Braskem S.A. (BAK) Q4 2024 Earnings Conference Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reflects several challenges, including operational disruptions, regulatory hurdles, and financial risks, overshadowing the positive aspects like increased EBITDA in Mexico and shareholder returns. The Q&A section revealed concerns about market competition and unclear management responses, particularly regarding strategic partnerships and financial guidance. Despite some positive financial metrics, the high leverage ratio and environmental liabilities, combined with weak guidance and operational challenges, contribute to a negative outlook, especially for a mid-cap company like Braskem.

Key Financial Performance

Consolidated Recurring EBITDA Q4 2024 US$102 million, year-over-year change not specified.

Consolidated Recurring EBITDA Full Year 2024 US$1.1 billion, 46% increase compared to 2023, driven by higher polyethylene sales in Mexico and main chemicals in Brazil.

Operating Cash Generation Q4 2024 US$204 million, year-over-year change not specified.

Operating Cash Generation Full Year 2024 Approximately US$788 million, year-over-year change not specified.

Recurring Cash Generation Q4 2024 US$45 million, year-over-year change not specified.

Recurring Cash Consumption Full Year 2024 R$499 million, impacted by increased interest payments related to debt securities and working capital variations.

Net Debt at Year End 2024 US$6.3 billion, with an average term of around 9 years, year-over-year change not specified.

Corporate Leverage at Year End 2024 7.42 times, a reduction of 0.7 times compared to the previous quarter.

Recurring EBITDA Brazil Segment Full Year 2024 US$889 million, 1% increase over the previous year, positively impacted by higher sales volume and spreads.

Recurring EBITDA United States and Europe Segment Full Year 2024 US$177 million, 34% decrease compared to 2023, due to lower production and demand.

Recurring EBITDA Mexico Segment Full Year 2024 US$280 million, 166% increase compared to 2023, driven by increased polyethylene sales and higher spreads.

Total Provisions for Alagoas Event at Year End 2024 R$17.7 billion, with R$12 billion already disbursed.

Cash Position at Year End 2024 US$2.4 billion, sufficient to cover debt maturities over the next 47 months.

CapEx Disbursed in 2024 40% lower than the average of the last five years, year-over-year change not specified.

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Operating Highlights

Green Polyethylene Sales: Annual sales of resins from renewable sources increased by 23%, reaching an all-time high in terms of volume sold, with 191,000 tons sold in the year.

Ethane Capacity Expansion: The Board of Directors approved the start of the project to increase the capacity of its petrochemical plant in Rio de Janeiro by 220,000 tons of ethane per year.

Sales Volume in Mexico: Polyethylene sales recorded an increase of 5% in the year, with the highest annual volume produced since 2017.

Sales Volume in Brazil: Sales volume of main chemicals in the Brazilian market increased, contributing to a recurring EBITDA of $889 million, a 1% increase over the previous year.

Operational Efficiency: CapEx disbursed during the year was 40% lower than the average of the last five years.

Accident Frequency Rate: The average global accident frequency rate was 0.91 events per million hours worked, a reduction of 16% compared to 2023.

Financial Resilience Actions: Achieved a positive impact of around $196 million in EBITDA and around $470 million in cash generation during the year.

Investment Strategy: Prioritized investments focusing on bio-based growth avenues, including the integration of a new renewables laboratory in the U.S.

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Risk or Challenges

Geopolitical Risks: The global geopolitical scenario, particularly conflicts in the Red Sea, has impacted sea freight costs, affecting the company's operational results.

Market Competition: The entry of new capacities in the market is expected to oversupply, leading to a prolonged downward cycle in international spreads.

Operational Challenges: Scheduled and unscheduled maintenance shutdowns at plants in the U.S. and Europe have affected production and sales volumes.

Regulatory Issues: The approval of increased import tax rates in Brazil may impact competitiveness in the industry.

Financial Risks: The company has a high leverage ratio of 7.42 times, which poses risks related to debt management and financial health.

Environmental Liabilities: Provisions for the Alagoas event have reached approximately R$17.7 billion, indicating significant financial obligations related to environmental management.

Supply Chain Issues: Operational instability and maintenance shutdowns have impacted feedstock availability, affecting production rates.

