Unipar Carbocloro SA

BOVESPA:UNIP6

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon, everyone, and thank you for waiting. Welcome to Unipar's Q1 2021 Earnings Conference Call.

With us today are CEO, Mauricio Russomanno; and CFO and CRO, Christian Schnitzlein. This event is being recorded. [Operator Instructions]

This event is also being broadcast via webcast through the MZiQ platform and may be accessed at Unipar's website, ri.unipar.com, where the presentation is also available. Participants may view the slides in any order they wish. A recording of the event will be available shortly after its conclusion. Those following the presentation via webcast may pose their questions on our website. Those will be answered either during the Q&A or after the conference is finished by the Investor Relations team.

Before proceeding, we'd like to mention that any forward statement made during this call will be based on the beliefs and assumptions of Unipar's management and on information currently available to the company. These statements involve risks and uncertainties because they relate to future events and, therefore, depend on circumstances that may or may not materialize. Investors and analysts should understand that macroeconomic conditions, the state of the industry and other factors may also lead to substantially different results than those expressed in such forward-looking statements.

Now I will turn the conference over to Mr. Mauricio Russomanno. Mr. Russomanno, you may begin your presentation.

[Mauricio Russomanno, executive]

Good afternoon, everyone, and welcome to our teleconference for the results of Q1 2021.

We started this year still in the middle of the pandemic, and we continue to act rigorously and responsibly, following the protocols and procedures established last year to protect our teams, continue with our operations and support society. Looking at the results we've shared, we can see that the actions we've taken and the measures we've adopted have been successful. Even in the current scenario, we continue to put in practice every action determined in our corporate strategy, focused on preparing the company for a future of growth. Special emphasis should be given to the investments we've made in skills building programs for our teams and to make our operations more reliable as well as to increase the efficiency and availability of our plants, making it possible to increase our share in this market, which is in high demand.

The result of this strategy is the highlight of this quarter when the Cubatão plant peaked in the month of March at 92% of its installed capacity, the highest rate since 2014. Also in March, our production of hydrochloride and hypochlorite broke historical records. These compounds are part of the formula of water treatment, hygiene and cleaning products.

Our strategy was translated into 4 important building blocks: people, operational excellence, focus on the client and sustainability. Together, these building blocks are designed to continue our sustainable growth, develop our collaborators, communities, approach more closely our business partners and reassure our commitment to safety and the environment.

When we talk about our teams, I'd like to stress that since the beginning of the pandemic, we've been investing in initiatives to support our collaborators and their families to overcome this critical time. We've created the Equilibre program to offer speeches, physical activity, recreation and emotional support to help them face the current challenges in a healthy and balanced way. We also continue to operate at the smallest -- with the smallest possible staff in our plants with the largest possible number of collaborators working from home until we go back to normal. This decision brought confidence and made it possible to continue producing. We've also chosen to continue the development cycle with collaborators and to work our skills that are most relevant, communication and collaboration, by bringing people closer and training them via our recently launched Unipar Academy.

In operational excellence, we've been able to increase efficiency and competitiveness in our operations, improving our variable costs and reducing the losses in the process. The results and records we've mentioned before are a result of this management, but they don't mean that we don't need to continue, tirelessly seeking new solutions and initiatives.

We've received the Halal certification, which means we're prepared to also service segments of the food industry that supply to the Muslim market. This quarter, we also initiated the works at the wind farm from JV with AES Brazil, which is expected to begin operating in the second half of 2022.

Focusing our business on our clients, we remain active and in close relationship and communication with them to identify and support the specific needs they may have as an effect of COVID-19. We also maintained our role that's responsible with society. We've invested BRL 3.2 million in a partnership with other 12 companies to purchase over 5,000 oxygen concentrators and relieve hospitals, making sure that people relying on the public health system can be taken care of. The equipment will benefit thousands of people. In addition, we've also donated 500 staples baskets to communities in Cubatão and Rio Grande da Serra, in addition to hypochlorite to help sanitize public areas in both cities. As part of our mission, our results go beyond our financial indicators, and initiatives with societies and communities are strategic to support the country during this time.

