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Braskem ResultsFirst Half 2003
- New York, USA -October, 2003
Paul Altit
2
Disclaimer – Forward-Looking Statements
This presentation includes forward looking statements. Such information is not merely based on historical fact but also reflects management’s objectives and expectations. The words "anticipate", “wish", "expect", “foresee", “intend", "plan", "predict", “forecast", “aim" and similar words, written and/or spoken, are intended to identify affirmations which, necessarily, involve known and unknown risks.
Known risks include uncertainties which comprise, but are not limited to price and product competition, market acceptance of products, the actions of competitors, regulatory approval, currency type and fluctuations, regularity in the sourcing of raw materials and in operations, among others. This presentation is based on events up to October 09, 2003 and Braskem is not liable to update the contents in the light of new information and/or future events.
Braskem takes no responsibility for transactions or investment decisions made on the basis of information contained in this presentation.
3
Agenda
Braskem – Overview
1H03 Operating Performance
1H03 Results
Conclusion
4
The formation of Braskem
Copene changes its name to Braskem
OPP Química, Proppet and Nitrocarbono merge with Braskem
Braskem was formed in Aug 2002 to create Latin America’s largestpetrochemical company
Polialden53%
Trikem52%
OPP
100%
Copene
100%
Nitrocarbono
100%
Proppet
100%
5
Braskem: Ownership / Corporate Structure after 07/31/2003
29.5% 29.5% 35.0% 33.5%100.0% 56.3% 92.9% 51.6%
POLIALDEN
% Voting Stake % Total Stake
3.4% 7.8% 11.1% 2.9% 1.1% 10.2%29.5% 12.0% 3.4% 3.5%43.2% 43.3%
MARKET(1)PREVI PETROQUISA ODEBRECHT NORQUISA MARIANI PETROS
25.6%2.9%
(1) Includes Nissho Iwai’s 4.2% voting stake, corresponding to a 1.6% total stake.
6
Braskem: Strategic Drivers
Cost Competitiveness
(Low Cost Producer)
Technological Autonomy
RegionalMarket
Leadership(Scale)
Strategic Positioning: “Braskem is a leading company in the Latin-American thermoplastic resins market, with up-stream competitive integration with its key raw materials (ethylene and proplylene)”.
7
Leadership in the thermoplastics segments in Latin America (1)
Polyethylene PVC Polypropylene
Braskem31%
Politeno12%
Dow27%
Others12%
Ipiranga18%
Braskem39%Basell
(JV´s)44%
Cuyo6%
Ipiranga11%
Braskem51%
Solvay49%
(1) Source : Braskem 2002
8
Braskem : Production Scale
Main Players in the region:
Ethylene3,200 kt/year*PolyethylenesPolypropylenePVCPolystyrene
PET1,500
185
595 515340
810
Braskem DOW BASF IPIRANGA SOLVAY SUZANO PEREZ COMPANCIncluding Polibrasil
* Does not include 1.8 million tons of other chemical and petrochemical products produced by Braskem
Source: Braskem, 2002
9
Simplified structure accelerates synergy gains
Synergies*(R$ million)
Sep/02 Dec/02 Mar/03 Jun/03
208
Goal = 330
240
7553
* Annualized, recurring gains
10
Braskem Technology & Innovation Center
Main objective: To develop opportunities and solutions for
Braskem’s clients;
156 professionals involved in research activities;
R$ 300 million invested, comprising 6 pilot
plants and 11 laboratories;
Annual investments of R$ 30 million in R&D;
Partnership with universities and research centers;
In 2002, assistance provided to 188 clients for 550 new product
development requests.
Initiatives undertaken in recent years have allowed Braskem to file 100 different patents, 16 for products, 39 for processes, 26 for catalysis and 19 for equipment/automation.