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Guidance & Outlook

CapEx Disbursement: CapEx disbursed during the year was 40% lower than the average of the last five years.

Green Ethylene Capacity: Braskem is advancing the project for new green ethylene capacity in Thailand.

Ethane Supply Contract: The company will sign a long-term ethane supply contract with Petrobras to support the increase of its petrochemical plant capacity.

Asset Transformation Initiatives: The company will focus on implementing asset transformation initiatives.

Green Business Growth: Braskem aims to accelerate the growth of its green business.

2025 Operating Scenario: All segments are expected to show higher utilization rates in Q1 2025.

2025 Revenue Expectations: The expectation of higher PE prices due to increased demand at the start of the year.

2025 EBITDA Impact: Financial resilience actions are expected to have a positive impact of around US$196 million in EBITDA.

Debt Management: Braskem's liquidity levels are sufficient to cover obligations for the next 47 months.

2025 Strategic Focus: Priorities for 2025 include financial preservation, cash generation, and fostering competitiveness in the Brazilian chemical industry.

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Shareholder Return Plan

Share Repurchase Program: The company partially repurchased its hybrid bond, maturing in 2081, using $369 million of the funds obtained from the mentioned issue.

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Key Q&A

Q:How do you see the competitive scenario with respect to imports after implementing higher import taxes? Have you been able to recover market share?

A:We saw an effect that can be a cause of the effects. Demand in the fourth quarter is important, and we have to protect and ensure balance with suppliers from different parts of the world.

Q:What do you expect the prices to be in the midterm vis-à-vis the SMEA? Can you talk about margins and utilization rates compared to Europe?

A:We are considering the global offer and rationalization, with a backlog of nearly 4 billion tons. We believe there will be a cycle with spreads improving margins.

Q:What gains do you see from the new ship added to your fleet? How many vessels do you intend to add?

A:The first vessel will bring value to the company, and we are considering adding more ships, with costs estimated between $50 million to $80 million.

Q:Is there any update regarding the due diligence processes linked to M&As or shareholder exchanges?

A:This topic is handled exclusively by the shareholders. We focus on Braskem and its challenges.

Q:What is included in your 2025 CapEx? Will maintenance CapEx be maintained?

A:We announced CapEx for 2025, with maintenance CapEx around $550 million, and we are optimizing it for cash generation.

Q:How do you see the switch to gas moving forward?

A:The switch to gas is part of our transformation strategy, aiming to increase competitiveness and reduce dependency on naphtha.

Q:What improvement do you expect in the Mexican numbers in 2025 with the terminal operating?

A:We expect a significant year for Ideza, with an increase in operation rate despite planned shutdowns.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer regarding the specifics of the due diligence processes related to M&As or shareholder exchanges, stating it is handled by shareholders. Additionally, there was a lack of clarity on the exact improvements expected in the Mexican numbers for 2025.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

BAK Transcript

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The earnings call summary reveals several concerns: high cash consumption, weak resin volumes, and challenges in Europe. The Q&A section adds more uncertainty, with management unable to confirm restructuring plans or contract signings, and projecting a subdued petrochemical cycle. While there are some positive long-term projects like Transform Rio and PRESIQ, immediate financial health appears strained, and market sentiment is likely negative. The company's market cap suggests moderate volatility, leading to a prediction of a negative stock price movement of -2% to -8% over the next two weeks.

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The earnings call reveals a strong financial performance with a 121% increase in EBITDA and a significant net profit, despite high leverage. The Q&A section highlights positive impacts from tariff reductions and strategic initiatives like the $600 million value creation plan. Although there are concerns about leverage and unclear management responses, the company's strong financial metrics, optimistic market strategy, and liquidity status suggest a positive stock price movement in the short term, especially given its market cap.

Braskem S.A. (BAK) Q4 2024 Earnings Conference Call Transcript

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Braskem S.A. (BAK) Q3 2024 Earnings Call Transcript

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The earnings call showed strong financial performance with a significant increase in EBITDA and cash position, but lacked clarity on future guidance, especially in the Q&A section. The absence of a share buyback or dividend program and the substantial provisions for the Alagoas event are concerns. The market cap suggests moderate reaction, leading to a neutral prediction for the stock price movement.

BAK Report

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