I'd like to finish by thanking all our partners, clients, stakeholders, suppliers, communities and the Unipar team for the trust and commitment in our journey to create a sustainable future.

I will now turn the floor over to Christian Schnitzlein to present our results.

[Christian Eduard Schnitzlein, executive]

Good afternoon. I hope everyone is doing okay. Moving on with the presentation. In Slides 5, 6 and 7, we showed the first quarter results for the company, comparing that with Q4 2020 and Q1 2020.

Our net revenue has increased in comparison to both quarters, following the higher demand for certain products, international prices and the currency appreciation. It's important to highlight that the fact that our production remained at high levels safely, which contributed to the increase in this demand.

Our net operating value increased slightly over Q4 2020, showing a still slight pressure from the rise in prices of raw material and the burden of electric energy. Our EBITDA also reflects the improvement in our operational results and the initiatives focused on efficiency and reliability of our plants. In Q1 2021, we showed an EBITDA of BRL 565 million, about 40% higher than that of Q4 2020. Our consolidated net income was BRL 281 million, in line with Q4, due especially to the absorption of a fiscal loss in Q4 and of the currency pressure in Q1 2021.

In the month of April, we had our sixth issue of debentures in the amount of BRL 350 million in 2 series, maturing in 2024 and 2026. The purpose of this issue was to extend the profile of the company's debt with more suitable rates, improving the allocation of our cash flow and capital structure. Also in April, we distributed BRL 111.7 million in dividends, BRL 96.4 million of which as an adjustment to our reserves to our capital stock and BRL 15.3 million being the supplementary value to the BRL 72 million we'd already distributed in November that were driven by our dividend payment policy. Our strong operational cash generation allowed us to optimize our capital allocation and allowed us to remain liquid and to invest in projects and efficiency.

I'd like to finish the presentation by thanking the entire Unipar team for their dedication and for working safely despite the challenging environment.

Now I'd like to open our Q&A session. Remember that if we can't answer your question via webcast right now, our RI team will be in touch later. Operator, please go on.

[Operator]

[Operator Instructions] Our first question comes from [ Marconi ].

[Unknown Analyst]

Congratulations on your result. To make it easier for smaller investors improve liquidity and encourage the interest entry of funds, do you have a plan for your stock structure?

[Mauricio Russomanno, executive]

I'm going to answer that question. Thank you, [ Marconi ]. This is an excellent question. Unipar always adopts a long-term view. And with that in mind, short-term variations are not that interesting, saying as we believe investors have to know a little bit more of the company and be in line with our strategy. We have conducted a few studies. And currently, our liquidity is at an adequate level.

We participate in a few indexes, small caps, for example, and we really have to look at that to understand and realize our value. So today, the answer is we do not have any plan to unfold our stock. Our current structure reflects what the company is, and we have different ways of encouraging investors to get to know the company better. And if they decide to invest in us, they understand the company's rationale and our long-term view.

[Operator]

We have another question from [ Paulo Garcia ].

[Unknown Analyst]

Is it possible for the company to retain the same gross margin as it had in Q1, considering the change in oil prices? Congratulations on the result.

[Christian Eduard Schnitzlein, executive]

I'm going to take this one and answer it very pragmatically. We have felt a strong pressure on prices. A number of mechanisms are pressuring our costs, but the company has sought ways to not only maintain its margins, but also to seek competitive edge with its products internationally. So it's about seeing it whether we have the right conditions or not, but we're very focused on looking at its production.

As Mauricio said, we want to optimize production and try to keep our costs at reasonable levels. We also want to obtain better conditions with these costs. So once again, we want to keep -- try to keep healthy margins.

[Operator]

We have one more question from [ Julio Cesar Coello ].

[Unknown Analyst]

Could you give us more details about how JP and ARS are moving forward? What would be the deadline for the project to be fully operative?

[Christian Eduard Schnitzlein, executive]

I'm going to take this one as well, Julio. Thank you for your question. Well, we're still at the construction stage. We already have specific deadlines planned for delivery. A few of them have already been concluded, and we have the deadline until 2022 for it to be operative. Right now, we are right on schedule. Every stage of the project has been concluded when they were supposed to. And works have been conducted really well. We already have stage 1 of operations planned. So I'd say that we are now at the beginning of construction. That's where we stand.

