Unipar Carbocloro SA

BOVESPA:UNIP6

Earnings Call Transcript 2019-Q4

[Operator]

Good afternoon. Thank you for waiting. Welcome to Unipar's Fourth Quarter '19 Results Conference call. Here with us today we have Mauricio Russomanno, CEO; and Christian Schnitzlein, Chief Financial and Investor Relations Officer. This event is being recorded, and all participants will be in listen-only mode during the company's presentation. After Unipar remarks, there will be a question-and-answer session and further instructions will be then given. [Operator Instructions]

This event is also being broadcast live via webcast and may be accessed through Unipar website at www.uniparcarbocloro.com.br/ir, where the presentation is also available for download. Participants may view the slides in any order they wish. The replay will be available shortly after the event. Those following the presentation may submit questions through the website, and they will be answered throughout the Q&A session or by the end of the conference with our IR team.

Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of Unipar 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. This is why investors and analysts should understand that situations related to macroeconomic conditions, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements. Everything should be considered by the said investors and analysts.

I will now turn the conference over to Mauricio Russomanno, who is going to start. Please proceed, sir.

[Mauricio Russomanno, executive]

Well, thank you very much, operator. Good afternoon, everyone. I'm very glad to be here to start the call for the results of 2019, my first call as CEO. I'm taking over this position maintaining the results of the company, generating value for all our stakeholders, and I would like to start by really showing that I'm going to be available and will be glad to develop our commercial relationship.

Before going into operational and commercial data, I would like to say that at the end of last year, Fitch Ratings increased to AA, our rating, for the long-term of Unipar, causing a stable perspective for the corporate rating. This was done after the fourth and fifth debenture issues of the company. So we have been increasing our rating because we've been decreasing our net investment for the past 2 years, shown by free cash flow in the period and also our capacity to maintain our financial profile, conservative credit methods and maintain results as expected by Fitch Ratings.

Now I'm going to share some information about the market. Unipar in 2019 had an average use of the capacity of chlorine and soda of 79.7% (sic) [ 69.7% ], which means 13.8 percentage point above Brazil -- the average in Brazil. Our average use of capacity first quarter can be observed in Slide 3, where we can show the stability of the utilization of the plant at Santo André after the project of centralization and modernization of our PVC plant.

I'd also like to remind you that in Bahía Blanca plant, there were 2 events that impacted production: One was a problem with raw material delivery in the third quarter of '19, and 2 shut downs that had been scheduled for the fourth quarter. So average, the utilization was 75%, with 6 percentage point decrease over the previous year. Concerning the price of caustic soda over '18, the international price reached 45% decrease in the year, affecting significantly our revenue as going to be reported by Christian later. For PVC, another important product of Unipar to which we are referencing the market, we had a 6% decrease over '18.

Now I'm going to hand it over to Christian, who is going to talk about financial results.

[Christian Eduard Schnitzlein, executive]

Thank you, Mauricio. Good afternoon, everyone. Now Slide 4. We can see a 12% decrease in net operating revenue. This is a result of sales prices and the lower prices of PVC in the market. In our parent company, we had a 9% decrease. In terms of EBITDA, we can see a reduction of revenue and an increase in price of supply, especially energy, as has been the case throughout 2019. Consolidated EBITDA was BRL 581 million. Consolidated net income was BRL 174 million -- BRL 172 million consolidated, BRL 174 million for the parent company. We have a proposal of sharing the dividends for 2019, 21% of this amount involving all the troubled areas. Total volume, BRL 41 million.

Now Slide 5. We can see consolidated net debt of the company in relation of 0.28 for the consolidated, BRL 163 million in December '19, which means 2% decrease over December '18. We know that we've been -- we've issued our debentures. And in this slide, we can also see cash flow, a decrease in cash levels but also a decrease in gross debt. So our net debt has maintained the same level. We've been working strongly towards cash, free cash so that we can meet our short-term challenges that have been presenting in our situation.

And now we are going to go into our Q&A session.

[Operator]

[Operator Instructions] The first question comes from [ Pedro D'Aniello ], [indiscernible].

[Unknown Analyst]

I would like to know what is going to be the impact of having the barrel of gas -- $25 of oil $25 steady for a while. How is that going to be dealt by the company? What kind of expectations do you have towards that?

[Unknown Executive]

Thank you, [ Pedro ], for the question. The impact of gas prices on our business is still uncertain because there are other aspects which have been varying as well. So we still do not know what kind of impact it will have, at least not yet.

[Operator]

[Operator Instructions] There is one question asked through the webcast, [ Santiago Santos ]. Please make some comments about market soda and PVC prices considering the crisis of COVID-19? There's also a question by [ Vanessa ] [indiscernible]. Can you share your perspective on the impact of coronavirus on the business of the company 2020?