11
Braskem – Petrochemical Value Chain
InputsBasicRaw
MaterialsIntermediates Final
Products
Ethylene
Propylene
Xylenes
Benzene
Butadiene
Polyethylene
Polypropylene
PVC
PET
Caprolactam
Caustic Soda
Naphtha
Gas Oil
Natural Gas
Condensate
12
Braskem: Positioned in Key Segments of the Economy
HDPE
PP LDPE
LLDPE
PVC
13
Braskem: a Very Attractive Market for its Core Business
1,313
1,811
2,1352,276
2,5292,653
2,829
3,102 3,014
0
500
1,000
1,500
2,000
2,500
3,000
3,500
90
Th
ou
san
ds
of
ton
s
Overall Market Consumption for
Thermoplastics (PE, PP and PVC)
8% CAGR* 3,2006%
1,5961,419
1,274
91 92 93 94 95 96 97 98 99 00 01 02
* Cumulative Average Growth Rate
Source: Abiquim, 2002
14
Braskem: Products with High Elasticity as Compared to the Local GDP
Annual Growth Rates – Brazil(1990 through 2002)%
15
2.1
GDPGDP
PVCPVC
6.1
Brazilian thermoplastics consumption growth
exceeds GDP growth by 3.7 times
6.5
PEsPEs
11.7
PPPP
7.7
TPTP(thermoplastics)
10
5
01990 - 2002
Source: Abiquim, 2002
15
Braskem – 1H03 Earnings Highlights
Net Revenues (R$ million) EBITDA (R$ million)
+54%+65% 8554,447
2,697 554
1H02 1H03 1H02 1H03Net Profit (R$ million)
468Net Debt (R$ million) Net Debt/EBITDA Adjusted (LTM*)
(32%)
5.10
Mar 2003 Jun 2003
468R$ 948
1H02
1H03
Dec 2002
4.11
(R$ 1,109)
6,815
Mar 2003 Jun 2003Dec 2002
6,3655,706 3.49
(480)
* Last twelve months; excluding extraordinay items in 4Q02.
16
Agenda
Braskem – Overview
1H03 Operating Performance
1H03 Results
Conclusion
17
Overview – Global Petrochemical Industry (1st Half 2003)
Raw materials prices remained at high levels;
Iraq War;
SARS epidemic in Asia:
. Temporary slowdown in the international polymers market, due to a 20% reduction in imports by China;
. Drop in inventory levels – higher order book backlog;
. An expectation for a recovery in imports by China in August-September 2003, which could place upward pressure on prices in Asia.
Source: Nexant – Chem Systems
18
Overview – Global Petrochemical Industry (1st Half 2003)
However, 2003 brought good news too...
The Iraq War ended without significant damage to oil fields;
Raw materials prices showed a downward trend;
The end of the SARS epidemic could signify a recovery in demand in Asia, particularly in China. Prices could rise in the region;
Expectation of gradual recovery among the world’s leading economies;
Limited capacity expansion among producers.
Source: Nexant – Chem Systems
19
International Price Trends
(Naphtha vs LDPE)Indexed - 100
60
70
80
90
100
110
120
LDPE
Naphtha
106
81
2/01/2003 1/04/2003 1/5/20031/03/2003 1/06/2003 1/07/2003 1/08/2003 19/09/2003
Source: Bloomberg
20
Braskem – Operating Performance
Average Capacity Utilization (%)
ETHYLENE 7279
1H03 1H02Main Products
Total Thermoplastics 81 77
PE 75 69
PP 93 84
PVC 79 81
21
Braskem – Sales Performance
ETHYLENE *
Total Thermoplastics
248,195 202,092 23 478,446
326,097 355,676 (9) 726,665
430,005
731,815 (1)
11
2Q03 (A)
2Q02 (B)
Chg% (A)/(B)
1H03 1H02Main Products Chg% (C)/(D)(C) (D)
Sales Volume - Tons
PP
PE
94,900 98,120 206,616
142,593 140,175 306,626
193,376
303,887
(3)
2
7
1
PVC 79,864 100,361 190,543 203,963 (7)(20)
* Includes sales/transfers to Braskem subsidiaries
22
Braskem – Export Sales
US$ MM+38%
137181
2Q02 2Q03
+32%
North America31
Europe 28
Asia20
Latin America18
Africa3
317
1H02 1H03
Export Markets 1H03 (%)230
23
Agenda
Braskem – Overview
1H03 Operating Performance
1H03 Results
Conclusion
24
1H03 Earnings
Accounting Criteria
• The following companies are part of Braskem and are fully consolidated in the financial statements: Braskem; Trikem and Polialden. (OPP Química and Nitrocarbono merged into Braskem on March 31, 2003)
• 1H02 earnings are presented on a pro-forma basis, and financial data from the companies that form Braskem is provided as if they had been part of the corporate structure since the january, 1st., 2002.