[Operator]

Another question this time from [ Rafael Rivero ].

[Unknown Analyst]

Congratulations on the sequence of positive results. Could you please tell us what's the optimal capacity utilization rate for each plant? And can we expect another record in the Cubatão plant in the next few months?

[Christian Eduard Schnitzlein, executive]

I'll leave that one to you, Mauricio.

[Mauricio Russomanno, executive]

Rafael, thank you for your question. About the optimum capacity use, seeing as we have chemical and petrochemical plants of heavy operation, the truth is as high -- the highest rate, the better. Our plants were designed to operate continually. So whenever the plant stops its operation, whether for preventive maintenance or unplanned maintenance or any other reason that forces the plant to slow down its operation, that's not ideal for us in our industry. So the longer our operations are running continually, the better. Our assets are better preserved. Our variable costs improve. Our fixed costs on maintenance also improve. So at the end of the day, our problems with maintenance also decrease because whenever you have to stop, you have to adjust the quality of your product afterwards. So there's no magical number. But the more it is -- the more our plants are used, the better.

Now what can we expect for the next quarters? It's always up to different variables, both external and internal. Obviously, we depend on the market's demand being preserved, which, depending on the product, may suffer seasonal adjustments and also our programmed stoppages and so on and so forth. So what we could say on our side is that we are constantly struggling and doing our best so that any type of slowdown or shutdown occurs in a very well-planned way so that we can achieve the best possible quality and allocate funds the best way possible. So I would say your first question is very much tied to the second.

[Operator]

[Audio Gap]

this took a while. We have another question for [indiscernible].

[Unknown Analyst]

Could you update us on your mercury operations, whether they will be set replaced or not?

[Unknown Executive]

[Foreign Language] Brazil is a signatory of the Minamata court. So considering the dates for 2025 and Brazil, Argentina, we have agreed not to use mercury in the process anymore. And until those dates, we have to no longer use it, and we plan to do that. We have another way, which is more efficient and up to date.

[Operator]

Question from [ Gabriella Carvallo ].

[Unknown Analyst]

Congratulations on today's results. Could we talk a little bit about the programmed shutdown in March? What's the impact expected? And does the company have enough leeway to serve the market?

[Unknown Executive]

Thank you for your question, Gabriella. The planned stoppage actually took place at the beginning of April, in April 5. It's expected to last 50 to 55 days. We were very well-prepared for this shutdown. So over the past few months, we built an inventory of products so that we can meet our clients' demand over the time that this shut down lasts. So that's not a concern for us.

In addition to that, we have a plant in Argentina, in Bahía Blanca, that's also supporting us with products for the Brazilian market in the necessary volume. So we expect everything to run smoothly during this planned stoppage period.

[Operator]

Our next question comes from [indiscernible].

[Mauricio Russomanno, executive]

Since we elaborated our future strategy, we have a list of strategic projects on the pipeline that we are still -- that are still under review. There are projects in organic growth or in expanding our current capacity. We have projects, as Christian and I have already mentioned, that look into how can we improve the company's efficiency and the efficiency of its operations. And as a result, we can improve our internal costs. We have competitiveness projects in raw material such as the joint venture with IRF, where we look at our main raw materials and try with projects such as this joint venture, ensure access to that raw material, reduce costs, and whenever possible, also to improve our matrix to more sustainable versions of them such as the case of wind power.

We also have projects where we look at potential sources of inorganic growth with mergers and acquisition of companies that complement our business. So what I can tell you is all of these projects are being moved forward simultaneously. And as they mature and reach viable or feasible stages, we will let you know.

The important thing to remember is we will only conduct or be involved in projects that make sense and are important to the company. They have to add value to our company.

[Operator]

Question from [ Edison ] from [ STS ]. It's in line with our previous question. In addition to JV with ASP, in the water energy crisis, is there any plan B in case there's another blackout?

