Braskem SA

BOVESPA:BRKM5

Earnings Call Transcript 2021-Q3

[Operator]

Good morning. Thank you for waiting. We bid you welcome to Braskem's teleconference to discuss the results concerning the third quarter of 2021. We have here with us Mr. Roberto Simoes, CEO; Pedro Freitas, CFO; and Rosana Avolio, IR Director.

We inform that this meeting is being recorded. [Operator Instructions]

This meeting is being transmitted simultaneously via webcast, and you can access it at https://www.braskem.com./ir (sic) [ https://www.braskem.com.br/ir ], where the presentation will be available. The slide selection will be controlled by yourselves. The audio will be available at the end of the meeting. And the questions will be answered at the end of the conference.

Before proceeding, I would like to clarify that any declarations that may be done during this teleconference relative to business perspective from the company, projections, operational goals, financial goals are beliefs and premises of the company and based on current available informations. Future considerations are not guarantee of performance, and they include risks, uncertainties and premises. And they depend on circumstances that may or not occur. Investors and analysts should understand that general conditions and other operational factors may affect the future results of the company that may lead to results that are different from those expressed in such future considerations.

I would now like to give the floor to Mrs. Rosana Avolio, Director of Investments, that will begin the presentation. Please go on.

[Rosana Avolio, executive]

Good morning and thank you for participation on this conference call. We will present our results for the third quarter of 2021. Let's go to Slide 3 with an overview of the petrochemical industry in the quarter.

In this slide, we show the spread with the biggest impacts on Braskem's business since together, they represent 2/3 of our global production capacity in thermoplastic resins. In the third quarter, petrochemicals spreads remained at high levels and above the up cycle of the petrochemical industry. Compared to the 3Q '20, the spreads widening -- widened significantly with the 3 spreads shown on the slide increasing 120% mainly due to global supply chain constraints related to impacts from natural events, closing of ports to contain the Delta variant in Asia and global container shortage and associated rise in freight prices.

Now on Slide #4, we will comment the consolidated results.

In the third quarter 2021, consolidated recurring operating result was around $1.5 billion, 17% lower quarter-over-quarter. This result is mainly explained by the lower international spreads for resins in Brazil, PP in Europe and 4 PE in Mexico, but which still remain above the average of the last 10 years, which were partially offset by higher spreads for main base chemicals in Brazil for PP in United States.

And comparing the results with the same period last year, the company presented 261% increase considering the operational result in dollars. The higher profitability in 2021 can be shown in recurring operating margin, which reached 31%. And in the first 9 months of 2021, an increase of 15 percentage points as compared to the same period of 2020.

Now the next slide, we will comment the net income.

In the third quarter 2021, Braskem reported net income of around BRL 3.5 billion. In the -- by September 2021, Braskem reported net income of around BRL 13.5 billion. And it's important to emphasize that in December 2020, the company had accumulated losses of around BRL 4.5 billion. By the end of September 2021, it reversed this accumulated loss and accumulated profit of around BRL 8.9 billion.

Now Slide #6, highlights of the Brazilian operation.

In the third quarter, the petrochemical complex in Brazil operated at a capacity utilization rate of 79%, 3 pp above the second Q '21, which is mainly explained by the restarting of the petrochemical complex in ABC after it had been halted. In the industrial context still, the green ethylene plant operated at utilization rate of 106% to set a new quarterly historical record.

In Brazilian market, resin sales increased in relation to the second quarter. And in line with the strategy to prioritize the local market, Braskem's market share in domestic resins rose to 64%, 12 pp higher quarter-over-quarter mainly due to the restarting of operations after the scheduled general maintenance shutdown at the petrochemical complex in ABC, São Paulo. In this scenario, Brazil delivered recurring operating result was of around $828 million, which represented 55% of the consolidated recurring operating result.

Now next slide, we'll cover geological event in Alagoas.

The graph to the left shows the balance of provisions related to the geological event in Alagoas in the third quarter of 2021, which ended the period at around BRL 7.1 billion. The chart on the right shows the disbursement schedule of the total provisions of BRL 7.1 billion. Around 68% was recorded under current liabilities and 32% under noncurrent liabilities. It is important to mention that the company cannot predict with certainty future developments in respect of this matter or its related expenses, and the costs to be incurred by the company may be different than currently estimated or provisioned.

Moving to the next slide. Still in the context of the geologic invent in Alagoas, we will focus on advances in the financial compensation and support for relocation program.

Braskem continues to make progress on its relocation and financial compensation process of the families in high-risk districts of Maceió. As of October 31, this year, the number of families reallocated (sic) [ relocated ] was 13,986, which means 97% of families have been relocated from the risk areas, reinforcing Braskem's nonnegotiable commitment to the safety of the families located in high-risk areas. Furthermore, the number of proposals for financial compensation submitted increased by 26%, with the acceptance rate of the proposals submitted remaining at high levels.

Regarding the payments made under the scope of the program, around BRL 1.6 billion had been made by the end of October 31, 2021. And this value is considered the value disbursed since the start with the program.

Now Slide #9. On this slide, we will present the main highlights of the U.S. and Europe operations. In the U.S., there was a reduction of 4 pp, resulting in 94% usage rate. In Europe, utilization rates also fell by 4 pps on the prior quarter. Despite the declines in both regions, capacity utilization rates remained above the industry average.

Moving on to sales performance, the U.S. registered 442,000 tons, what represents a drop of only 2% as compared to the previous quarter. The region registered recurring operating result in the 3Q '21 was $519 million, representing 34% of the consolidated result of the segments of the company.

Now Slide #10, we'll be talking about highlights, Mexico.

