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

Good afternoon, and welcome to the Second Quarter 2026 Earnings Conference Call of Unipar. Joining us today, we have Rodrigo Cannaval, CEO; Alexandre Jerussalmy, CFO and Investor Relations Officer and the IR team. Please note that this event is being recorded and translated simultaneously. The translation is available by clicking on the interpretation button. [Operator Instructions] The presentation is available for download on the platform and on the company's website at re.unipar.com. After the presentation, we will begin the question-and-answer session when additional instructions will be provided. Before proceeding, we would like to clarify that any forward-looking statements made during this conference call regarding Unipar's business prospects, financial and operational projections and goals constitute beliefs and assumptions of the company's management as well as information currently available to Unipar. Forward-looking statements are no guarantee of performance, and they involve risks, uncertainties and assumptions since they refer 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 operating factors may affect Unipar's future results and could cause actual results to differ materially from those expressed in such forward-looking statements. I would now like to turn the floor over to Alexandre Jerussalmy who will begin the presentation. You may proceed Jerussalmy.

Thank you, Raquel. Hello, everyone, and welcome to our earnings call for the second quarter of 2026. Please note that the figures presented here have been adjusted to exclude the effect of IAS 29, the accounting standard applicable to hyperinflationary economies as is still the case in Argentina. Before outlining the highlights for the quarter, it's worth reminding everyone of our business priorities, which are safety in our operations is an absolutely core value, operational excellence as one of the main drivers of our business competitiveness, three, focus on the customer and differentiated service, which has been a critical factor in the face of competition from imported caustic soda and PVC. Four, focus on generating operating cash flow and maintaining financial discipline. With these priorities in mind, let's look at the highlights and the results of the Q2 2026. Let's start with operational excellence, agile, proactive commercial strategy pillar. In the quarter, we achieved a capacity utilization rate in Brazil of 84%, made possible by the successful ramp-up with the technological modernization in Cubatão. We also saw a 19% increase in sales of chlorinated products and a 7% increase in caustic soda compared to the previous quarter, even reaching some monthly records over the quarter. We reduced our PVC sales volume by 11% in the quarter, maintaining our selectivity towards sales here in Brazil and having observed another quarter of high pressure from imported PVC. Regarding the external scenario, geopolitical tensions created a new global dynamic in international prices. And in this context, international prices of PVC and caustic soda rose 53% and 26%, respectively, compared to the first quarter of 2026, offsetting the significant increase in the cost of ethylene and natural gas as we have seen over the quarter. Regarding exchange rate, the 4% appreciation of the real against the U.S. dollar ended up negatively impacting our results. In the area of strategic CapEx and increased competitiveness, or Cubatão plant equipped with the new technology, reached full capacity in April. So the project is completed and delivered. And we have also completed our chlorine liquefaction and purification project. In Camaçari, which began operations this July. So you will not see yet the results of the completion of this project in the second quarter of 2026. But the good news is that the project was completed in July. And the impact of all those factors on our economic and financial performance was very positive. Our adjusted recurring EBITDA reached BRL 402 million a growth of 177% compared to the first quarter of 2026. Our net income reached BRL 123 million, and our operating cash flow reached BRL 347 million versus BRL 316 million in the first quarter of 2026. As a result, our cash position increased to BRL 1.4 billion, providing 34 months of coverage for our debt amortizations. Our leverage ratio has fallen to 2.5x. While our average debt maturity stood at 6 to 7 months, with 90% of our debt maturing only from 2029 onwards. At an average cost of CDI plus 0.40% per annum, which we consider to be very competitive. Therefore, our resilient operational cash generation and the normalization of strategic CapEx enabled a reduction in leverage despite a greater need for working capital, resulting from increased prices of finished products and also of the increased price of input. Now moving on to Slide 5. We see an improvement in our electrolysis utilization rate, which in the consolidated figures for Brazil and Argentina has returned to the 80% level. The improvement in Brazil is directly related to the successful ramp up implementation of the new technology in Cubatão. And in Argentina, we maintained a stable performance. It's important to note that production and sales are managed on an integrated basis across our plants in Brazil and Argentina, and this enables us to better manage costs and inventory levels across the units we have in those countries. Our self-produced energy