Braskem SA

BOVESPA:BRKM5

Earnings Call Transcript 2022-Q4

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to Braskem's Fourth Quarter and 2022 Results Conference Call. With us here today, we have Roberto Bischoff, Braskem's CEO; Pedro Freitas, Braskem's CFO; and Rosana Avolio, Investor Relations Strategic Planning and Corporate Market Intelligence Director. This event is being recorded. [Operator Instructions]

This event is also being broadcast live via webcast and may be accessed through Braskem's website at www.braskem.com/ri, where the presentation is also available. Participants may view the slides in any order they wish. The audio will be available shortly after the event is concluded. Those following the presentation via the webcast may post their questions to Braskem via website. They will be answered by the IR team after the conference is finished.

Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of Braskem management and on information currently available to the company. They involve risks and uncertainties, because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that macroeconomic conditions, industry conditions and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the conference over to Rosana Avolio, Investor Relations, Strategic Planning and Corporate Market Intelligence Director. Mrs. Avolio, you may begin your presentation.

[Rosana Avolio, executive]

Good morning, ladies and gentlemen, and thank you for participating in Braskem conference call. Today, we will present our results for the fourth quarter of 2022 and also for the year of 2022.

Considering that, let's start with Slide #3, which shows Braskem's main highlights in the period. Starting with our consolidated highlights, I will start talking about our achievements in our biopolymer business. We had a historical record of Green PE sales volume in 2022 since the beginning of our operations in 2010. It should be noted that we are expanding our current green ethylene capacity of 200 kt by 30%. This project is ongoing with physical progress of 86% by December 2022. Regarding our recycling business, there was an increase of 144% in the sales of products with recycling content in 2022.

In the fourth quarter of 2022, we made relevant advances related to the ethane import terminal in Mexico, with Braskem Idesa announcing the conclusion of the investment agreement signed with Advario. The construction started in July of 2022 and reached 25% of fiscal progress as of December 2022. I would like to remember that the terminal will have the capacity to our 80,000 barrels per day of ethane, which we allow Braskem Idesa to import all of its feedstock needs while enabling future expansion of PE production capacity in Mexico by around 20%. On the social front, Braskem supported 153 social initiatives that impacted over 610,000 people all over the world.

Moving to the financial highlights. During the fourth quarter of 2022, the industry remained impacted by the imbalance between global supply and demand, which resulted in compressed international spreads of chemical and petrochemical products. The dynamics of the sector will directly influenced by the startup of new capacity globally by the geopolitical tensions, macroeconomic uncertainties and the possibility of a [indiscernible] slowdown in major economies. In this scenario, Braskem reported recurring EBITDA of $2.06 billion in 2022 and in addition to a cash generation of $654 million in the same period, reflecting in a cash flow yield of 18%. In 2022, Braskem continued to present solid credit metrics with copper leverage remaining under control and a strong liquidity position. Sufficiency to cover, that's coming due in the next 5 years and supporting our investment grade by the rating agencies.

Let's move to the next slide, please. In 2022, recurring EBITDA was around $2.1 billion, down 64% from the previous year and explained mainly by the lower spreads in the international market, lower sales volume of main chemicals in the Brazil segment, PP in the U.S. and Europe and the accounting effect of inventory net realizable in the net amount of $84 million.

Let's move to the next slide, which covers our highlights in Brazil segment. In 2022, the petrochemical crackers in Brazil operated at an average utilization rate of 78%, 3 percentage points lower than the previous year, mainly explained by the adequacy of production due to lower spreads in the international market, but the scheduled maintenance shutdown at the petrochemical complex in Rio Grande do Sul and PVC plant in Alagoas. In the year, resin sales volume in the Brazilian market remained stable compared to 2021 due to our commercial efforts to prioritize the Brazilian market supply. The export volumes in the scenario also remained stable. In this context, recurring EBITDA from Brazil in 2022 was $1.211 billion.

Let's move to the next slide. First, it's important to mention that the green polyethylene is a biopolymer produced from Brazilian sugarcane ethanol. It is a differentiated product besides being renewable. It has a negative carbon footprint, the same properties and applications [Indiscernible] polyethylene with 100% of recyclability. Braskem has more than 12 years of establishing this operation and is a pioneer and world leader in Green PE production. Considering that in 2022, the utilization rate of green ethylene decreased compared to 2021 due to scheduled shutdowns at the polyethylene units in [Indiscernible]. However, is still historically high levels. Braskem's Green PE reached a record sales volume. These results consider the whole history of operation, which started back in 2010.