Mexico operated at a utilization rate of 68%, 10 pp increase as compared to the second quarter '21, which mainly reflects the higher ethane imports from the U.S. under the fast track solution, which offset the lower ethane supply from PEMEX.

In relation to sales, it increased 3% quarter-over-quarter, explained by the higher supply of product for sale given the higher utilization rate.

Mexico's recurring operating result in the quarter, was $182 million, corresponding to 11% of the consolidated result.

Moving on to Slide 11, we'll talk about fast track, which has been important to increase the raw material supply in Mexico.

In August, Braskem Idesa concluded the project to expand imported capacity of fast track, which currently stands at 25,000 barrels per day. As a result, in September, import volume reached a record high of 22,400 barrels per day. In the third quarter of this year, to complement the supply of ethane by PEMEX, Braskem Idesa imported, 18.6 -- 18,600 barrels, what represents 74% of fast track's current capacity. The company also is working on further expanding capacity of the fast track solution that involves the incorporation of additional loading stations, which could enable Braskem Idesa to reach maximum ethane import capacity of 35,000 barrels a day, and the expectation is that the conclusion of -- is second quarter.

In the next slide, we'll talk about PEMEX and other Mexican government entities.

In the past months, we achieved important progress in situation of Braskem Idesa. As already mentioned, Braskem had signed an amendment to the ethane supply agreement with PEMEX that changed the minimum volume commitment to 30,000 barrels a day until the startup of the ethane import terminal, which is expected for the second half of 2024 or the deadline of February 2025, which may be extended if there are any delays in licensing and permits. The amendment also gives Braskem Idesa first refusal rights for acquiring all ethane that PEMEX has available and does not consume its own productive process through 2045 at prices based on international references.

Braskem Idesa signed an agreement with PEMEX and other government agencies that establishes measures to support the construction of an ethane import terminal with the capacity to meet all the feedstock needs of Braskem Idesa. It is important to note that Braskem Idesa has already obtained the applicable corporate approvals, including final approval by shareholders and creditors for both documents, i.e., the amendment and the terminal agreement.

Turning now to the next slide and still on the Braskem Idesa deal, specifically about the debt profile of our operation in Mexico.

Braskem Idesa has concluded its debt refinancing plan by replacing the remaining balance of USD 1.35 billion of the Project Finance platform with new debt under a corporate format with an extended maturity profile, which effectively extended its average debt maturity to 9 years. With the settlement of the finance project (sic) [ Project Finance ], that guarantees pledged by Braskem to Braskem Idesa to the total amount of USD 358 million.

The new capital structure includes the issue of securities with a commitment to an interest rates linked to targets for reducing CO2 emissions, in line with the company's long-term sustainable development strategy. This means that Braskem has met its goals set for 2021 of negotiating a final amendment with PEMEX and the expansion of its ethane import operations. And also, through BI, the company reaffirms its commitment to Mexico, the local petrochemical industry and to the plastics converter industry through its continuous efforts to increase the supply of raw material.

Turning to the next slide now, where we'll address cash flow generation.

The company presented a positive operating cash flow to the tune of BRL 3.9 billion, setting a new quarterly historical record for the company. The main positive drivers were the strong recurring operating result and the monetization of PIS/COFINS tax credits in the quarter. These positive factors were partially offset by the negative variation of working capital, interest payments on bonds, income tax and social contribution payouts and also the consumption of operating CapEx.

Moving on to the next slide, we'll talk about the company's debt profile.

At the end of September, Braskem continued to maintain a very long debt maturity profile and strong liquidity position with maturities concentrated in the long term. The average debt term was around 15 years. Note that the liquidity position now is enough to cover the payment of our liabilities coming due over the next 75 months.

Turning to Slide 16, we'll address the company's leverage ratio.

In the quarter, Braskem continued to reduce its corporate leverage and has been presenting solid credit metrics with its leverage ratio in U.S. dollar ending in the quarter at 0.8x, which is Braskem's lowest leverage ratio ever posted by the company. Braskem reiterates that it maintains a robust cash position, a very long debt profile and is committed to efficient capital allocation and cost discipline.

Over to the next slide, please.

During the quarter, we had an important acknowledgment by the credit risk agency, S&P, which upgraded the company to investment-grade level. The agency also highlighted the considerable improvement of profitability indicators of the company and also those related to cash generation and also the company's commitment to reduce its corporate leverage. Braskem is also holding regular conversations with Fitch and Moody's to keep them updated on its corporate credit risks. I should also note that Braskem's credit rating is higher than that of Brazil's sovereign credit rating and that with the upgrade by S&P, we are nearing the risk levels of U.S. petrochemical companies.

Going now to Slide #18, we will look at our ESG highlights.

Let me start speaking about 2 important projects at Braskem.

In September, we signed an MOU with SCG Chemicals for conducting feasibility studies for a joint investment in a new ethanol dehydration plant in Thailand in order to produce bioethylene and I'm green bio-based polyethylene. If implemented, the unit will be located in Thailand, at the petrochemical complex of SCG Chemicals, and could go as far as doubling the current production capacity of I'm green bio-based PE. Braskem will contribute with its technology and know-how in ethanol dehydration process and its experience in marketing I'm green bio-based PE, while SCG Chemicals would use its PE units and production expertise to generate the green resin as well as with its knowledge of the Asian polyethylene market.

Also worth mentioning, the investment is subject to the conclusion of those feasibility studies, with Braskem and SCG Chemicals reaching a mutual agreement, and to obtaining the required regulatory approvals.

In addition, at the beginning of this week, we announced the MOU segment -- signing with Lummus Technology for the joint licensing of Braskem's green ethanol technology, conversion of ethanol to ethylene.

So 2 projects in different regions in the world displaying a global interest in said technology. And they are, one project under development in North America and the project under evaluation in Thailand which I have just mentioned.