reached 56% of all the energy consumed in Brazil, reflecting a high level of curtain -- curtailment and a certain level of an availability of wind, which together accounted for 33%. It's worth noting that we already have the installed capacity of self-generation in Brazil to meet 80% of all the energy consumed in the country. On Slide -- the next slide, we see the positive evolution of our net revenue with an increase of 22% this quarter versus the previous quarter due to the following; caustic soda and chlorinated product sales volumes increased by 7% and 19%, respectively, with some monthly sales records also being achieved. In terms of PVC sales volume, we experienced 11% reduction as previously mentioned, due to our greater selectivity in our commercial strategy within Brazil and in the face of pressure from imported PVC. International prices for caustic soda and PVC also contributed positively to our net revenue. somewhat offsetting the adverse effect of the real appreciation. Compared to the same quarter of last year, net revenue of the second quarter increased by 14% and driven by higher sales volume across all our product segments with the increases of 9% in caustic soda, 6% in PVC and 4% in chlorinated compounds. In addition to the higher international price of PVC in the second quarter when compared to the same period last year, which also offset the adverse effect of real appreciation. It's important to remember that we have been focusing on continuously increasing our competitiveness in the production and marketing of chlorinated products. which is a segment not exposed to petrochemical cycles. And at Unipar has a unique scale and geographical footprint. As I usually say, we are a chemical company that produces PVC, not a petrochemical company that produces chlorinated compounds, and this is an important point to bear in mind. On the next slide, we show the evolution of our cost of goods sold with the COGS for the second quarter of 2026, 4% higher than the previous quarter. driven by higher sales volume of caustic soda and chlorinated products, partially offset by lower PVC sales volume. The higher international prices of ethylene which fluctuated and reached even 34% in the quarter and also of increased price of natural gas that moved in line with Brent crude prices throughout the quarter. This was partially offset by a favorable real versus euro exchange rate effect that and by the improved technical coefficiency in Cubatão, resulting from the implementation of the new technology. Compared to the second quarter of last year, the increase was 8% more driven by higher sales in all business segments, as previously mentioned, and by increases in international prices of ethylene and natural gas, which were partially offset by the appreciation of real against the euro and by better technical efficiency in Cubatão as observed in this quarter. Moving to Slide 8. We have the quarterly comparisons between recurring EBITDA. In a comparison of the second quarter of 2026 against the first quarter of 2026, the immediate prior quarter. The growth was 177% driven by higher sales of chlorinated products and caustic soda and higher international prices for PVC and caustic soda which more than offset the increases input prices and the drop in PVC sales. Compared to the same quarter last year, growth was 31% and reflecting the higher international PVC prices, which offset the higher cost of input and the adverse effect of the real appreciation against the U.S. dollar, the higher sales volumes in all business segments and also the recurring reductions in fixed costs. And this point is particularly relevant because it reflects a series of initiatives implemented by Unipar, including automation, organizational redesign and process improvements. So these are gains that are likely to be seen in the future. On the next slide, we show the evolution of our net debt balance. So we experienced a reduction of BRL 78 million from the end of March to the end of June resulting from the solid operational cash generation and also of the more normalized level of our strategic CapEx. We also had the average cost of our debt that, as I mentioned previously, we consider to be very competitive. And the reduction in income tax and social contribution payments from the moment we began the accelerated tax depreciation on the strategic CapEx that we have deployed. The main of which was Cubatão project. And on Slide 10, we see our debt profile, which shows the terms and costs that reflect our financial discipline. Our cash position ended the quarter at BRL 1.375 billion, sufficient to cover 34 months of debt amortization. Our average maturity reached 6 to 7 months with that at an average cost of CDI plus 0.40% per annum. And our leverage ended the quarter at 2.5x, a reduction compared to the previous quarter. In terms of composition, our debt is predominantly comprised of debentures and development bank financing, reflecting our strong access to capital markets. And the long-term funding sources that support the strategic CapEx projects already implemented. We only have a 5% share with commercial banks. But we have nevertheless maintained active and available lines of credit with them. We maintained a strong cash position as a liquidity buffer to cover potential financial needs. Thank you all. I'll hand over to Cannaval, who will comment on our strategic projects. And then I'll return to the Q&A session. Thank you.