• Proportional consolidation effects are eliminated as per Rule CVM 247 for the stakes held in Politeno and Copesul, which are represented via the equity accounting method.
OPP and Nitrocarbono
CORPORATE LAW AS PER CVM RULE 247
Jan - May June - Dec
Copene, Polialden, Propett and Politeno
Copene, Polialden, Propett, Politeno, Copesul, Nitrocarbono,
OPP and Trikem
2002Jan - June
2003
Copene, Polialden, Politeno, Trikem
*
Copesul,
Assets Consolidated into Braskem
as per CVM 247
* Merged into Braskem on March 31, 2003
25
Braskem – Income Statement
R$ million
Net Revenues 1,468 47 2,6974,4472,155 65
1H02* (D)
1H03 (C)
Chg %2Q02* (B)
2Q03 (A) (A/B)
Chg %(C/D)
Cost of Goods Sold (1,184) 46 (2,228)
Gross Profit 283 48 470
(3,558)
889
(1,734)
420
60
89
Gross Margin (%)
EBITDA 315 29 554855
19.3 20.0 17.419.5
405
1.0 15
54
Operating Profit 1 518 (46) 561636278 13
Profit (Loss) (316) - (480)468338 -
EBITDA Margin (%) 18.8 20.519.221.5 (12.5) (6)
Net Financial Result (1,024) - (1,241)171258 -
Earnings per share (R$) (93) - 131 (141)101 -
(1) Before Financial Items
* Pro forma financial statement
26
Braskem – Cost of Goods Sold – (1H03)
COGS 1H03
R$ 3,558 millionOther variable
costs19.6%
Naphtha68.8%
Other1.6%Third-party
services1.3%
Depreciation3.7%
Personnel1.8%
Chem. Prods0.7%
Electricity2.6%
27
SG&A (1) and Fixed Costs
(as a % of Net Revenues)
FixedCosts
SG&A (1)
1H02 1H03
7.9
10.9
4.05.9
1H02 1H03
(1) Does not include depreciation/amortization
28
Braskem – EBITDA 1H02 vs. 1H03 (R$ million)
554
855
Prices
Fixed &Var. Costs
(127)
Other OperatingRevs/Exps.
68
SalesVolume
Naphtha: (R$ 1.0 billion)
Gasoil: (R$ 95 MM)
Natural Gas: (R$ 34 MM)
(1,254)1,614
1H02 1H03
29
Braskem – Steady EBITDA Growth
EBITDA marginPetrochemical Peers (%)
EBITDA(R$ million)
BraskemExtraordinary items
Industry Average (*)
21
315367
1,195
450
405
2T02 3T02 4T02 1T03 2T03
415
780*
1H02 1H03
12 11
19
(*) Average EBITDA margin of Dow, DuPont, Solvay, Lyondell, Eastman, Nova Chemicals andGeorgia Gulf based on public earnings data from 1H03.