At the same time, both companies are discussing a long-term agreement for Lummus to license Braskem's green ethylene technology as a way to accelerate the use of renewable feedstocks by the chemical industry worldwide, thus contributing to mitigate climate change through the conversion of carbon from the atmosphere into plastics.

Moving now to the next slide, please.

Braskem has recently formed a partnership with Ecovadis to reinforce its supplier management program based on analysis of ESG criteria. Ecovadis is one of the largest sustainability classification companies in the world for global supply chains, and this new partnership will engage suppliers in ESG topics and make Braskem's supply evaluation program even more robust.

Moving to Slide #20 now, please.

A few weeks ago, we were honored for the achievements in our circular economy efforts. Braskem was acknowledged by Bloomberg as the best company in the circular economy amongst plastic producers. That recognition further increases our responsibility and drives us even more to keep seeking out new initiatives to drive the circular economy. Bloomberg's circular economy ranking monitors the sustainability strategy of the world's largest plastic brand owners and manufacturers in the world and assesses their achievements, ambitions and quality of information provided to the market.

Next slide, please.

Another important acknowledgment of Braskem's efforts came from the High Commissioner for Human Rights of the UN and from the UN Global Compact, which recently recognized the company -- or the company's practices to uphold human rights in its business activities. In the case of Braskem, 2 case studies were selected, 1 related to social responsibility and human rights and the other relative to public report on human rights.

Moving to the next slide, please. We will talk about yet another important acknowledgment that the company received.

Braskem was elected one of the best companies in the world to work for according to Forbes Magazine. The rank is made up of the best employers in the world, and over 150,000 people were interviewed. Among the criteria assessed, we can mention the positioning and the company's concern with impact on environment, efforts to develop new talent, social responsibility and, lastly, diversity. Braskem, which is only 1 of 3 Brazilian companies that participated in the ranking from among 750 participating companies and -- improved its position by 6 places when compared to 2020.

Now turning to the next slide, we'll be talking about the scenario in the petrochemical industry.

Based on the latest forecasts by consulting firms, spreads for the base chemicals are expected to remain above their recent historical average in 2022. Among the main chemicals, one of the highlights is butadiene, whose spread in the third quarter exceeded USD 1,200 per ton driven by strong domestic demand and -- that was not followed by higher supply.

Slide 24 now, we'll talk about the scenario for polyethylene and PVC.

Similarly to what was observed among the base chemicals in the previous slide, external consulting companies are forecasting PE and PVC spreads at levels above their recent historical average for 2022. I should mention that if this scenario actually materializes for naphtha and gas-based PE spreads, this would represent an extremely favorable scenario for petrochemical producers even if to a lesser extent than what was witnessed in 2021.

Now turning to Slide 25, we will comment on the scenario for polypropylene.

As for polypropylene spreads, according to external consultants, the U.S. should remain the most profitable region with spreads remaining above their recent historical average.

Moving on, we'll talk about the outlook for the short term.

In the case of Brazil, for the fourth quarter, Braskem expects an increase in ethylene production with a ramp-up in feedstock supply in Rio. As to sales volume, despite the lower seasonality, an increase in total sales volume is expected and maintenance of the prioritization strategy to serve the Brazilian and the South American market.

Polyethylene-naphtha base spreads should remain above their recent average, while polypropylene and PVC spreads should expand in the United States. The expectation for sales volumes should remain in line despite the lower production in the period for polypropylene. And the spreads for polypropylene in the U.S. should remain in levels above their recent historical average.

Lastly, in Mexico, despite the expected decline in the production due to the scheduled maintenance shutdown, the expectation is for sales of polyethylene to remain in line with the prior quarter given the supply of the product in inventory which was put together in the -- over the recent months. Polyethylene-ethane gas base (sic) [ spreads ] in the U.S. should remain also above their recent average.

Moving on to the next slide.

In this slide, we can see that Braskem remains as an interesting investment opportunity in the global petrochemical industry. Despite Braskem's many important achievements over the recent periods, its multiple remains discounted when compared to other peers. It's important to mention that Braskem is a global company with characteristics which are similar to those of its peers in the U.S. such as well-diversified feedstock profile, leadership position in the markets where it operates, among others. In addition, in 2021, Braskem delivered profitability and credit metrics above those posted by their average peers in the U.S., as can be seen on the slide. In the year-to-date up to September, Braskem's recurring operating margin and the net margin of the company were both higher than the average of its U.S. peers. And with respect to corporate leverage, we have an indicator of net debt-over-EBITDA above -- below -- rather below that of the peers in the same region.

Moving on to Slide 28 to conclude the presentation. On this slide, we'd like to recap the company's main priorities for 2021.

The 2 main priorities are concluding -- well, 2 of them have to do with conclusion in the processes related to the geological phenomenon in Alagoas and reaching a permanent solution for reliable supply of ethane to Braskem Idesa. Both fronts continue to advance in important steps towards a conclusion. Braskem remains firmly committed to its financial health and to the efficient capital allocation with the objective of being reassigned as an investment-grade company.

Another priority is strengthening Braskem's public image and reputation. On the innovation and digital transformation front, Braskem's priorities are improving the effectiveness of its innovation actions and accelerate its digital transformation.

And last but not least, Braskem continues to make progress in implementing its ESG commitments with the goal of becoming an industry reference or benchmark in the sector.

Lastly, we'd like to reinforce that safety is and will continue to be a key focus of Braskem's operations. It is a perpetual and nonnegotiable value of our strategy.

This concludes our presentation for Braskem's Q3 results. Thank you, everyone, for your attention. And now we move to the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Bruno Montanari, Morgan Stanley.

