting structures to be ready for sustainable growth. Now I would like to hand over to Raquel, who will lead our Q&A session.

Thank you, Cannaval. We will now begin the Q&A session. Questions will be answered as they are received. Please wait. We have 3 questions by Rodrigo Almeida from Santander. Well, on projects of self-produced energy, you achieved 61% in September. But I'd like to understand how much of cost you captured of the total expected. And in this quarter, we can wait for the total result.

Thank you, Rodrigo. Well, Rodrigo, regarding self-energy generation, we reached 61% in September, which is a pretty higher level than the level we had in June and also higher than the this rate we achieved last year. So we are growing in self-energy production versus the energy consumed in Brazil. So the idea is to reach 80% of all Brazil's consumption being in the form of self-generation. So this rate of 80% is expected to be reached by the end of the third quarter next year, probably after the completion of the phaseout project we have in the city of Cubatão, where we have the reduction of energy consumption in our electrolysis process in Cubatão plant. So in terms of capture, if you consider this number, this figure by the end of September, and let me remind you that this is not the average quarter number. This is the number of the end of September. But if you were to consider 61% vis-a-vis the 80% we expect to achieve in ramp-up initiatives for the total consumption in Brazil, we have something in the order of 75% achieved of this estimate in September. So we are super focused on this initiative to make full use of our assets in partnership with Aria now after the incorporation of AIS and ENGIE in Minas Gerais, so we can capture the total benefits relating to this energy self production we have in Brazil.

Thank you. Now let me complement the second question made by Rodrigo of Santander with Elena's question by XP. Both want to know about business environment for PVC after the implementation of the import tax rate and how are prices for soda and what are the trends for the next few months? Alexandre?

Well, Alexandre. Thank you very much. We have always used for PVC international prices fixed in Brazil as a reference, as a benchmark. So recently, we have seen this change in import rates, but this is just one of the factors that compose our -- the creation of our prices, such as the international price that make up our pricing and commercial policy in the market. So this is so recent. We cannot trace trends yet. In the case of soda, we have seen a valuation of international prices in the past few weeks. But in the case of soda, unlike PVC, this soda has pretty more volatile prices, this commodity. So every day, week by week, we check the international market moves, and we've been applying in the internal market, what we see in our recurrent commercial policy.

Thank you, Alexandre. Just a second as we check the other questions. We have another question Elena Kamdem from XP. The entrance of Camaçari plant is near it has something to add to contribute for the results of the fourth quarter. Is that right? I would like to understand more about the ramp-up process of this unit in Camaçari.

Thank you, Elena, for your question. Yes, the unit is within the flow chart in terms of start-up, it's on schedule. This is the first Unipar's greenfield plant, where we like to call it a mini plant under a new logic of business that Unipar has been rolling out successfully. We will probably have the start-up by the end of this year. And then full capacity is to be reached in the first quarter of the next year. This is a small plant, 20 tons of chlorine capacity, 22 tons of soda in terms of capacity. So this is a technology we already know, thyssenkrupp electrolyzers technology. The technology used is membrane, the same we use in Cubatão in Santo André. So we know the technology pretty well. Everything is done. So the ramp-up is smooth and successful.

A question by Ed Sensato, which will be the impact of the merging of ALSA and AES?

Thank you for your question. We had a very good fruitful partnership with AES. Now changing to A from the operational and strategic standpoint, nothing changes, including in terms of positioning the assets. On the contrary, what we have here is the possibility of building a partnership just like we had with AES now with Aria. And we have already started this partnership. We got closer to the teams, transition has been very smooth, very structured.

We have a question by Pedro Masetto from [ Itau ] Asset. Can we consider that by the end of the year, the company should meet its peaking leverage? And from the first quarter of '25, it should walk back close to its net cash also with the recovery -- operational recovery of results in 2025.

Thank you, Pedro, for your question. Well, Unipar doesn't provide any guidance regarding level of debt, cash position and leverage. But your question is a good question because it allows me to talk about our policy in terms of liquidity management and the management of our debt profile. So as you could see from the second to the third quarters, we achieved an improvement in our debt profile. Our average maturity lift from 3.4% and went to 4.4% now. We hope that we will keep on implementing and rolling out initiatives allowing for this period to grow even more with competitive financing credit lines. And with this, we feel at ease here at Unipar in terms of debt profile regarding the cash -- net cash flow. For those who follow Unipar, you know that we are pretty conservative in terms of our cash position. We try to have a comfortable liquidity profile and positioning because we know that our industry is a cyclical industry, and we cannot manage and dominate all the variables. On the contrary, the company must be ready to face the ups and downs of each cycle of each period. This is why we maintain a liquidity structure that is relatively robust. And also, this is why we work hard to make our debt profile more and more competitive and comfortable as the time goes by. Thank you.