Moving to the next slide, which shows the progress made on action fronts were related to geological event in Alagoas. The chart on the left shows total provision for the geological event in Alagoas of BRL 13.1 billion, of which BRL 6.9 billion was already been disbursed. The chart in the middle shows the outstanding amount of the provision, which ended the fourth quarter of 2022 at around BRL 6.6 billion, with 64% of the total amount provision booked under the short term and 36% under the long term. It is important to point out that Braskem cannot eliminate future developments related to the matter or its associated expenses, and the costs to be incurred by Braskem may differ from its estimate or accrued amounts.

Moving on, but it's still on the geologic event, the next slide shows the progress made on action fronts. First, regarding relocation and compensation, Braskem continues to advance with the process of relocation, financial compensation families, locating neighborhood in risk areas in [indiscernible]. The number of proposals for financial compensation to be meted reached 18,862 in February 2023, 98% of the total estimated. We would like to highlight that the proposal acceptance rate remained high at 99.6%.

On the Closing & Monitoring of Wells action front is off end of February of 2023. Of the 35-well cavities, 9 are in the same backfilling group with 1 already being concluded. Meanwhile, actions on the social urban development are concentrated in the urban mobility, social compensation and actions in relocation areas. On this working front, there were several important [ advances ] in the year. All 11 urban mobility actions are in progress, 8 of which already have executive projects concluded and 3 of them are already in the construction phase, conclusion of demolition process at [ Mutange ] and progress in other stabilization activities.

Let's move to the next slide, please. This slide presents the highlights of our operations in the United States and Europe. In 2022, the PP plants in the United States operated at a capacity utilization rate of 7% and 9%, down 7 percentage points from 2021 with the reduction explained by the adjustment of the production volume due to weaker demand in the region and scheduled maintenance shutdowns. In Europe, the capacity utilization rate decreased 10 percentage points from the prior year, reflecting the lower demand, weak economic performance in the region and high inventory levels in the converted chain. In terms of sales performance, the U.S. registered sales volume in the year of 1,589,000 tons, 4% lower than 2021. However, our commercial efforts help with the sales decrease being lower than the reduction in demand in the U.S. The segment's recurring EBITDA in 2022 was $609 million.

Moving to the next slide, please. The Mexico unit operated at capacity utilization rate of 73% in 2022. 7 percentage points higher than in 2021, reflecting the increased retaining supply by PEMEX and higher training ports under the Fast Track solution. Sales volume increased by 20% compared to the last year, reflecting a higher utilization rate at Braskem Idesa. The segment recurring EBITDA in 2022 was $212 million.

Moving on to the next slide. Braskem is a company that has consistently presented positive operating cash flow even in downturns in the petrochemical cycle, and our decision-making process aims to maximize the present value of our future cash generation. Considering that, cash generation in 2022 was around BRL 3.3 billion. Excluding payments related to the geological event in Alagoas, the company delivered a recurring cash flow of around BRL 6 billion, result in a cash flow yield of 18% and a recurring cash flow yield of 33%, respectively.

Let's move to the next slide. Braskem ended the year maintaining a very low debt maturity profile and strong liquidity position with the majority of its debt coming due in 2030 onwards. The average debt term was around 13 years, and the current liquidity position covers all that's coming due in the next 60 months, not considering the international revolving credit facility of $1 billion available until 2026. In this scenario, Braskem continues to present solid credit metrics with copper leverage at 2.42x by the end of 2022. It is important to mention that we keep acting on conservative principles such as net debt in U.S. dollars as ahead to match our exposure of the business to international prices, transparent dividend policy and concentration of funding in the capital markets.

I would like to highlight that on February 2023, Braskem concluded the issuance of a bond in the international market in the amount of $1 billion with a maturity in 2033. Also in February, we made a total repayment of our bond due in 2024. Finally, regarding rating agencies. In the last few months, S&P [ feature ] maintain our investment-grade rating with a stable outlook.

Let's move to the next slide, please. In 2022, Braskem revised its strategy to support the investment prioritization and capital allocation for 2030, considering our long-term commitment in sustainable development, market trends and demand for the coming years. Braskem's strategy consists of its foundation, strategic pillars and growth revenues. The foundation of our strategy reflects the value we practice consistently, and there are fundamental to guarantee the achievement for ambitions in the different pillars and growth revenues based on safety, people and governance. Our strategic pillar reinforce our long-term ambitions in productivity and competitiveness, sustainability, growth and diversification and innovation.

Our ambition in productivity and competitiveness is drive our assets towards the first quartile of the petrochemical industry cash cost curve, focusing on decarbonization initiatives and selective investments. Considering that, we will focus on operational efficiency and excellence, commercial logistics effectiveness, seeking cost leadership and differentiation through our relationships with clients and partners, while focusing on the transitioning to a more decarbonized industry. In sustainability, our ambition is to be a reference in sustainable development in the global chemical and plastic sector. And as part of our strategy, we made commitments for our next phase of transformation that creates value in the transition to a carbon-neutral circular economy.