[Bruno Montanari, analyst]

I have one question, actually 2 topics, about capital allocation. In view of the sharp deleveraging of the company and positive numbers, I'd like to understand across dividend payouts and investment opportunities. As for dividends, the expectation that you have in terms of timing announcement, what goes on in the mind of the company's controllers around the payout of dividends? And also, in terms of the investments, if you have already concluded much of what you had to do. Some of the projects you listed are quite interesting. But I'd like to understand, if you could perhaps list, aside the green PE, what other sizable investments are you thinking about in the U.S., in Mexico and Brazil. What can we expect in terms of that pipeline going forward?

[Roberto Lopes Simoes, executive]

Thank you for the question. It is a pleasure to be able to talk to you all, investors and analysts, during today's earnings call.

That question does make sense. We have been talking about it -- capital allocation as an important topic. Coming from the -- of course, the strong cash generation brings about the question. And as you said, we have been working extensively to reduce that.

And then we have 2 other levers to allocate capital, as you mentioned. I'll start with the dividend question.

Today as is, we do not have a pipeline to invest in sight. So our investment perspectives, talking about investments, right, we don't have a new polymer plant in the pipeline just as we have in Mexico and the U.S. We do not have a sizable investment like that in the pipeline today. A project like that would take 2 years to be completed. If something like that were to be part of our pipeline, and again there's nothing in sight, this would be happening in 2, 3 years' time.

Where we do have investments under development, they include 2 areas. Renewables, we have announced an MOU. It's an MOU based on a study for a new plant of green ethane in Thailand, as it was mentioned, but this study will lead to an investment decision going forward down the road. But it's a lower investment level. For this case, it would be a lower level of investment. And again, no visibility so far.

But when we look at renewables, which is the company's investment focus, there's nothing in the short run, just to be sure. In what we call circular economy, which includes recycling initiatives, mechanical and chemical recycling, we do have short-term projects in the pipeline still being matured. But as for those investments, again, we're talking about investments to the tune of tens of thousands of dollars. If you combine the whole portfolio for renewables, maybe a couple of hundred thousand U.S. dollars in the coming years. So nothing really material in that sense.

Another investment which has become public is the ethane import terminal in Mexico. But that's an investment made by Braskem Idesa, which is not directly linked with capital allocation of Braskem.

So again, when we look at investments, just to reinforce, so investments which are not that material for the coming 2 years. And then after that, we could have something more material in the renewables lines. We'll maintain a live portfolio for recycling, but at a lower level of investments. And the investment in Mexico is local.

So when we look at the available cash volume of the financial position and a lower leverage level, it is only natural that we'll have room to allocate that capital and also talk about dividends. The company has been actively surveying possibilities of dividend payout in the short run. We do have a dividend payout policy that requires a prospective analysis of the situation. We are now fine-tuning the numbers. We intend to use the same numbers that were in our budget. And then we have also an alignment of taking that to the Board of directors very soon.

So our proposal will follow on the dividend policy in terms of the leverage level and so on. It is a dividend proposal which has not been consolidated yet. It's still a work in progress. But I hope to very soon be able to take that proposal to the Board level, maybe weeks or days.

[Operator]

Our next question comes from Pedro Soares, BTG Pactual.

[Pedro Soares, analyst]

I have a follow-up on the previous question. If you could talk about the dynamics that you brought and also about what we talked on the last quarter that was sort of an informal data on leveraging. Is there a perspective, as you mentioned? In terms of business, in the medium run, do you see any risk for the spread dynamics to become normal in a quicker way so that you may postpone or reduce what you expected to pay in dividends?

[Rosana Avolio, executive]

Pedro, this is Rosana. Could you repeat the question? Because the sound is really not good enough.

[Pedro Soares, analyst]

Of course. Can you hear me now?

[Rosana Avolio, executive]

Yes, it's better.

[Pedro Soares, analyst]

The question was a follow-up on the previous question on dividends, trying to link that not only to the leverage position that you mentioned in the previous call. In the market, the current situation of the company would enable you to pay a lot with all this cash generation that we saw. But if -- somehow, the spread dynamic normalizing. And you have mentioned that somehow you expect -- in relation to business plan in the medium run, is there any risk that the spread dynamics -- that there is a postponing of this dividend that you thought of in the previous quarter? Maybe we could talk about next year.

[Rosana Avolio, executive]

We -- the scenario that we see ahead is -- has been sustained that next year, we'll have results that will be very good historically speaking but, of course, less than this year because of the scenario, petrochemical scenario. And these perspectives that we see from the specialists in 2023, a lower position than -- compared to 2022, according to the specialists. I would say that our view of future has not changed. We have maintained a favorable perspective. Of course, the result, not as good as this year, but a favorable result for the coming years.

This dividend analysis is aligned with the policy and when we assess different scenarios. It's not one single scenario. You have to remember that Braskem has -- if you look at the net profit, it's BRL 14 billion. But we have to absorb the losses of last year. We have to have legal reserves that came to 0 because of last year. And we have an analysis that is being done of how much we can pay because we have to absorb this -- the issues of the previous year.

We also have to remember that the company has a precedent of distributing the anticipated dividends. This was done in 2017. And even in that moment, we did not distribute all the net profit beforehand. What we have here is an analysis that will follow the policy plans, but the scenario has not changed considering that we have a few years back, materially speaking. And most likely, it will follow the precedent of 2017 of having a reasonable distribution anticipated. And in a second moment, after the general assembly, we'll complement. This is also subject to the conclusion of this analysis and to the approval by the Board.

[Operator]

Our next question comes from Luiz Carvalho, UBS.

