Unipar Carbocloro SA

BOVESPA:UNIP6

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon. Welcome to Unipar's Third Quarter 2022 Earnings Conference Call. Today, Mauricio Russomanno, Chief Executive Officer; Christian Schnitzlein, CFO and IRO, are present. This event is being recorded. [Operator Instructions]. Presentation can be accessed through MZiQ platform and the company's website at ri.unipar.com. [Operator Instructions].

Before proceeding, I'd like to clarify that any statements that may be made during this conference call regarding Unipar's business prospects, projections, operational and financial goals constitute the beliefs and assumptions of the company's management as well as information currently available to the company. Forward-looking statements are not guarantee of performance and involve risks, uncertainties and assumptions as they refer to future events. Yet, therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that general and industry conditions and other operational operating factors may affect the future results of Unipar. In lead results to differ materially from those experienced in such retentions.

I would now like to give the floor to Mauricio Russomanno, who will start the presentation. Mauricio, please proceed.

[Mauricio Russomanno, executive]

Thank you, Raquel. Good afternoon, everybody. Welcome to our teleconference. Let's talk about the operating and financial results for the third quarter and then we will also highlight some important movements carried out by Unipar in this period. I began by revisiting the global and sector contracts that impacts our variables and assumptions. In the current context, we continue to assess risk for global growth.

The concern with persistent inflation -- high inflation in different countries and process of interest, the conflict in Ukraine and the difficulties in the supply chain increase in the cost of energy, impacting a relevant way, things like gas, energy and ethylene that are key to our activity. Besides this acceleration in many sectors, this affects mainly civil construction. Brazil civil construction has reduced the number of launches and small jobs. However, the horizon is optimistic because of increase in sensation in the country.

In Argentina, the infrastructure jobs have maintained the market in the rise. However, the process of importing or the main products of days. As a consequence of this scenario, we saw that the prices of PVC maintained their donor trajectory impacting our profitability. On the other hand, chlorine and soda has increased, but a reduction of the offer in the same period. In relation to input, we have long-term contracts that will allow us to have better balance throughout the years and the prices.

In regard to sales in our markets, we still have a good volume of sales breaking records. However, we'll continue monitoring the uncertainties. We present to all our external people doing Unipar in Brazil and Argentina with more than 600 people. We've presented our ambition to double in size and extend on the regions of the world in the next 10 years. The objective of growth will be achieved in implementing our strategy that consist of 5 pillars, which have sustainable growth operational excellence, competitiveness, team and culture and sustainability. Even with the uncertainty scenario, we are strong to really achieve our ambitions and vision for the future.

We announced our strategy of long-term sustainability, followed by commitments of medium and long run in investing BRL 1.4 billion in projects until 2030. We present to the market our first report on sustainability that's now available in our website, and you can see the details of the strategy there.

Sustainability has always been part of the history and DNA of Unipar, and it will remain like that. In sustainable growth pillar, we announced the construction of a new site in CAMAÇARI-BAHIA, it was announced with installed capacity of 10,000 tons a year of chlorine. In September, we decided to double the capacity announced initially. And with that, the plant when operational will be responsible for the production of 20,000 tons of chlorine and 22 tons of caustic soda.

This is our first greenfield project of the geographic expansion strategy that complements the projects of expansion of 15% for the production of chlorine, soda and hydrochloric acid on the Santo André plant. Another important step was anticipation of the creation of JV for inter production of wind and solar energy with AES Brazil Grande do Norte. We have the installed wind capacity of 91 megawatt, of which [indiscernible] average megawatts will be sold in alliance with Unipar through a 20-year power purchase agreement, starting 2024 and under self-production regime.

With ATLAS renewable energy, we finished the formation joint venture in August. The project has 239 megawatts of solar capacity installed, 49 average megawatts will be marketed through a long-term electricity purchase and sale agreement with the start of their estimated supply period for 2024. All these actions complement the results of our current operations, where we have excelled in maintaining a high percentage of use of our installed capacity.

The average utilization of the three plants was 86% in the 9-month period. This performance refines the high standard of operational excellence that we have maintained in serving the market to new clients and geographies. Cubatão plant via Bahia Blanca, the installed capacity utilization in 3Q '22 was 84% and 72% due to scheduled maintenance stoppage. Santo André plant reached 91% of average capacity utilization, one of the best quarters in recent years with an average of 88% in the last 9 months.

In Bahia Blanca plant is our the implementation of project initiatives besides investment and the performance of our operations reflect operational results and financial results that are solid. And the Y-o-Y, we registered BRL 5.8 billion with growth of 36.6% in relation to the same period of last year.