Good afternoon. Thank you, Alexandre for presenting the results. And I appreciate the presence of everyone who is joining us in this conference. Before we open for the questions, I'd like to highlight some points that reinforce the evolution of our strategy this quarter. One of the main highlights was the consolidation of the technological modernization of the Cubatão plant. We have completed all the start-up steps and have been operating at full capacity since April. With the completion of the project, we expanded our operational reliability reduced input consumption and also we reduced the emission intensity further strengthening the competitiveness of our operations. We also made progress in Camaçari, where we completed the second phase of our factory with a project focused on chlorine liquefaction and purification. This initiative expands our commercial flexibility by offering a higher value-added product, specifically for the agribusiness sector. This strengthens our performance in a strategic market. At the same time, we continue to evolve in the structural projects of Santander with expansion of chlorine production capacity and the increased in the PVC motion capacity. We are on schedule to close out 2026 with a product offering higher added value and operational flexibility. In Argentina, we continue to manage our assets with a focus on consolidated performance, prioritizing operational stability and integrated industrial and commercial alignment with our Brazilian plants. In conclusion, I reiterated that our priority remains strengthening the company's competitiveness through operational excellence and continuous improvement of technical metrics, always prioritizing operational safety and placing customer care at the heart of our decisions. We have maintained the discipline of preserving our financial health supported by resilient operating cash flow generation and active management of liquidity and debt profile. This discipline has allowed us to navigate different market cycles and continue investing in strategic and structuring projects while maintaining our long-term vision. This quarter's results demonstrate the successful execution of our strategy. Thank you very much. I will now hand the floor over to Raquel, who will conduct our question-and-answer session. Over to you, Raquel.

Good afternoon, Unipar's team. I would like to have an update of the dynamics of the sector. If you could share how the prices evolve, how the spreads evolved along the quarter, up to the moment? And what is the current scenario. In addition to that, I would like to understand how you see the demand. Has anything changed since the beginning of the conflict. And if so, has it already normalized? Or did it move to a different level?

Good afternoon. This is Jerussalmy just a second because I can hear some echo. [Technical Difficulty] So sorry for the technical problem. So good afternoon, everyone, again. So we are going to talk about the dynamics of the sector. This is Jerussalmy speaking. As we saw in this quarter, we saw some level of instability, fluctuations of prices at the global level for PVC and caustic soda. So the international reference of those 2 products at the global level increased quite a bit, especially in the mid of second quarter, we saw a peak in prices, both of caustic soda and PVC. And at the end of the quarter, we saw a level of normalization. But at a higher level, that was the international average price this year. So from the viewpoint of prices, what we have seen so far is the maintenance of this price. And this is public information. So the prices are higher than what we saw in the first quarter of last year. And in terms of demand from the viewpoint of caustic soda in Brazil, the demand continues to be normalized. And at sometimes, it's even heated. And this is due to the expansion that we have in application of caustic soda that includes pulp and paper, hygiene and cleaning cleanliness, water and there are different applications which are very resent to the economic movement that we see in Brazil. So the demand has been quite resilient. And in the case of PVC, what we have seen is that the demand oftentimes varies from 1 month to the other. But generally speaking, it's a demand that has been kept in line with what our team has been projected in terms of market dynamics. And in the viewpoint of the local interest rates and considering the income tax of other places, it makes the global demand of PVC is not favored from the viewpoint of interest rate. So what we have seen is that the demand in Brazil is quite resilient for PVC. And for chlorine derived products, we have pricing dynamics, which is totally different, which is much more local, much more focused on the local demand it has pricing logic, which is local and has nothing to do with the petrochemical cycle. And this is what we have been saying we have been focusing on increasing the flexibility of the company so that we can have a chlorine allocation that can be very flexible and ever more flexible between the in comparison to PVC and chlorine products, we see that the company can become more resilient with the up and down of the petrochemical sector. And what we have seen along the time is that the PVC demand of chlorine products and the pricing of local definitions has been very important for the profitability of the company. And the company's margin has been -- I'm talking about the recurring EBITDA margin has been consistently differentiated in relation to global pairs -- global peers. So this is a result of the mix that we have between caustic soda, PVC Brazil, Argentina and especially the chlorine-derived the product. So we follow this line of making the company ever more flexible and resilient so that we can have this integrated management between Brazil and Argentina, favoring our profitability, and we are always in search of healthy margins as we have seen so far and how we have been trying to use and apply.

Our next question comes from Nicole Alonso with Santander.