[Luiz Carvalho, analyst]

Basically, I have a few questions. Pedro, if you could go back to this dividend issue. Following the first question also, you don't have large projects or a large increment to the near future. That's what I understood. And obviously, even if this scenario of the spreads is slowing down a little bit, could you maintain a cash generation that's quite robust? So the idea is that this cash, some that would be -- that would come back via buyback or dividend, something in that sense.

And second, if you could provide an idea of the increase of the U.S. to Braskem. They have recently announced an agreement with you, I mean, Braskem Idesa, incrementing that offer. Could you give more details on that?

And if I may, one last. I don't know how much you'll be able to add to that. But anything new, any additional demand from the controller for the company's management that may indicate a type of movement from the standpoint of marketability, liquidity of the company?

[Roberto Lopes Simoes, executive]

Good morning. Thank you for your questions. Yes, this cash summing up is probably to pay dividends. This is what we have been mentioning.

There is one other point that we have on the radar, which is Braskem, because of COVID in 2020, did small investment. And from this year, it was postponed for next year. So you have a backlog of maintenance investment. But it's not so important, materially speaking, to be done. There is a difference. I think the portfolio of investment that we we'll announce for next year maybe will be bolder in this part of investment and plant maintenance to have a catch-up of what was not done last year and what was postponed from this year, too. But nothing material for discussion as far as capital allocation is concerned. So that's a natural avenue.

In regards to importing ethane from the U.S., the imports increased. In the end of second Q and third Q, we expanded the capacity of importing ethane from Mexico. It's around 26,000 barrels a day, and the expectation we have throughout this next half is to expand even more this capacity to 35 million barrels a year. Since we use 66,000 a day, we are talking about half of our feedstock that will come from fast track and the rest from APIMEX.

We have reached -- we have operated at 100% in October, but the average was 75%. If we compare to the third quarter, this one was 68%. From 68% to 75% quarter-to-quarter, we have a perspective in the next 6 months, adding the change that was done with [ Apex ] with the agreement. Plus, this new capacity, expanding the fast track capacity, we think that we could reach 100% of use in a recurrent way after the second half of next year. And obviously, these projects have to be finished, but we have a track record that's important on expansion, ensuring that this expansion is feasible and it's safe. We've been doing that with safety, what is key for us. So I would say that we have had success in that strategy.

And the definitive project of imports will take about 3 years to stand. And we hope to have a final decision of investments soon, in a few weeks, to be able to close this design. But we expect to soon have an investment decision in the definitive terminal. But that would take about 3 years to be ready. And the advantage of it is: first, cost, reduces cost; and the second advantage is risk reduction because, of course, to transport raw material by truck, although we do this in some places, you put a pipeline -- if you use a pipeline, it's much safer. So this is still ongoing. But the imports have -- it's been very interesting.

On management and the controller, we did not have any demand. No action from the company was demanded. For now, we are waiting. The company knows through the papers and the announcements that were done by Petrobras and Novonor that they are interested in assessing the sales of their participation. There are many ways that this can be done, be it in auction or transaction. So as far -- as much as possible and reasonable, that -- the company would not have unproportionated costs.

We are getting prepared to understanding how the process will go in M&A or in share process, what's in the scope of the company and can be done. We have tried to anticipate in a reasonable way with nothing very extensive being done and expecting this decision on what's the avenue to go through because we don't have that as yet.

[Luiz Carvalho, analyst]

And just going back to the second, when do you intend to make public your 5-year plan? And in this plan, are we going to have more details for this definitive process of imports, CapEx? Are we going to have this whole scenario?

[Roberto Lopes Simoes, executive]

Usually, what we make public is the CapEx number a year -- in the beginning of the year within the budget maybe March next year, something like that. But again, the parameters are the ones we know. In 2020, we invested $200 million less in maintenance. We always say that we invest around $500 million, $600 million a year, and that was not recovered in 2021. Hence, we can expect for 2022.

As I said, strategic investments should not be much -- very much material. So you can think $500 million, $600 million plus a $200 million catch-up, plus some strategic investment. So for next year, it would be around that. And in the other years, so that catch-up will have been done, so it drops. This is what we see.

We will have our Braskem Day on December 5th. And there, we should talk more about the business strategy, more information. I invite you all to participate. But there, we'll have more information on that.

[Operator]

Our next question comes from Gabriel Barra from Citibank.

[Gabriel Coelho Barra, analyst]

I have a few questions. I will start by Novonor. One of the things that got my attention was the material fact about the Compliance and Auditing Committee. As far as I can see and understand, that is a mandatory issue, right? Looking from that point of view, how would that migration process be to the Novo Mercado? As it was said in the media, there were other options of migration to the Novo Mercado. So in addition to that Audit and Compliance Committee, what else would need to be done for that migration to happen? And how long would that take?

Also, I'd like to understand in what concerns Mexico. Things that were going to be decided concerning the ethane contract, those are already past waters. But looking forward, I'd like to have some more color on the operational front. I'd like to understand about the margins, taking into account the higher capacity that you have now vis-a-vis what you had in the past. And you explored that in the presentation, that capacity expansion and also having in mind a slightly higher raw material price. How do you address that equation? Those are my 2 questions.

[Roberto Lopes Simoes, executive]

Thank you. Two good questions because they allow me to elaborate a little more on those changes that happen at the governance level and which are very relevant changes. And also, it allows me to talk about the future of our operations in Mexico.

About -- well, Braskem created a compliance committee back in 2016. It's part of the Board. And it is a statutory committee made up of 3 independent members. And we had been discussing changes and also incorporate an audit committee of Braskem to meet U.S. law. The audit committee was called the Fiscal Council before for the purposes of the SEC requirements. We are now at the level 1. There's no requirement for an audit committee at the level 1. But as you said, the best governance practices in the Novo Mercado require that we have an audit committee. So we have converted the compliance committee into a Compliance and Audit Committee. And this committee will meet both U.S. legislation, so it will, of course, meet SEC requirements, and it also meets the Brazilian legislation. So we are following all of the requirements of the -- for the Novo Mercado.