I also emphasize important recertifications and recognitions that we achieved in the third quarter, such as ISO-9001, ISO-14001, ISO-14001 and Responsible Care standards in the three factories and two offices. In the rankings of corporate yearbook, we were highlighted in Época Negócios 360° with first place in financial performance challenge in chemical, petrochemical category and fourth place in the general ranking of the segment. We were in second in the best and hire of exam in petrochemicals. That strengthens our credibility and reinforce that we are on a good pathway.

I also want to emphasize that during this period, we announced our evolution we then recognize our history of achievements. And at the same time, we modernized our brand with a symbol for this new phase, emphasizing our proposal of being a reliable partner on everything we do and for the whole ecosystem. The new brand, we emphasized U for Union present at the origin in the birth of the brand in 1969 as Union of petrochemical industries, and we are now protagonist. It reflects our history and experience, a unique culture and also represents the union of the Unipar on system for sustainability.

The asymmetrical aspect of U concept represents human, which is key in relationships of trust. We became simpler and more compliance to digital universe. We continue our transformational journey with the goal of sustainable growth. Our vision is to generate value for all stakeholders on an ongoing basis. The results of this quarter confirm that we have been moving through in this direction.

Now I'll give the floor to Christian, who will detail the financial results.

[Christian Eduard Schnitzlein, executive]

Thank you, Mauricio. Good afternoon, everybody. I hope you are doing well. As usual, I now am going to talk about the financial highlights. And if you're following by the presentation, I'm going to be on Slide 13. This quarter, we had a net revenue of BRL 1.24 billion. And if compared to the second quarter, a small drop of 3%. And that is due to the drop of international price of PVC that was partially compensated by other things. This can be noticed in opening the revenue for products, where we saw a reallocation of mix participation of 54%, COGS increased 9%, mainly because of decrease of price in Argentina.

EBITDA was BRL 654 million, 24% less than the second quarter influenced by gross margin, as mentioned, also increment in its Q&A as reform of our strategy of growth. The net income or profit was BRL 198 million, down 63%, impacted by nonrecurring effect of financial results. And this is because of an agreement done between Unipar, Brazil and Unipar Argentina for the expansion of Santo André. The way of operation since Argentina has some limitations as far as the currency is concerned, was following some things in the American market. The expectation is that there is a reduction of this exchange loss considering the exchange values.

Slide 14 represents the Y-o-Y results comparing the first 9 months of last year with this year. We saw an increase of 37% of net revenue and it was due to more sales volume and the renewal of PVC and soda prices compared to the previous year. [indiscernible] is also 20% higher than '21. It has a gross margin of 52% against 44% last year. The year-to-date EBITDA, BRL 2.3 billion, up 16% over 9 months '21. BRL 1.2 billion has a decrease considering last year due to the effect of the exchange rates, as I mentioned before.

Slide 15, we can see that our net debt is still negative, BRL 142 million. And the operational cash generation in the 9 months was BRL 1.47 billion. In this period, we allocated BRL 44 million in share buyback program, and we have distributed BRL 875 million in dividends that added to BRL 500 million deliberate and approved at the Board of Directors of the administration, a total of BRL 175 million in the year.

Now we open for Q&A. And in case it's not possible to answer questions right now, our team will make contact.

[Operator]

[Operator Instructions] We have a first question here by [indiscernible].

[Unknown Analyst]

Congratulations by the results and the administration. The result of net profit this year is a little bit different. Is that the new normal?

[Christian Eduard Schnitzlein, executive]

Thank you for the question, and I'd like to clarify that. The net profit was impacted by the exchange variation that was quite negative because of the loan that we did in Argentina for Brazil to expand in Brazil. As I said, throughout the payment of the agreement which this loss will be lessened, but not zero, and that will not repeat itself. It is not recurrent effect. We understand it's not a recurrent effect once the result in net profit is achieved.

[Operator]

[indiscernible] from JPMorgan.

[Unknown Analyst]

What are the plans of Unipar to [indiscernible] Argentina?

[Mauricio Russomanno, executive]

Good afternoon, [indiscernible] Mauricio here. Depends on Unipar, we have to follow the market. There is a project that's important, which is the lithium situation in Argentina, in the processing of lithium, use some of the products that we do like soda and [indiscernible] assets. So we are always assessing what will be the best way to serve that market when it matures. Nowadays we already provide for clients, but in small scale, if you consider the potential. We have to follow closely the evolution of production increase of lithium use to decide if we are going -- what we're going to do to serve the demand.