In growth and diversification, since the beginning, Braskem's strategy was strongly based on the diversification of raw materials and geographies. Looking towards a balance of raw materials profile, reducing our exposure and growing our capacity globally. Now our ambitions incorporate more focused on increasing our bio base and circular feedstock and products, evolving with a portfolio expansion according to business strategy to support client needs and ensuring our adaptability to consolidate a leadership position and remain competitive. To do all of this, we must improve our efforts innovation.

So our ambition in this pillar is deliver high-value, sustainable solutions to chemical and price innovation. Braskem tend to deliver a tangible, sustainable solution through the development of this [ drug ] technologies, processes, business models and partnerships, guaranteeing the business future.

Moving to our gross avenues. We define our pathway to grow based on 3 avenues. In traditional business, we intend to grow our current business through selective investments including productiveness and competitiveness improvements as well as continue to implement the decarbonization of our current assets. These measures together will enable the delivery of our goal of achieving carbon neutrality by 2050 and reducing Scope 1 and 2 emissions by 15% by 2030. In the bio-based avenue, our ambition is to grow in bio-based resins and chemicals, in addition to expanding the use of renewable raw materials with the objective of achieving our goal of expanding the production capacity of green products to 1 million ton by 2030.

Lastly, in recycling, we intend to grow in circular products through mechanical recycling and expanding use of circular feedstocks through advanced recycling, aiming to achieve our public commitment of grow the portfolio of products with recycling content to reach by 300 kt by 2025 and 1 million tons by 2030. So finally, based on our pillars, avenues and foundations, we aim to continue to balance our capital allocation, returning value to shareholders while we invest in our business and its growth opportunities, generating positive impact for our stakeholders.

Moving to the next slide. In the first grow avenue traditional business, Braskem will grow its business through selective high value-added investments with improvements in competitiveness and focus on current assets decarbonization. In 2022, we already delivered important achievements on this avenue. The first one is the Ethane Import Terminal construction in Mexico. The Terminal QuÃmica Puerto México is a joint venture between Braskem and Advario, which each company holding an interest of 50%.

The terminal feedstock supply capacity will be around 80,000 barrels per day of ethane, which represents around 120% of the current feedstock needs for Braskem Idesa. The project's CapEx is estimated to be around $450 million with the term round startup expected for the second half of 2024. In the end of December of 2022, the project reached a fiscal progress of 26%. In the industrial decarbonization program, we already have prioritized initiatives that will allow Braskem to achieve our emission reduction commitment with positive NPV. The program is part of our governance strategy for a commitment to fight climate change.

Lastly, Transform for Value is our global efficiency program implemented to accelerate improvement in different areas of the company as well as redesign our process structure, generating value for the company through process optimization. The program ended 2022 on pace of capture around $352 million per year in initiatives that have reached more advanced stages of maturity.

Let's move to the next slide, which shows Braskem bio-based growth revenue. In this growth avenue, we would like to highlight our main initiatives that will support us to achieve our commitment to reach a production of 1 million tons of green products by 2030. These initiatives are debottlenecking project of our green ethylene planning capacity in Triunfo, Rio Grande do Sul. This project is ongoing and will result in an additional production capacity of 600 kt per year. We will continue to move forward with feasibility studies for the construction of a green ethylene plant in Thailand, together with SCG Chemicals, with the potential to even double our current green PE capacity.

Let's go to the next slide, please. Regarding our sustainable product portfolio, we have 40 grades of PCR for different applications. In 2022, our sales of products with recycling content reached 54 kt, an increase of 144% from 2021. On the technology development front, Braskem also signed several partnerships agreements for the development of new technology with a high potential for plastic waste recovery. Regarding the environmental and education and consumer engagement, we accounted for 33,500 tons of recovery price in the year, an increase of 156% compared to 2021. Lastly, on the circular design of applications front, we inaugurated Cazoolo, the first packaging development center for the circular economy in Brazil.

Let's go to the next slide, please. In the fourth quarter of 2022, the petrochemical spread reached its bottom, impacted mainly by the dynamics between global supply and demand. for the coming years, there is a market expectation of a recovery path for the petrochemical cycle as a consequence of demand growth being higher than the expected supply additions globally, as you can see in the chart.

Moving to the next slide. Considering the moment of the cycle, Braskem has established several initiatives to improve EBITDA and cash flow generation. Regarding our EBITDA initiatives, we would like to highlight the optimization of global trade management, the global optimization of fixed and variable costs with cost-conscious targets for all team members of the company and also the continuous progress of our Transform For Value program. These initiatives together have the potential to increase EBITDA by around $350 million in 2023.