And we now have an additional 2 members. They are external independent members, and we are external specialists that now have joined the Compliance and Audit Committee. So it is a very relevant change in our governance structure. It takes to the Board level a whole different view in that it strengthens our governance structure and, of course, has a consequence on the way we announce our results. This was already in place, but now it has been formalized. So this was a change which was instrumental, I'd say, and we are very, very satisfied with the results.

And we are very happy that this was approved by the shareholders' meeting a few months ago. We, of course, selected the external members. We resorted to a headhunter or headhunting company to help us on that. And we are quite happy to announce that, and we are now able to implement the Audit Committee.

Another important change that we carried out at the same time, but as it does not affect our bylaws or general meeting law rules, that's why we didn't highlight it, but it has to do with our communication strategy. Now we have communication strategy plus ESG matters. So that committee already had oversight powers over all ESG topics that touch upon the company, but we had conducted a gap assessment, and we thought it was important to formalize that -- the creation of that ESG committee at the Board level to make it more formal, more systematized.

So we are now actually assessing a gap which was assessed. That is part of ESG rating agencies which are external to us, of course. So we expect that those 2 changes will improve our governance assessment on the part of those third-party agencies. And that, of course, all falls under our macro objective, which encompasses improving our internal governance.

So as for that change, as I said, it's part of a larger scope to improve governance, something we started years ago. It is a very important step that we are taking, and we expect to reap the benefits in the short run.

As to the migration to the new market or the Novo Mercado, in the past, we had already addressed that. There were a couple of changes in the regulation. It might be slightly outdated, but we know it is a process that will take about 2 or 3 months. We'll need to submit protocols to the Brazilian SEC or CVM as we call it.

And right now, as is, we are not actively considering migrating to Novo Mercado. But based on what you've seen in the news, we are, of course, updating our understanding of the process. So the forecast is what I said, from 2 to 3 months.

Before changing gears, there is something important to address, Gabriel, in the way you put your question. You combine the shareholders' move with this decision on the part of the company. But one thing does not have anything to do with the other. As I said, Braskem has been assessing that for some time, adopting an audit committee. That's something done by the company, which was, of course, approved by the shareholders during a general meeting in July. But this was something that started at the company level to improve our governance.

As for Mexico, your other question, I think when we talk about Mexico, we are changing -- we're going to a new level. It is a large transformation in the way we operate. So your question is, well, how does the operation remain going forward? So we have not only amended the contract with PEMEX. We now have a commitment to have an import terminal to import raw material. And with that, we'll have an alternative for -- a supply alternative as it were. And that also entails a change in the capital structure at Braskem Idesa.

When we operate with Project Finance, it's always something very complex. There is a series of reserve accounts, guarantee accounts. You have to use your cash in a cascading manner. You have fiduciary agents working on the custody of all the company's resources. Very low flexibility in terms of financial management. So they're refinancing that through Project Finance.

It's also fundamental in simplifying the internal management for Braskem Idesa. It extends our debt profile, which was before at 9 years, which is much more in line with the petrochemical cycle. So that also helps improve our financial health. We're going to a different level, as I said. So it turns the company into a company which is much more connected, much more in line with what is expected of a petrochemical company.

It also changes the cash flow. We now can see now -- we now foresee the possibility of paying out dividends, something we didn't have before. We always counted with long-term dividend payouts. But we do not have amortizations in the short run. So now we have an opportunity for that. So the possibility now is real, whereas before it was not.

So it is a real transformation. Yes, I could say it's a new company that we have in Mexico under this new capital structure.

And now to your point about the operation going forward, import freights -- now import costs USD 170 per ton, $170. So that falls within all the spreads between polyethylene and ethane. And as fixed costs and CapEx have already been paid for by the previous operation, each new percentage point coming from production, each additional ton of production, we'll only be footing the bill for variable cost. They'll be paying the freight. But on the other hand, fixed costs have been amortized, CapEx has been amortized. So that's pure cash flow. As I increased the operational rate at Braskem Idesa, we are able to extract all those benefits. And with that, Braskem Idesa, which is already one of the most profitable assets we have, will become even more profitable. That number, USD 170 per ton, that's what we have in our radar until the terminal is ramped up. After the terminal becomes operational, that number tends to drop. So there's a downtrend for that figure as well.

So -- I think Braskem Idesa, just to address another point that you mentioned, not only does it have to reach 100% usage rate. But in the past, you saw that rate -- plants can work at higher levels. We're now designing it to operate at 125% of capacity. If we have to, we could invest at the plant level to increase the cracker production level because the polyethylene plants have already shown production capacity way above 100%. So that would be an investment of very, very high returns as the terminal becomes operational. That's something else to be kept in your radar.

[Operator]

Now I'm going to read a question that we got from -- through the webcast. I will translate a question that came from Declane. Thank you for your question. He asks about the -- it in relation to the last conversations with Fitch and Moody's in relation to ROI. And he asks whether this expectation in the short run in the context of commodities and the expectations of the future spreads, if that changes anything in our expectation on ROI.

[Roberto Lopes Simoes, executive]

Thank you, Declane. So talking about the discussions with the agencies, first I would like to reinforce some points. We had a downgrade from the agencies in the second Q 2020, in July last year. From then on, we did a huge exercise. If we go back to the gross debt, it was $8.7 billion. We are closing with a gross debt $6.3 billion in this third Q. So only from that standpoint, we reduced almost $2.5 billion net debt. Also, in the second Q 2020, it was $6.3 billion, and now we are closing with [ $4 million ] (sic) [ $4 billion ]. So it was an exercise of the company of reducing the net debt in $2.3 billion, and leveraging reducing, importantly, reaching the lowest position. So we're bringing these variations because at the end of the day, the figures speak by itself -- by themselves.