We have the lithium project and the second topic that's very important for us is energy. We're in Brazil. We did in the last 3 years with the 3 [indiscernible] for the production of energy, renewable energy, and we are monitoring in looking at projects to repeat a project of energy in Argentina, looking for opportunities and also looking at the best return on the project. So these are the two areas in the short run, that we are looking at and following in Argentina.

[Operator]

[Operator Instructions] We have one more question here.

[Unknown Analyst]

I have two questions about CAMAÇARI. When do you plan to start it? And what about market shares? Anything new?

[Christian Eduard Schnitzlein, executive]

On the first question, about CAMAÇARI, our expectation is 24 months to start operating it. And about second question about shares, so we have some studies ongoing, nothing concrete yet about whether we're going to unfold the shares or not. But we don't know as yet.

[Operator]

One more question by Alan.

[Unknown Analyst]

With the expansion plan, what's the objective of leveraging the company?

[Unknown Executive]

Thank you for the question, Alan. Actually, we always try to have a comfortable level of leveraging and of course, an expansion movement for greenfield or others, we can see more levers, but always trying to go on a good direction. It's important to look at deleveraging also depending on the project. And we try to be in a comfortable leveraging to speed up in the future.

[Operator]

Question by Carlos [indiscernible].

[Unknown Analyst]

[indiscernible] portfolio, is it in the strategy of the company?

[Unknown Executive]

Carlos, thank you for the question. One of the pillars of the strategy is sustainable growth. At Unipar that we did recently, we said that we have three lines to reach sustainable growth. First, the growth of our core, expanding geographically in new areas. I gave you the example of CAMAÇARI or the expansion of Santo André.

This second would be within our new -- our chains with products and branches from the products we produce. And third would be growing in chemical industry and other areas, new technologies or acquisitions for other products for the portfolio. We did that in 2016, acquiring [indiscernible] where we purchased the soda area, and we also entered PVC. These are the three ways that we are assessing our growth.

[Operator]

One more question from [indiscernible].

[Unknown Analyst]

What are the perspectives for PVC and civil construction market? Market data point to expansion of the industry this year. This week [indiscernible] presented its results and commented that it was a good moment for the sector.

[Unknown Executive]

Good afternoon. Thank you for the question. The perspectives of PVC are directly correlated to civil construction. 70% of PVC produced is for that cycle. We have to follow how civil construction advances. The high interest not only in Brazil, but in the world are always -- they increase the challenge for civil construction because of loans and sales. And we have to also keep an eye on the number of new jobs in the market of small construction jobs that are happening. I'm sorry, just to finish about the expansion markets, in 2022, the civil construction market has accommodated to the variation of interest rates and the increase that happened throughout the last 12 months.

[Operator]

[indiscernible]

[Unknown Analyst]

Congrats for the results. The company has the intention of developing new products?

[Christian Eduard Schnitzlein, executive]

I just answered Carla a similar question. Yes, we are looking at technologies that are derived from our lives here, production line. And we're also looking at other segments that we can go into. The answer is, yes.

[Operator]

[indiscernible]

[Unknown Analyst]

I would like to ask what [indiscernible] of exchange of -- membrane exchange in Cubatão impact because you have the softer perspective of abolishing the mercury process. About [indiscernible], we have cycled a very between 4 and 8 years for membrane exchange. It's the standard procedure of the company. In the second part, about mercury, we have Brazil. The perspective of abolishing is in 2025 due to international agreement of [indiscernible] that do date for that. One question, [indiscernible], what are the margins nowadays of chlorine and soda as compared to PVC? What's more profitable?

[Christian Eduard Schnitzlein, executive]

Thank you, Carlos, for the question. Historically, soda is more profitable. So we always grew more. In the last few years, we had some changes in the markets itself. As Mauricio commented there is a tranche of drop. And so there's more balance in relation to the past when soda was more profitable.

[Operator]

[Operator Instructions] So we now finish the Q&A session. I'd like to give floor to Mauricio for his final considerations.

[Mauricio Russomanno, executive]

Thank you, Raquel. I would like to finish this call. Thank you, all these collaborators of Unipar, all the employees for once again a quarter with excellent operational performance and always looking to do the best for the company, stakeholders and clients. I'd also like to thank for the participation of everybody who is present in Unipar or followed it or accept our site to understand better the strategy of the company in the long run. Our objectives of sustainability and our commitments that we have for the future to be a high-impact sustainable company, not only in the present, but also in the future. I would also like to emphasize that any questions in relation to the company, please look for the IR team or Christian or myself. Thank you all, and I wish you all an excellent weekend. Thank you.