Thank you. Just a moment while we check other questions. We have a question by Osvaldo Mattias. Can you tell us which are the perspectives for the operation in Argentina?

Thank you very much for your question, Osvaldo. Well, Argentina, as you all know, is going through a period of a lot of macroeconomic changes and many efforts by the government focused primarily on controlling inflation, holding inflation down in the fiscal positioning of the country. In the first semester, the government implemented some dramatic change in canceling projects and public initiatives and projects in the flow of operations in imports and exports, some measures and policies aiming at managing the official currency in the country. And at Unipar, we pay attention to all of these movements and changes in the cancellation of pause in public job sites and public projects and even recession and drop in the country's economic activity affects the market Unipar works with. But on the other hand, Unipar has managed to deal well with the inventory to place our product in the market, both the national domestic markets and also in terms of imports. So considering the challenging period faced by Argentina in the macroeconomic scenario, considering all of this, we are confident that the country is changing for a better position.

We have another question by Emerson Abraham. I would like to know a little bit more about long-term sustainable growth plan. Does Unipar intend to expand further in Brazil and abroad? Is there a possibility of going to countries outside Latin America?

Thank you, Emerson, for your question. Well, let me tell you that publicly, Unipar has positioned, has mentioned the intention of expanding operations, especially looking for international opportunities. What we have done since then is to work very selectively and work very carefully to check possibilities for expansion. We have analyzed some opportunities. On the other hand, what we do want always is that this trajectory, this plan is done in the right moment in a safe manner, not to jeopardize our financial robustness. As Cannaval mentioned in the results presentation, as he said, this is one of our top priorities here at the company. So given all that, we do have checked some opportunities to grow, to expand. But for the moment, there's nothing in sight that should be shared.

We have another question by Eduardo Muniz from Santander. Which are the other initiatives that are ongoing or intended regarding liability management.

Thank you, Eduardo, for your question. Well, we have an ongoing process to change the debt profile to replace one debt with a shorter maturity date with a higher cost with a debt, with a longer maturity date, with a more competitive features or characteristics. So considering that, even today, we released an announcement of redeeming 2 debentures, which are still in the market with shorter installments than the installments that were originally issued because part of these debentures were already redeemed, Unip B15 and Unip B16. This is an example of liability management, we intend to keep on doing. So replacing debt that mature in a shorter period and replacing them with financing structures which have a longer period to pay and competitive costs. Possibly in the next few months, we will have other initiatives of the same order to change our debt profile. Thank you.

So this brings us to the Q&A session to a close. I would like to give the floor to as usual Alexandre Jerussalmy for their final remarks.

Well, I would like to thank you all who participated in this conference call to announce the results for the third quarter. As you could see, we improved our results comparing the results we achieved in the second quarter. We also showed a high level of resilience at Unipar, considering the downturn cycle in the petrochemical industry that continues. So historic curves for the prices of soda and PVC, we still have prices in a compressed way as we analyze the history. This is a reflection of the down cycle period. So we have taken this opportunity to get ready. So when the cycle comes to an end -- when this down cycle comes to an end, rest assured that the company will be much more prepared and ready to take on the opportunities. And one example is the increased level of operations, our self-made energy, self-produced energy and also the plants in Camaçari. As I said before, Camaçari plant will be started up by the end of this year and the technological modernization in the plant in Cubatão, which is a very ambitious large project that is in line with the schedule, is at current schedule with a modern technology in our Cubatão plant, important in electrolysis. With this new technology, we consume less energy, less solid waste in the environment, less steam consumption and less emissions of greenhouse gas into the environment that keep up -- are in line with our ESG company to become a much cleaner company, both in Brazil and Argentina. So the scenario is still challenging, but the company is still -- has still managed to realize its strategic CapEx and also presented financial robustness. You could see our debt profile. You could see our position in terms of liquidity, and we move on, we will move on in a steadfast manner to face all the challenges ahead in the next few months in which we still have the effects of this downturn cycle. In spite of apparently, as I said in the presentation, we hope that the worst is over because the third quarter was better than the second quarter. Once again, I would like to thank you all. Let me invite you all beforehand to our next meeting, our next conference call and results conference call, which is to be held on March based on the release for the fourth quarter and the year of 2024. I hope to see you all there next March. Thank you very much, and enjoy your holiday tomorrow. Thank you.