And when we look at the expectation forward, we are in a moment that's very simple, very strong spreads. But the expectation is positive. And again, the company did an exercise of reducing to be prepared for any cycle turn.

So we have been talking with the same agencies in a recurrent way, with Fitch as well as with Moody's, and we do respect all the work they do. But yes, we do believe that our investment level will come back.

And in relation to leveraging and comparing to the average of the most important players of the industry, in the U.S., making this comparison, the company has a credit profile that's quite positive. It has an inferred leveraging as compared to the average of partners. This is one more argument that leads us to have this confidence in recovering this investment level in the short run.

In September, we had this change. We have been talking with the agencies. And of course, we respect everything that the agencies do. And we are sure that we will recover this investment level.

[Operator]

Our next question comes from Christian Audi, Santander.

[Christian Audi, analyst]

Pedro, Rosana, I had a few questions. First one, have you had deleveraging that was so strong? I wanted to understand, to what extent do you believe that it's healthy? What level do you want? Could you give us a figure?

And I have other questions, operational questions. If you could detail a little bit. I know Rosana mentioned something, but could you talk first about the demand per region not only for next quarter but for next year?

And the last question is if you could make it clear that 3Q '21 was a record for the spreads. But historically, what's going to happen? So if you could just give an idea of what level you expect those spreads in 2022 as against '21.

[Pedro van Langendonck Teixeira de Freitas, executive]

How are you? Thank you for your questions. In relation to the debt level, we today are at a low level. We -- of leveraging. We have 2 assessments that we do regarding that. One of them is the assessment of the number of leveragings we have as reference internally for a cycle mean, around 2 -- twice the net debt-per-EBITDA. And we can reach 2.53, as happened last year. So we know that in the cycle lowest, it lowers also. And in the mean level, around 2 is what we have as a reference. There may be variations, but it's one we have. So today, it's quite low. We know that we have to change this.

And another number that we have as reference is the historical mark of net debt that we have. There is a slide in the presentation, #16, that shows the historical net debt. Since 2020 -- it's a long history, but our net debt is around $5 million (sic) [ $5 billion ] more or less in a very stable way. So we believe now with the operations, the number may be even higher. But if we look at $5 billion in net debt, we closed this quarter at 4. So we would have a buffer to improve the net debt.

And now we talk about capital allocation. And again, we have quite a few million -- at least $1 million to adjust. And we believe that, that's something that connects well with the discussion of capital allocation.

In relation to demand, we have a GNP view. We use analysts and other experts. What we see is the market talking about 1.2% for next year. The demand analysis in Brazil is 1.5%, the GDP. So around 2% a year. It's that -- what we expect for the demand in Brazil.

The global demand, we believe, will go on around 3% to 4% growth in the world. What affects us the most is the global growth, not really Brazilian. In Brazil, it reallocates the exportations for the domestic market. But the global affects spreads. So around 3% to 4% growth in the world.

Our view for the U.S., our PV market in the U.S. is around 3%. And we have offers coming, and that takes to this spreads drop this year but for a good level next year.

There is another slide in the presentation that has some figures. 23, 24, 25 shows the perspective for 2022. And there, you can see that the perspective is that the spread drops but drops in the most important chemicals at a good level, above level, looking towards the year '22.

When we look to the spread of PE, all the spreads are above the average between '16 and '20 for 2022. PVC likewise. And PP, polypropylene, only from Asia is below that average of '16 to '20. All the others, Europe, U.S., are above. The Asia spread applies to Brazil. But today, our largest capacity is not in Brazil. So I would say that generally speaking, all the spreads are quite favorable.

The logistic disruption has brought that additional benefit for those who produce outside Asia. So that also has to be followed. I have seen (sic) [ been ] consistent saying that it's going to take 18 months to solve that. So our perspective for next year is of some margin above normal of the industry, considering the logistics aspects. Some are saying that it's going to be solved by the middle of next year, and others speak about 18 years -- 18 months, I'm sorry. We are thinking about next year. But for 2023 in our budget premise, we're not including that factor. This is why 2023, also the expectation of results drops maybe for medium level.

Looking at '22, '23. Next year, the position is good, one of the best results of Braskem. In 2023, I would say a drop more towards the cycle average but with much uncertainty within this scenario considering all these topics of supply chain that have to be solved.

For 2025, extending a little bit more towards the future, we have not identified new capacities under construction right now or investment decisions that will take to the production of new plants in '24,'25. What means that '24, '25, the occupation rates will increase, and we will face a new cycle of increase in these 2 years.

[Christian Audi, analyst]

One quick follow-up about Brazil, if I may. You talked about normalization of demand. How do you see that going forward? When you talk about demand normalization, what exactly do you mean?

[Pedro van Langendonck Teixeira de Freitas, executive]

When we talk about normalization of demand, we had demand which was higher than expected, especially late last year and early this year. When we see the demand in Brazil for the fourth quarter of last year and first 2 quarters of this year until April, May, you had inventories being rebuilt and a change in consumption patterns that led to a higher demand across those 3 quarters. Now as we reach Q3 this year, we see lower demand than in Q2. Our sales increased.

As Rosana mentioned, we had a production shutdown, but our sales went up. But the demand in the Brazilian market resumed what I'd call normal levels. It continues to grow but at a lower pace, more fitting to what the market is used to. But if we have a demand disruption in Brazil driven by some macroeconomic effect, we will have a foreign exchange devaluation, which could be beneficial for the company. Braskem is a company that improves significantly when there is a foreign exchange deval. So we have a natural hedge vis-a-vis the political/economic conditions or situation in Brazil.