Among the initiatives impacting cash flow generation, we would like to highlight the working capital optimization across the integrated production planning, the prioritization in the investment process for corporate CapEx without impacting the maintenance CapEx and the reliability of our assets and the generation of cash through nonrecurring demonetization throughout the year. Summing all these initiatives, we have a potential for additional cash generation of $500 million to $600 million in 2023.

Moving to the next slide. For Brazil segment, the expectation for first quarter of 2023 is for an increase in ethylene production. On the commercial front, the expectations for resins volume to increase and for spreads, external consulting firms are expecting highest price for resins and lower spreads for our main chemical products. In the United States, capacity utilization rate should increase compared to the fourth quarter 2022. However, the sales volume should keep stable and the U.S. PP minus propylene spreads should decrease. Lastly, in Mexico, the expectations for maintaining [ PE ] production with higher PE sales volume and higher spreads in the region.

Let's go to the next slide, please. On this slide, I'll go over our 5 priorities for this year, taking into consideration our strategic pillars. The first one is optimize operations of assets and focus on cost discipline to capture synergies across the regions. The second one is to implement initiatives on financial preservation, focused on creating value for our shareholders. The third one is to prioritize investments for eliminating plastic waste and combining climate change and focus on initiatives related to social responsibility and human rights. Regarding innovation, we want to expand in strategic innovation and digital transformation. And finally, advance on all our action front related to the geological event in Alagoas, fulfilling the commitments establishing agreements.

Finally, we would like to reinforce that safe operations are and always will be the focus on Braskem's operation as a permanent and nonnegotiable value of our strategy. So that concludes today's presentation of Braskem results for the fourth quarter of 2022. Thank you all for your attention, and let's go to the question-and-answer session.

[Operator]

[Operator Instructions] Our first question comes Vicente Falanga with Bradesco BBI.

[Vicente Falanga Neto, analyst]

I have a couple of questions here. First of all, would love to hear your most updated views on the outlook for PE, PP spreads. We here have an expectation of improvements more towards the end of the year. I wanted to know if Braskem shares this view. And then second, we have been hearing from the new CEO of [Indiscernible] that he wants to see Brazil free of chemical imports. At the same time, there has been a big push from the government to increase the supply of natural gas. I wanted to know if Braskem could be interested in resuming large petrochemical complexes here in Brazil, like the idea of doing [indiscernible] potentially fed by my [Indiscernible] gas.

[Pedro van Langendonck Teixeira de Freitas, executive]

Starting with the spreads. Our view is similar to what you described. It's a recovery year in terms of PE, PP spreads over time over the year. So we don't see and we don't expect any huge shifts in the spreads from quarter-to-quarter. But overall, through the year, a recovery to levels that, in our view, are going to be around mid-cycle by the end of the year. So that's our view for spreads, both for PE and PP. We have been seeing some positive news coming from China with the end of the lockdowns. We see economists and forecasters changing upwards their view on China growth.

So all of that points to this recovery in spreads through the year. But in any scenario, we have been looking at the situation very carefully and managing the company in a way that is responsive to that situation. So we are cutting costs.

We are -- we have reduced the CapEx outlook for the year. We are looking at working capital management and also reinforcing the Transform For Value program to find other opportunities to create value in the short term. It's also important to -- that we see this still kind of a more challenging scenario through this year. But when you look at '24, '25, the outlook is more positive because then, we don't see enough capacity coming to the market, the capacity growth outlook as was highlighted by Rosana in the presentation is actually below demand growth. And if China recovers faster, that could be even more positive going into '24, '25.

So we see this we have this view that the scenario is going to be more positive in kind of the midterm looking at upstream in the cycle in '24, '25 and '26. Regarding pet-chem investments in Brazil, of course, we would be interested if there is more natural gas liquids available if there are -- there is more ethane and propane available in Brazil coming from pre-salt, we would be interested in having access to those volumes. The most competitive investment in Brazil that anybody can make in the industry today is in expanding our cracker and site in Rio de Janeiro. So that would be, I would say, the best alternative for the country on where to allocate that additional feedstock if it comes to the shore.

So we keep following and tracking pre-salt activity closely. We have a constant dialogue with players in the industry to understand and be positioned whenever the availability of feedstock is concrete to be able to step in. We don't see that happening in the very short term, let's say, this year, next year, but we are tracking and kind of being very close to the industry to access that opportunity whenever it comes to market.

[Operator]

Our next question comes from Gabriel Barra with Citibank.