[Mauricio Russomanno, executive]

Thank you for your question, Edison. Well, the important thing to know is hydropower is an important source of power for our company. The role electricity plays is critical, especially when you break salt into sodium and chloride. We have long-term contracts, which is to say we are never uncovered. These contracts ensure a certain price and the availability of electric power for the company. What we have to keep our eyes on is the current rates. We have the ISS because of saturation and overburdening of our grid.

But considering the -- with regard to the second part of your question, we need to have projects that allow us to have access to power from renewable sustainable sources that will allow us to continue operating in the long term. And we continue to work in that sense with projects that will complement the project we have with FGT for wind power.

[Operator]

Question from [ Marco Oni ].

[Unknown Analyst]

Do you have plans for new acquisitions and new companies? All that you've mentioned sounds inviting to that type of behavior.

[Christian Eduard Schnitzlein, executive]

Well, [ Marc Oni ], the company follows CVM's governance rules. And whenever necessary, we talk about -- we'll divulge our plans for M&A. Currently, we -- for a characteristic of the sector, we have low leverage. And as Mauricio has already mentioned, answering other questions, we are always ready, ready to look not only to the market, but also internally to understand what investments are required for us to see benefits in the long run, improve our efficiency and also to increase or widen our margins. And also when there's a low cycle, we can also do the opposite. So we have nothing in the pipeline right now, but it is a part of the business to be deleveraged, to some extent, but to be ready to work in any type of situation.

[Operator]

A question from [ Conrado ].

[Unknown Analyst]

Congratulations on your results. I'd like to know if there's any share of the industry that uses products produced by Unipar.

[Unknown Executive]

[ Conrado ], thank you for your question. I could break down our products into categories just to help you understand our explanation. But starting with PVC, the most important industry for PVC is civil works. They are the greatest customers of PVC-based products. And you can see in construction material stores, the pipes or vinyl-based tiles or windows, frames for windows and doors and applications of any sorts. PVC is also used in other industries such as footwear, in the soles of shoes. It is used in the fashion industry for apparel in general. It is also used very significantly in the health care industry. It is used to produce PPI material such as boots, catheters also, blood bags, among other appliances.

So a number of industries use our product as a raw material. And it's also used in the aluminum industry, in the paper industry, in the food industry. It's also used in the hygiene and sanitation industry for soaps, for example. And it is particularly used in 2 major industry. First of all, water treatment to treat the water we consume at home. We also use it to treat the flowing streams and also use it in day-to-day sanitation products, products that you use to clean your house as bleach, which is the diluted hypochlorite.

[Operator]

Excuse me. This concludes today's question-and-answer session. I'd like to invite Mr. Russomanno to proceed with his closing remarks. Please go ahead, sir.

[Mauricio Russomanno, executive]

Well, as my final remarks, I'd like to, first of all, say that we continue to act very rigorously in with regards to COVID prevention and our company or with everyone we may interact. This is absolutely critical. We must continue to ensure the safety of our collaborators and their families. At the same time, we have to keep our operations at a high level within the company while we support the community in general, and this is something we plan to do for as long as we have to.

Another important thing is that all our efforts in the past 2 years to improve our operational excellence across our operations and investments we've made, whether to improve efficiency or productivity or to reduce losses, reduce costs to gain a competitive edge, all of that has proven to be very successful, especially in the past couple of months as the market's demand increases. We were able to make the best of these opportunities and meet the demands of clients and partners as best as we could. We also contributed a lot to the market during this time.

Once again, I'd like to reinforce what I've said before, saying thank you to everyone who contributes to our Unipar ecosystem, our business partners, our collaborators, the local communities and society in general. Thank you for your support during these difficult and challenging times when we are dealing with COVID.

And once again, a special thanks to Unipar's collaborators. This was another quarter when they worked diligently and with a lot of determination to help the company continue to obtain these exceptional results, always with a lot of love and taking great care of one another in the meantime.

So thank you very much to everyone, and we'll see each other in the next quarter.

[Operator]

This concludes Unipar's conference call for today. Thank you very much for joining us, and have a great day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]