[Operator]

Our next question comes from Gabriel Barra, Citibank.

[Gabriel Coelho Barra, analyst]

I have another question. As for the green PE, I'd like to understand the size of that market. I remember when you released the relevant or material fact some time ago and you talked about 200,000 tons through 2025, that target doesn't seem to be so aggressive. So I'd like to understand the size of that market both for ethane and polypropylene. And what would be the return for that investment in SCG? And if you could perhaps invest in the plants and participate more actively in the production. That's what I wanted to know.

[Roberto Lopes Simoes, executive]

Okay, Gabriel. I think those 2 announcements we made, material fact we released, they are part of a biopolymers strategy that we have been developing. So they didn't happen at the same time by chance. On the one hand, we are assessing several growth opportunities under renewables, especially biopolymers. What we call the green PE, that joint venture with SCG or -- for now it's only an MOU -- falls under that scope of speeding up the capture of that market by having new production volumes in place.

Of course, the global market for polyethylene is 100 million tons a year. Our forecast internally, which is more conservative, is of a market of around 1.3 million tons in 2030. If we had green polyethylene, 1 million tons today, we would sell the whole amount today. I think the market is there today for 1 million tons. The issue is how can we accelerate the implementation of those new plants.

We have -- for this business, we are able to have some kind of hedging or hedge for raw material. The cost of ethanol, we can pass on in our sales contracts. So any potential oscillation in commodity prices, we can recover commercially. We do have clients who are willing to enter into long-term contracts for that product. So when we look at the clients alone, we are already getting close to that 1.3 million for 2030. So the market is much larger than that.

So we are now trying to develop or to expand what we already have in Rio Grande do Sul. And we see SCG as a partner for the second plant and partner for a fourth or fifth plant. So we are assessing all those avenues of growth, be it through partnerships or be it through new plants which we will own, Braskem's plant.

So that's part of the strategy to seize market opportunities. And that has accelerated throughout the dynamic because there was a higher demand for renewable projects or products.

For that to happen, you need to have the deployment of that technology across different areas of the world. So for Braskem, it would be interesting to have a partner that will have that competence to license new technologies, a partner that can provide us with support as we expand those projects globally and simultaneously.

So there is a rationale around royalties underlying the material fact. But the main value of the partnership is not financial per se. Of course, there is financial gain, but it's -- much more important is the fact that the project will be an enabler of our capacity to quickly deploy that strategy in a market with high demand and very attractive returns. So Lummus provides us with that possibility to deliver several projects. Another benefit, it's not as tangible, is that once Lummus started licensing technology for third parties, Braskem, as a partner of Lummus, will now be able to partner with those new projects. So it also becomes an arm to explore new growth partnerships. So there are several possibilities at the table being brought by Lummus, and we, on our end, we have 10 years of experience. The market will demand new developments across the world. So it's a complementary move, and that's the start of something much larger going forward.

[Operator]

This concludes the Q&A session. I'd like to turn the floor back over to the company for their final remarks. Please, you may carry on.

[Roberto Lopes Simoes, executive]

I'd like to thank you all for participating in our earnings call for Q3. And just to close, a couple of final observations to reinforce some of the points that myself and Rosana presented. I'll start by the results.

Yet another quarter of very strong results. I was talking with Rosana earlier today. We've had years which were similar to this one single quarter. So exceptional results for one single quarter. We continue to generate cash at historical levels.

If we look at the return on cash flow, on the share price, it's sitting above 20%, above any other company in the industry. So our performance was quite exceptional.

We have always -- have also maintained our commitment to the company's financial health. Our leverage level, also at a low or record, 0.8x, 0.83x net debt-over-EBITDA. Our target is to recover investment grade, as it was mentioned. We have already done it with one agency, but we are now trying to get the same grade with other agencies. And we're working with them to also be able to recover that, and we are confident that we'll be able to make it with the other rating agencies.

Also important, our operations in Mexico, a final solution to supply ethane, which was one of the main objectives for 2021. And we are once again reinforcing the company's delivery capacity. We had a -- clear objectives for this year, an important progress in Alagoas also. That's also ongoing.

The other objective which was important was Mexico. So this is done and over with as we have signed the new contract amendment with PEMEX, a 15-year contract for the supply of natural gas.

The replacement of the debt with the Project Finance, the issuance of debt bonds, which are sustainability linked, the largest sustainability-linked bond issuance in Latin America, $1.2 billion, done by Braskem Idesa's team for a company which is not investment grade. So based on the rating that we have, it is an even larger accomplishment, and all of that in line with our commitments to reduce our carbon footprint announced earlier in the year.

Also ESG, I'd like to remind you and reinforce the implementation of our Audit and Compliance Committee, the expansion of our Strategy and Communication Committee at the Board level, also to include an ESG Committee.

And we remain very confident in terms of cash generation for the coming quarters.

The outlook for international petrochemical industry is very positive, healthy levels of results, of spreads. So we remain confident and committed to increase competitiveness, productivity. Also, working always with safety in mind, cash generation and creating value to all shareholders.

So I'd like to close by thanking you all, thanking my team for the results we have achieved. And a big thank you to Braskem's shareholders for their trust in the company. We hope to live up to their trust.

And I'd like to remind you we're getting close to Black Friday. So Braskem's shares are going through a good moment or a positive moment. So we have another opportunity coming up, opportunity that is emerging right now.

So once again, thank you. I'd like to invite you to join us at APIMEX on December 10.

[Operator]

Braskem's audio conference is now over. We'd like to thank you all for participating. And have a nice day, everyone, and thank you for using Chorus Call.