[Unknown Executive]

Well, concerning coronavirus, the first element, the impact on soda and PVC. The price of soda and PVC at the end of last year, caustic soda and PVC, reached very low levels, record levels for the year, and starting 2020, prices show an increasing trend, a slight increase based on the international reference, the prices at the Gulf. From then on, it's difficult to predict what's going to happen with prices because of the impact of coronavirus. I guess we'll have to observe that closely for the next month.

Second question concerning the impact in our business. In March, we haven't observed the impact yet. This is something absolutely recent. It's just been heard for the past 2 weeks, when cases started being detected in Brazil an increase its numbers. The only thing we've been doing is preparing a robust plan to adopt preventive measures, should there are more cases in Brazil, leading to severe measures. So we are prepared for preventive and corrective measures in case there are important impacts on our teams and on the market. So now we've had our crisis committee in operation since last week, working on preparation very carefully and paying close attention to the news.

[Operator]

We have one more question from the webcast. One more question by [ Vanessa ]. Do you intend to do anything else to reduce your -- again because that has impacted your margin of the year?

[Unknown Executive]

Well, this topic of -- it is related to one of our guidelines, we've improved continuously our productivity. We've been continuously improving and working on COGS. We really want to reduce COGS as much as possible and come up with alternatives. One of the examples, the joint venture we showed last -- we announced last year with AES in building a wind power plant and I guess -- and it can provide additional data. As we work with commodities, we are always focused on cost, and we have to try to provide the best alternatives always. The wind power plant was the initiative, which is going to add the capacity of working with renewable energy, which is the guidance of the company. The market as a whole is going to give us more competitiveness compared to other players in the global environment.

[Operator]

A webcast question by [ Pedro ]. From accounting perspective, are you still going to consider the company -- your company of Unipar repurchase of it, will it still get accounted for considering the high inflation rates of the country?

[Unknown Executive]

Well, answering the first part of your question, yes, our accounting method of IFRS in Brazil really require having a carrying over as a high inflation country. All companies in Argentina have the same situation. In terms of an advantageous accounting change for the company, first is we still do not hold 100% interest of the company. We just had 98.4%. And this is still really making us present all the obligations submitting results and everything to the market as we are not the only owner of the company.

[Operator]

One more question by webcast, [ Lucas Galli ]. What are the perspectives concerning Eletrobras process or proceeds?

[Unknown Executive]

Well, thank you, [ Lucas ], for the question. This can be seen in our statements in the end of last year. In the last quarter, we sold the credit. We disinvested of this credit, and we documented that in our balance sheet. So this asset has been assigned to third party.

[Operator]

Another webcast question, [ Mikael ]. Can you please tell us about your profit and also corporate stock? Do you have anything in terms of expectation of sales?

[Unknown Executive]

Thank you, [ Mikael ], for your question. We had one event where we canceled some shares there was a market communication. It was open to the public. So we've adjusted our corporate stock according to our results with no need of providing additional bonus or making any other change.

[Operator]

The next question comes from [ Juan Peres ].

[Unknown Analyst]

I have 2 questions, in fact. The first question concerns the performance of Santo André plant. And now that you have a new PVC plant, there were some adjustments, a reduction in some of the productions and what is your expectations for the plant? The second question is about the cost of the company. Can you tell us which are the lines that were the most impacted, had a cost increase even trying to adjust based on the volume of production in the quarter? And finally, is there any cost impact of the suppliers in Argentina because of the accident?

[Unknown Executive]

I am going to start, good afternoon, with the second part. Argentina does not cause an impact because the supplier has not impacted our situation anymore. Everything has come to normal. As to Santo André, the ramp-up process of the plant to the end of last year progressed quite well. Right now, we are at very satisfactory level of production and now we're trying to come up with different ways of achieving productivity, changing mix and increase productivity. We've reached our expected level, but we've been investing further to really obtain better results from the said plant. And finally, concerning variable costs, last year, there were due to the increase of cost in energy, gas, which was the main factor that led to cost increase in the second quarter last year, with the increase in gas price has been quite significant. And it has impacted, I would say, it was the main reason for increase in cost, energy prices.

[Operator]

[Operator Instructions] The Q&A session is now closed. I would like now to hand it over to Mauricio Russomanno for his closing remarks.

[Mauricio Russomanno, executive]

Well, thank you all very much for participating in our conference call. All our team is here at your disposal. You may reach out to any of our communication channel should you have any additional questions. We wish you all a great afternoon. Thank you.

[Operator]

The conference call of Unipar is now closed. Thank you very much for your participation. Have a nice afternoon. Thank you.

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