[Gabriel Coelho Barra, analyst]

I have 2 here. 3, if I may. The first one regarding the Transform For Value program, I think that's -- it's really great, right, and interesting. I take a look in terms of the amount that you can generate for the company. But some points here that I want to understand a little bit better. You mentioned in the conference call, the impact of $353 million in 2022. And the earnings, you mentioned a future impact of $387 million to be captured in the following years. So my point is how should we compare this number in this impact from last year 2020. What's the margin effect when compared with 2021? What's the net amount for 2022 in order to understand the impact in the year?

And the second is what's the timeline for this $387 million that we are going to capture in the following years or the timeline for that impact here for 2023? That's the first question. The second one, it's regarding the import taxes, Recently, you have seen some changes, right? I would like to understand better here, what's the impact for the company 2023, the amount that the company could, let's say, capture it from this increase in Port Texas. And the third one, back to spreads, a quick follow-up here.

The [ SPP ] was, let's say, a safe haven for the company, right, with an import market, et cetera, with good margins. And as you mentioned in the conference call, we are expecting, let's say, the market changes to our export market. My point is, how should we think about this in the next years? We believe that U.S. would become again an important market. And this 2024 that you mentioned here that you change this again with, let's say, a lower capacity. What's pricing here in terms of recession, demand, et cetera? I want to understand the dynamic here that we are seeing for U.S. So that's my questions.

[Pedro van Langendonck Teixeira de Freitas, executive]

Gabriel, thank you for your questions. So on Transform For Value, it's important to understand that the program -- the pace of capture of the program, it's -- sometimes we are talking about annualized captures, sometimes we're talking about what is actually captured in that year, right? So when we say that the program capture last year was $283 million, we're talking about the cumulative capture in last year compared to a base of 2020. That includes both initiatives that have, I would say, an increase in EBITDA compared to the previous year, but also initiatives that are geared towards avoiding losses that would lead to losses in EBITDA, right? So it's a mix of both.

So when we are talking about the program, we had digital technology projects, we had continuous improvement projects and also other initiatives that are related to energy efficiency, and I would say, positive NPV competitiveness and productivity projects. So when we -- Rosana presented also in the slides that we see an impact -- a positive impact of Transfer For Value of about $150 million this year, it's also important to understand that up till now, we have been disclosing the numbers comparing to 2020. But the $150 million that Rosana highlighted is a comparison with 2022.

So we're changing the base to make it easier for you guys to understand, what is the value of the program on roaming basis? So for this year, given that we have lower spreads, for example, an additional ton of product that the project yields is worth a fewer dollars, right? So that's why we see a reduction in the yearly impact, it relates to the spread reduction as well. And -- so again, to reinforce this year in 2023 compared to 2022, we expect a positive impact of Transform For Value of about $150 million. Okay. Regarding the second question about the import tariff and impact, I will recall that last year, some analysts and market experts were engaging in assessing that the impact of reduction of the tariffs over 1 year, which was the original timeframe was about $150 million of lower EBITDA for Braskem, which would be split between '22 and '23, right?

So part of that was already in last year's results. For this year, it would be a reduction of about $70 million to $80 million in EBITDA. With this, we recover a part of that. So if you just do kind of a monthly average, you probably get to a ballpark that makes sense. It's important to mention that the main impact we see is in recovery of market share given that the resetting of tariffs to the previous level and kind of to the average level of the other products in Brazil, brings us back to a parity of competitiveness that I believe we will need to recover it, especially in market share. And then on the last question about the U.S. shift to export market to becoming an export market. What we see is -- I mean, there were a couple of new plants that started up end of last year.

So this year, we're still seeing -- because they are ramping up, we still see that there will be more supply growth than demand growth in the U.S. But for next year, for example, we don't see any new supply in the U.S. or for the following years. In fact, I mean if you look into the future, we are not seeing any new investments or credible investment [ CPP ] in the U.S. So our view is that this impact will last for this year. Next year should already be a year where exports will be starting to come down again. And then the U.S. will come back potentially between '24 and '25, come back to becoming a net importer again.

And one thing that I think is important to mention is that when we approved the new project that we started up back in '21 in the U.S., the business case for that project included a significant amount of exports. So we were already seeing that shift of the U.S. to an export hub. We created an export facility in Charleston, to be able to have very efficient logistics to export. And going forward, I mean, we are pretty confident that the return on the project will continue to be very good, because the business case already expected this to happen. Also, another important aspect, I mean, is to consider Braskem's commercial efforts in the U.S. The market last year for PP in the U.S. had a reduction of 6% roughly, while our sales in the internal market fell by 4%. So in fact, we gained some market share in the U.S., even in this tough market conditions.

[Operator]

Our next question comes from Luiz Carvalho with UBS.