Source: Thomson Financial and Braskem
30
Braskem – Net Debt Reduction
Priority: Use of cash surpluses for debt reduction
Sound Cash Flow in the first half of 2003 (R$879 million)Efficient working capital management;Synergy gains from the integration process: R$ 240 million on an annual and recurring basis
Reduction FactorsNet Debt (R$ million)
( R$ 1,109)
Mar 03 Jun 03Dec 02
6,815
6,365
5,706
Net Debt / EBITDA ratio *:12/31/2002: 5.10
03/31/2003: 4.11
06/30/2003: 3.49
(*) LTM/ w/o extraordinary items
31
Braskem – Consolidated Debt (Jun/03)
73
66
Sep/02 Jun/03
Gross Debt - % (US$)
Net Debt as of 6/30/03: R$ 5.7 Bi
Breakdown by Indexation
Amortization Schedule
Short-term portion includes:
• R$ 1,120 million in trade finance lines
• ~ R$ 559 million in working capital to finance the company’s operations
23.3
2004 2005 2006 2007
22.4
17.2
29.1
2003Jul03 –Dec03
(Gross Debt - %)
8.1
66%US$
Trade Finance ~31%
IGP-M6%
TJLP17% CDI
9%Other2%
Initiatives Underway:
• MTN Programme;• Trade Finance Programs •
International/ Domestic Structured Financing.Increased Working Capital Lines.
•
32
Braskem - Hedging Policy
ADOPT POLICIES AIMING AT THE REDUCTION OF THE IMPACTS OF THE EXCHANGE RATE VOLATILITY OVER FINANCIAL ASSETS/LIABILITIES, THUS PROTECTING US$
DENOMINATED CASH OBLIGATIONS FOR THE COMING 12 MONTHS
NON-TRADE FINANCE
FACILITIES.
0
20
40
60
80
100
75 %
0
20
40
60
80
100
TRADE FINANCE FACILITIES.
60%60 %
33
Braskem – US$ Exposure (Jun/03)
Hedging PolicyMinimum Standars
Hedge1. Hedge/InvestimentsUSD 404 MM
2. Exports Credits USD 152 MM
Balance as of 06/30/2003
Non-Trade FinanceFacilities
USD 362 MM75%
USD 272 MM
Trade Finance Facilites
USD 316 MM60%
USD 190 MM(1 + 2) = USD 556 MM
USD 462 MM
20 % Overhedge
34
Agenda
Braskem – Overview
1H03 Operating Performance
1H03 Results
Conclusion
35
Petrochemical Industry: Positive outlook
Despite unexpected issues such as SARS, 2003 is expected to be atransition period to a new level of profitability;
Sector recovery should begin to accelerate in 2004; higher profitability;
Peak profitability (“fly-up”) is expected in 2005;
The outlook for 2006 and 2007 is positive given the limited amount of capacity coming on line;
A downturn is expected in 2008; however, it should be softer than past cycles (depending on investment levels);
The main future profitability driver will come from changes as a result of: Consolidation + Low energy prices + Lower investment levels
The next cycle in the petrochemical industry could be the best in 25 years!
Source: Nexant – Chem Systems
36
Braskem – Share Price Performance 2003
300
140
345
Ibovespa
BRKM5
BAK
60
140
220
300
380
jan-03 feb-03 mar-03 apr-03 may-03 jun-03 jul-03 aug-03 sept-03
100
Already listed on LATIBEX
Last Update: 09/25/2003
37
Braskem : An Excellent Investment Opportunity
Leading thermoplastics producer in Latin America;
Integrated operations enable synergies to be captured;
Consolidated businesses and superior margins, with adjustment of capital
structure already under way;
OPP and Nitrocarbono merger completed and negotiations with common
shareholders of Trikem and Polialden;
Already a Bovespa Level 1 Company; will qualify for Level 2 within 2 years;
Offering 100% tag-along rights for all shareholders;
High potential for shareholder value creation;
Listed on LATIBEX on October 8, 2003.
A world-class Brazilian petrochemical company !
38
Braskem ResultsFirst Half 2003
- New York, USA -October, 2003
Paul Altit