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Presentation to high yeld investors Presentation Transcript

  • 1. Braskem Results First Half 2003- New York, USA - October, 2003 Paul Altit
  • 2. Disclaimer – Forward-Looking StatementsThis presentation includes forward looking statements. Such information is notmerely based on historical fact but also reflects management’s objectives andexpectations. The words "anticipate", “wish", "expect", “foresee", “intend", "plan","predict", “forecast", “aim" and similar words, written and/or spoken, are intendedto identify affirmations which, necessarily, involve known and unknown risks.Known risks include uncertainties which comprise, but are not limited to price andproduct competition, market acceptance of products, the actions of competitors,regulatory approval, currency type and fluctuations, regularity in the sourcing ofraw materials and in operations, among others. This presentation is based onevents up to October 09, 2003 and Braskem is not liable to update the contents inthe light of new information and/or future events.Braskem takes no responsibility for transactions or investment decisions made onthe basis of information contained in this presentation. 2
  • 3. AgendaBraskem – Overview1H03 Operating Performance1H03 ResultsConclusion 3
  • 4. The formation of BraskemCopene changes its name to BraskemOPP Química, Proppet and Nitrocarbono merge with BraskemBraskem was formed in Aug 2002 to create Latin America’s largestpetrochemical company Copene Proppet OPP Nitrocarbono 100% 100% 100% 100% Trikem Polialden 52% 53% 4
  • 5. Braskem: Ownership / Corporate Structure after 07/31/2003 PREVI PETROQUISA ODEBRECHT NORQUISA MARIANI PETROS MARKET(1)2.9% 3.4% 7.8% 11.1% 43.2% 43.3% 29.5% 12.0% 3.4% 3.5% 2.9% 1.1% 10.2% 25.6% 29.5% 29.5% 100.0% 56.3% 92.9% 51.6% 35.0% 33.5% POLIALDEN % Voting Stake % Total Stake 5(1) Includes Nissho Iwai’s 4.2% voting stake, corresponding to a 1.6% total stake.
  • 6. Braskem: Strategic Drivers Regional Strategic Positioning: “Braskem Market is a leading company in the Leadership Latin-American thermoplastic (Scale) resins market, with up-stream competitive integration with its key raw materials (ethylene and proplylene)”. Cost Technological Competitiveness Autonomy(Low Cost Producer) 6
  • 7. Leadership in the thermoplastics segments in Latin America (1)Polyethylene PVC Polypropylene Dow Braskem 27% 31% Braskem Basell Solvay 39% Braskem (JV´s) 49% 51% 44% Politeno Others 12% Cuyo 12% 6% Ipiranga Ipiranga 18% 11% (1) Source : Braskem 2002 7
  • 8. Braskem : Production Scale Main Players in the region: 3,200 kt/year* Ethylene Polyethylenes Polypropylene PVC Polystyrene PET 1,500 810 595 515 340 185Braskem DOW BASF IPIRANGA SOLVAY SUZANO PEREZ Including Polibrasil COMPANC* Does not include 1.8 million tons of other chemical and petrochemical products produced by Braskem 8 Source: Braskem, 2002
  • 9. Simplified structure accelerates synergy gains Synergies* (R$ million) Goal = 330 240 208 75 53 Sep/02 Dec/02 Mar/03 Jun/03 9* 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 100different patents, 16 for products, 39 for processes, 26 for catalysis and 19for equipment/automation. 10
  • 11. Braskem – Petrochemical Value Chain Basic Final Inputs Raw Intermediates Products Materials Ethylene Polyethylene Naphtha Propylene Polypropylene Gas Oil Xylenes PVC Natural Gas Benzene PET Condensate Butadiene Caprolactam Caustic Soda 11
  • 12. Braskem: Positioned in Key Segments of the Economy PVC HDPE LLDPE PP LDPE 12
  • 13. Braskem: a Very Attractive Market for its Core Business Overall Market Consumption for Thermoplastics (PE, PP and PVC) 6% 3,500 8% CAGR* 3,200 3,102 3,014 3,000 2,829 2,653 2,529 2,500 2,276 2,135Thousands of tons 2,000 1,811 1,596 1,500 1,313 1,419 1,274 1,000 500 0 90 91 92 93 94 95 96 97 98 99 00 01 02 * Cumulative Average Growth Rate 13 Source: Abiquim, 2002
  • 14. Braskem: Products with High Elasticity as Compared to the Local GDP Annual Growth Rates – Brazil % (1990 through 2002) 15 Brazilian thermoplastics consumption growth exceeds GDP growth by 3.7 11.7 times 10 7.7 6.5 6.1 PP 5 TP (thermoplastics) PEs PVC 2.1 GDP 0 1990 - 2002 14 Source: Abiquim, 2002
  • 15. Braskem – 1H03 Earnings Highlights Net Revenues (R$ million) EBITDA (R$ million) +54% +65% 855 4,447 2,697 554 1H02 1H03 1H02 1H03 Net Profit (R$ million) 468 Net Debt (R$ million) 1H02 Net Debt/EBITDA Adjusted (LTM*) (R$ 1,109) 468 R$ 948 (32%) 6,815 1H03 5.10 6,365 4.11 5,706 3.49 (480)Dec 2002 Mar 2003 Jun 2003 Dec 2002 Mar 2003 Jun 2003 15* Last twelve months; excluding extraordinay items in 4Q02.