[Luiz Carvalho, analyst]

It's only 3 points here to -- I know they would like to have a bit more color from your end. The first one thing on the leverage. You still have a quite relative controlled leverage, but when we look forward as part of the current weak results that the company has then delivered because of the spreads, this will impact you to the leverage looking forward on a substantial way according to our calculation here. So just trying to discern how you're seeing -- you're really get a bond in the beginning of the year, if you get $1 billion, so how are you seeing the debt management at the end of the day? If you can talk about any covenants or waivers that would be interesting to understand how you're seeing this.

The second one, it's about the -- I don't know the inflation, right? We have been seeing inflation globally that has been impacting materially the capital for many companies. So just trying to understand a bit better how the -- I don't know, the global inflation and maybe specifically in Brazil is impacting your sector. And if it makes sense to consider higher maintenance CapEx compared to this historical levels without -- and also if there has been any impact of the Mexico investments. And very lastly, more on the additional -- the capacity globally. We have been following this Monaca plant from Shell, having some discussions about mechanical issues and potential delays over the start up. So if you can comment on the -- I don't know, on potential delays, and how you're seeing the additional capacity coming over the next couple of quarters or potentially in 2024?

[Pedro van Langendonck Teixeira de Freitas, executive]

Luiz, thank you for your questions. So on leverage, what we're seeing is that leverage is going to go up. It's just a matter of numbers, right? We had still a strong first half of last year and a very weak second half. So we are now replacing. And now this year, as I mentioned earlier, is a recovery year. So we're going to see -- we expect to see a better first half of this year compared to the second half of last year. But compared to the first half of last year, it's going to be a weaker first half, right? So we are replacing a first half of last year that was pretty strong with a weaker first half of this year. And in terms of EBITDA, right?

So the leverage number is going to go up, because the EBITDA number on our last 12-month basis is going to come down. Our net debt is under control. So it's within ranges that we find very acceptable. And we don't anticipate them to go up above any threshold that we would find concerning, but the net leverage number is going to go up until June. And then in the half of the year, our outlook is for a better second half of this year compared to the second half of last year. So the second half of this year -- by the end of the second half of this year, leverage will come down where we expect it to come down as the EBITDA number recovers, replacing a better second quarter -- second half of this year compared to the second half of last year.

So this is how we're seeing the rating agencies understand this dynamic. We have been in dialogue with them about this. And they understand the cyclical nature of the business and kind of the short-term effects that the business may face. Regarding the bond and debt management, I mean, we did this bond issuance. We saw a very narrow window kind of as [ liver ] of a window in the beginning of February. And we had the $300 million roughly of bonds maturing in the beginning of next year -- in January of next year. So -- and we also saw a very uncertain financial market situation. We saw also kind of the cyclicality of our business. And we decided to come to the market to tap the market in the [indiscernible], because we saw that kind of very narrow reach in terms of potential deal that we actually were able to put through.

We have since paid down the '24 bond. And for the rest, I mean, we are going to wait a few more months to see how the market develops, the cycle develops. And if things perform in a favorable way, we are probably going to continue doing the liability management with the pursuit of that bond. Regarding covenants and waivers, we don't have any financial covenants in our corporate debt at Braskem. So that is not an issue, even with metrics kind of shifting over the next quarters. Regarding your second question about -- sorry, still on leverage, it's important also to mention that our debt maturity profile remains very long, the average debt term is 13 years. And our cash position is pretty strong to face future scenario.

We have enough cash to pay down 5 years of debt if necessary. Regarding the inflation impact, Rosana is reminding me here that all of that does not consider [indiscernible] by credit facility that we have until [indiscernible] of a billion dollar addition. So on inflation, we do see an impact. When we look at the sector prices adjust. So we follow international prices. As costs go up, the marginal cost producers will have to -- and we see that happening somehow. Some adjustment in prices could be because of supply-demand dynamics. It could be something related to inflation as well. But we see those adjustments starting to happen. When we look at -- and we even saw some of our peers announcing one-off adjustments to make up, for example, for higher energy costs in Europe last year.

Regarding CapEx and how we see that, our total operating CapEx for this year is, without Mexico, $650 million, which is in line and the operating includes some positive NPV projects that are not strictly maintenance CapEx. So this number is in line with what we have been telling you in the past that the run rate number for Braskem in terms of maintenance CapEx of about $600 million per year. Do we see inflation in that? Sometimes yes, sometimes no. Right now, for example, there is a favorable condition for some equipment that we see already having prices reduced. In the back end of '21, we did see a lot of over costs in equipment. Now that is -- that has abated substantially. So it depends a lot on the pieces of CapEx that we're talking about.