  • 16. AgendaBraskem – Overview1H03 Operating Performance1H03 ResultsConclusion 16
  • 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. 17Source: 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. 18Source: Nexant – Chem Systems
  • 19. International Price Trends (Naphtha vs LDPE) Indexed - 100120 LDPE110 1061009080 81 Naphtha7060 2/01/2003 1/03/2003 1/04/2003 1/5/2003 1/06/2003 1/07/2003 1/08/2003 19/09/2003 19Source: Bloomberg
  • 20. Braskem – Operating Performance Average Capacity Utilization (%) Main Products 1H03 1H02 ETHYLENE 79 72 Total Thermoplastics 81 77 PP 93 84 PE 75 69 PVC 79 81 20
  • 21. Braskem – Sales Performance Sales Volume - Tons 2Q03 2Q02 Chg% 1H03 1H02 Chg% Main Products (C)/(D) (A) (B) (A)/(B) (C) (D)ETHYLENE * 248,195 202,092 23 478,446 430,005 11Total Thermoplastics 326,097 355,676 (9) 726,665 731,815 (1)PP 94,900 98,120 (3) 206,616 193,376 7PE 142,593 140,175 2 306,626 303,887 1PVC 79,864 100,361 (20) 190,543 203,963 (7) 21 * Includes sales/transfers to Braskem subsidiaries
  • 22. Braskem – Export Sales US$ MM +38% +32% 317 Export Markets 1H03 (%) 230 Europe 181 28137 Asia 20 North America2Q02 2Q03 1H02 1H03 31 Latin America Africa 18 3 22
  • 23. AgendaBraskem – Overview1H03 Operating Performance1H03 ResultsConclusion 23
  • 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. CORPORATE LAW AS PER CVM RULE 247 2002 2003 Jan - May June - Dec Jan - JuneAssets Consolidated Copene, Copene, into Braskem Copene, Polialden, Polialden, Propett, Politeno, as per CVM 247 Polialden, Politeno, Trikem Propett and Copesul, Copesul, Politeno Nitrocarbono, * OPP and OPP and Trikem Nitrocarbono 24 * Merged into Braskem on March 31, 2003
  • 25. Braskem – Income Statement R$ million 2Q03 2Q02* Chg % 1H03 1H02* Chg % (A) (B) (A/B) (C) (D) (C/D) Net Revenues 2,155 1,468 47 4,447 2,697 65 Cost of Goods Sold (1,734) (1,184) 46 (3,558) (2,228) 60 Gross Profit 420 283 48 889 470 89 Gross Margin (%) 19.5 19.3 1.0 20.0 17.4 15 EBITDA 405 315 29 855 554 54 EBITDA Margin (%) 18.8 21.5 (12.5) 19.2 20.5 (6) Operating Profit 1 278 518 (46) 636 561 13 Net Financial Result 258 (1,024) - 171 (1,241) - Profit (Loss) 338 (316) - 468 (480) - Earnings per share (R$) 101 (93) - 131 (141) -(1) Before Financial Items 25 * Pro forma financial statement
  • 26. Braskem – Cost of Goods Sold – (1H03) COGS 1H03 Other variable costs R$ 3,558 million Other 19.6%Third-party 1.6% services 1.3%Depreciation 3.7% Personnel 1.8% Chem. Prods 0.7% Naphtha 68.8% Electricity 2.6% 26
  • 27. SG&A (1) and Fixed Costs (as a % of Net Revenues) Fixed SG&A (1) Costs 10.9 7.9 5.9 4.0 1H02 1H03 1H02 1H03 27(1) Does not include depreciation/amortization
  • 28. Braskem – EBITDA 1H02 vs. 1H03 (R$ million) 1,614 (1,254) Naphtha: (R$ 1.0 billion) Gasoil: (R$ 95 MM) Natural Gas: (R$ 34 MM) (127) 855 Fixed & Var. Costs 554 Other 68 Operating Revs/Exps. Prices Sales Volume 1H02 1H03 28
  • 29. Braskem – Steady EBITDA Growth EBITDA EBITDA margin (R$ million) Petrochemical Peers (%) Braskem Extraordinary items Industry Average (*) 1,195 21 19 12 11 780* 450 405 367 315 415 2T02 3T02 4T02 1T03 2T03 1H02 1H03(*) Average EBITDA margin of Dow, DuPont, Solvay, Lyondell, Eastman, Nova Chemicals andGeorgia Gulf based on public earnings data from 1H03. 29 Source: Thomson Financial and Braskem
  • 30. Braskem – Net Debt Reduction Priority: Use of cash surpluses for debt reduction Reduction Factors Net Debt (R$ million) Sound Cash Flow in the first half of 2003 (R$879 million) ( R$ 1,109) Efficient working capital management; Synergy gains from the integration process: R$ 240 million on an annual 6,815 and recurring basis 6,365 5,706 Net Debt / EBITDA ratio *: 12/31/2002: 5.10 Dec 02 Mar 03 Jun 03 03/31/2003: 4.11 06/30/2003: 3.49 (*) LTM/ w/o extraordinary items 30
  • 31. Braskem – Consolidated Debt (Jun/03) Gross Debt - % (US$) Breakdown by Indexation 73 TJLP 66 17% CDI Net Debt as of IGP-M 9% 6/30/03: R$ 5.7 Bi 6% Other 2% Sep/02 Jun/03 Amortization Schedule (Gross Debt - %) Trade Finance 23.3 29.1 ~31% 22.4 66% US$ 17.2 8.1 Initiatives Underway: • MTN Programme; 2003 2004 2005 2006 2007 • Trade Finance Programs Jul03 –Dec03 • Increased Working Capital Lines.Short-term portion includes:• R$ 1,120 million in trade finance lines • International/ Domestic Structured Financing.• ~ R$ 559 million in working capital to finance the company’s operations 31
  • 32. Braskem - Hedging PolicyADOPT POLICIES AIMING AT THE REDUCTION OF THE IMPACTS OF THE EXCHANGERATE VOLATILITY OVER FINANCIAL ASSETS/LIABILITIES, THUS PROTECTING US$ DENOMINATED CASH OBLIGATIONS FOR THE COMING 12 MONTHS 100 100 80 80 60 TRADE FINANCE 60 NON-TRADE FACILITIES. FINANCE 40 60% 40 75 % FACILITIES. 60 % 20 20 0 0 32
  • 33. Braskem – US$ Exposure (Jun/03) Hedging Policy Balance as of 06/30/2003 Minimum Standars Non-Trade Finance1. Hedge/Investiments Hedge Facilities USD 404 MM 75% USD 362 MM USD 272 MM 2. Exports Credits USD 152 MM Trade Finance Facilites 60% USD 316 MM USD 190 MM(1 + 2) = USD 556 MM USD 462 MM 20 % Overhedge 33
  • 34. AgendaBraskem – Overview1H03 Operating Performance1H03 ResultsConclusion 34
  • 35. Petrochemical Industry: Positive outlook Despite unexpected issues such as SARS, 2003 is expected to be a transition 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 levelsThe next cycle in the petrochemical industry could be the best in 25 years! 35Source: Nexant – Chem Systems
  • 36. Braskem – Share Price Performance 2003380 BAK 345 BRKM5300 300220 Ibovespa140 14010060 jan-03 feb-03 mar-03 apr-03 may-03 jun-03 jul-03 aug-03 sept-03 Already listed on LATIBEX 36 Last Update: 09/25/2003
  • 37. Braskem : An Excellent Investment OpportunityLeading thermoplastics producer in Latin America;Integrated operations enable synergies to be captured;Consolidated businesses and superior margins, with adjustment of capitalstructure already under way;OPP and Nitrocarbono merger completed and negotiations with commonshareholders 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 ! 37
  • 38. Braskem Results First Half 2003- New York, USA - October, 2003 Paul Altit 38