In terms of services, we do see some inflation. But again, not something that makes us concerned. And then talking about the Shell project, and delays. I would just make a more general comment on that. Delays happen in the industry. We actually have a pretty good [indiscernible] and a pretty good track record in terms of delivering on time and on budget, the Delta project, the last very -- the last big project we did was delayed by about 10%, a few months, and that was because most of COVID, not because of our internal deliveries. It was about 6 months delay. So this happens in the industry. Every year, we see that capacity additions are postponed and delayed. As you know, we take a more conservative view when we talk about the cycle. So we are assuming that everything will come to the market in the time expected. But usually, that doesn't happen. So there is some upside to the scenario because of delays and especially, I would say, in PE and globally where we see still substantial capacity into the market this year.

[Operator]

Our next question comes from Frank McGann with Bank of America.

[Frank McGann, analyst]

I apologize, I had some connection problems. So some of these might have been asked. But the first one, just in terms of the payments related to the Alagoas provision, and how that is affecting your tax rate, both the reported tax rate and your cash taxes, would be helpful.

Also, just in terms of PVC, I mean the prices have been rising recently. And I just wonder how much you attribute that to China reopening or what other factors you see. And particularly what kind of capacity additions that you see for PVC over the short-to-medium term globally that could affect supply-demand dynamics. And then on polypropylene, I think this might have been asked because the line wasn't clear when this question was asked, for me anyways.

In terms of the -- with a huge amount of capacity coming on in the U.S., and how you're seeing that affecting the next couple of years and particularly how that could feed through into Brazilian pricing and margins?

[Pedro van Langendonck Teixeira de Freitas, executive]

Frank, nice talking to you. On Alagoas, I understand your question is specifically about the tax impact. As for any expense that we have, it's -- for tax purposes, it's considered an expense which is deductible, right? So from a cash basis, there is some benefit coming out of that.

But it's part of our tax, regular tax findings as a deductible expense that we have in the company. And as you know, the tax rate in Brazil is 34%. So that is kind of the net impact that you see. In terms of PVC, we see demand coming especially from China -- sorry, especially from India, it's from Asia, but especially from India until March. In April, we see some downward adjustment, but caustic soda is still playing a positive role in the combined spread of PVC plus caustic, right? There is an upside as China recovers, but that recovery is still slow.

So we are not seeing that impact in the kind of -- we don't -- we're not assuming a fast recovery from China in our numbers. So the net positive is really more coming from India. And then regarding capacity additions in the U.S., when we look at PP, we don't see substantial new capacity additions in the coming years. We believe that the capacities that were expected to come to market have done so. So they are already in the numbers. We do see still PP capacity coming to the market in China, especially this year, right? And then on PE, there is still some capacity to come to market in the U.S. based on PE, it still based on the competitiveness of ethane in the U.S.

So the total addition that we see for the coming years is about 2 million tons, but still, I would say, most of that concentrated still this year. So I guess what I'm trying to convey is that the -- what we believe is the capacity addition cycle in the U.S. will be much lower in the coming years. And then when we look at how could that affect us, I would split that into kind of the 2 products, right? NPV capacity additions, be it in the U.S. or China, but capacity additions tend to need to -- if they are faster than demand growth as we still expect this year, they tend to reduce spreads globally.

That has an effect on our, I would say, margins, especially in Mexico and Brazil, because we price based on the U.S. price, right, for polyethylene. In PP, in the U.S., it's much more local in terms of how pricing is, and as mentioned earlier, we do see the market shifting to an export parity. So that would mean a bit lower margins in the U.S. compared to, let's say, the average of the last 4 or 5 years. In Brazil, we price out of Asia, right? So as the Asian price recovers, we see a potential recovery in the PP price in Brazil. But that again depends on demand recovery in China.

[Operator]

Our next question comes from Daniel Soyode with BNP.

[Daniel Soyode, analyst]

Two questions from me. Firstly, are you expecting H2 '22 to H2 '23 to be better than H1 '22? And the second question, you said that you're in dialogue with rating agencies. And can you confirm that you're committed to maintaining your investment-grade rating?

[Pedro van Langendonck Teixeira de Freitas, executive]

David (sic) [ Daniel ], thank you for your questions. Our internal assumption is that H2 '23 will not be as strong as H1 '22. H1 '22 was an above average. If you look at the cycle, it was above the average of the cycle, say -- and our view is that this year, we -- maybe by the end of the year, we get back to average cycle spreads. But last year, it was really still an up cycle, right? So again, just to enforce, we are not seeing H2 '23 being as strong as H1 '22. Regarding the other question about rating agencies.

We are committed to keeping the investment grade of the company, and we have a constant dialogue with them to make sure that they are updated on everything that is going on. We have very strong trust in our credit profile. We see that very long-term maturity of the debt in a cyclical industry is a key aspect of the decision by the rating agencies. And we also, as you can see with what we just did in liability management, we keep committed to that route.

So we do expect to keep the investment grade, especially because our numbers are in line with what the agencies expect in terms, as I mentioned earlier, higher leverage in first half of '23 and then reduction with improvement of spreads. So all of that is very opened out with the agencies, and we keep committed to keeping that to investment grade.

[Operator]

[Operator Instructions] Our next question comes from Christina Ronac with HSBC.

[Christina Ronac, analyst]

A quick question for me. Remind me on the Alagoas, I know it's a big payment for 2023. And if you then, you're almost pretty much done, remind me for 2023, is this going to be an outflow of about BRL 4.9 billion?

[Pedro van Langendonck Teixeira de Freitas, executive]

Hi, Christina. The expectation is BRL 4.2 billion for this year. And then the remainder will be somewhere around BRL 1.9 billion, something like that -- sorry, BRL 2.4 billion. Rosana has corrected me. So it's BRL 4.2 billion for this year and BRL 2.4 billion for the following years going forward.

[Christina Ronac, analyst]

And just to clarify. And so the BRL 2.4 billion for 2024 and then that should be then for 2025 would be zero?

[Pedro van Langendonck Teixeira de Freitas, executive]

No, no. It's BRL 4.2 billion for '23. And then for the remainder of the program, in total, BRL 2.4 billion, which should be spread between 2 or 3 years. Also important to remember that we are still in discussion with authorities in the City of Maceio, right, so these numbers can change.

[Operator]

Our next question comes from [ Bruno Figueiredo ] with [ Veritas ] Bank.

[Unknown Analyst]

I would like to know more about the addition that was made to the Alagoas event.

[Pedro van Langendonck Teixeira de Freitas, executive]

So in the last quarter of last year, we didn't have any significant change. I mean we had a reduction in the provision because of -- I mean, the continuation of the payouts in the -- to the people that live in the area. In the gross provision, there was a slight adjustment of about BRL 100 million, while we paid BRL 720 million. This BRL 100 million, I mean, is a lot of different things in there.

So it's adjustments in the value of the homes. It's also changes in the technical approach to closing down some of the wells. So it's a mixed bag of several different things, small adjustments upwards, downwards, and the net of that is about BRL 100 million in the gross provision. But again, the total provision is coming down as we paid people in our awards. It's also important to mention that with all the settlements we have and with the progression of the programs, the risks and uncertainties have been reduced very materially.

We see clearly a reduction of uncertainties related to the event and be it -- regarding the settlements we did, be it around the implementation of the actions that we have agreed to. So I think the situation today is much more favorable. And I think the big point is now for us to deliver the program for this year, especially the BRL 4.2 billion that I mentioned in Christina's question that is expected for this year.

[Operator]

[Operator Instructions] Not being further questions, this concludes today's conference and today's question-and-answer session. I would like to invite the company to proceed with its closing statements. Please go ahead.

[Pedro van Langendonck Teixeira de Freitas, executive]

So we have here Roberto Bischoff, our CEO, who will make the final remarks.

[Roberto Bischoff, executive]

Hi, everybody. I want to thank you, everyone, for participating today in our earning calls. And I will leave you now with some comments. On the petrochemical scenario '22, we saw spreads for petrochemical and chemical products in the international market, very much affected by global supply-demand dynamics. Various factors contributed to weaker demand, such as Pedro mentioned, zero COVID measures that pressure China's economic growth and uncertainties regarding scenario in U.S. and Europe.

We also observed a higher supply of products with new PE and PP capacity coming online in U.S., in China. These effects combined and put pressure on petrochemical and chemical spreads in the international market, especially during the second half of '22 of the year. Here, I should reinforce that we are maintaining our commitment to cost discipline and have implemented actions to cut costs, prioritize investments and optimize cash preservation. These actions, combined with our diversified portfolio in terms of products and geographies, let us deliver cash flow of BRL 3 billion in the year, even in this tough scenario.

For '23, we continue to see a volatile [ starting ] scenario, but with positive signs of higher levels of demand, especially with the opening of China. The pace of China's reopening will be one of the main factors in the recovery of spreads in the international market and the resumption of an up cycle.

In this scenario, we are prioritizing actions to optimize and maximize the operations of our industrial assets to capture sales opportunities and synergies across our business, given our global footprint, and maintain cost discipline by reducing fixed and variable costs and implementing the Transform for Value program. We also continue to advance in implementing our strategy for 2030 by prioritizing the execution of investments in high-value projects that are aligned with our growth avenues in traditional, renewables and recycling businesses.

In closing, once again I want to thank you, all of our shareholders, investors and stakeholders for their trust and for participating in our earning calls. And I hope to see you again in May when we'll be reporting our results for the first quarter of the year. Thank you very much.

[Operator]

That does conclude the Braskem video conference for today. Thank you very much for your participation. Have a good day, and you may disconnect your lines now.