Roberta Varella - Carlos José Fadigas de Souza Filho - Chief Executive Officer Mario Augusto da Silva - Chief Financial Officer, Vice President Executive Officer and Director of Investor Relations.

Conrado Vegner - BofA Merrill Lynch, Research Division Gustavo Gattass - Banco BTG Pactual S.A., Research Division Christopher Buck - Barclays Capital, Research Division.

Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Braskem's First Quarter 2014 Earnings Conference Call. Today with us, we have Carlos Fadigas, CEO; Mario Augusto Da Silva, CFO; and Roberta Varella, Head of Investor Relations. We would like to inform you that this event is being recorded.

[Operator Instructions] We have a simultaneous webcast that may be accessed through Braskem's IR website, www.braskem.com.br/ir. The slide presentation may be downloaded from this website. Please feel free to flip through the slides during the conference call. There will be a replay facility for this call on the website.

We remind you that questions, which we will be answered during the Q&A session, maybe be posted in advance on their website. Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of Securities Litigation Reform Act of 1996.

Forward-looking statements are based on beliefs and assumptions of Braskem management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Braskem and could cause results to differ materially from those expressed in such forward-looking statements. Now I will turn the conference call over to Roberta Varella, Head of IR. Ms.

Varella, you may begin your conference..

investments in innovation, with the development of new applications and efforts to support the growth of the plastics manufacturing industry; its continuous pursuit of higher operating efficiencies by increasing its capacity utilization rates; the closing of acquisition of controlling interest in Solvay Indupa; and maintaining financial health and cost discipline.

That concludes today's presentation, so let's go now to the question-and-answer session..

[Operator Instructions] We'll first go from Conrado Vegner, Bank of America Merrill Lynch..

Just wanted to focus a bit on the trend you're seeing in the second quarter, in terms of what you're seeing relative to the first quarter and -- both in terms of volume and pricing. And then looking out a little bit longer, and you have made some comments about the need for the government to find ways to stimulate the industry.

I was wondering what types of actions you think the government should consider or perhaps is considering? How likely that is and what -- how you think that might change the outlook over the next 1 to 2 years?.

Hi Frank [ph], good afternoon. it's Carlos Fadigas, speaking. Regarding the second quarter of the year, I think comments on the basic -- on the more important aspects of performance for the second quarter. First of all, there's the international spread, we don't see significant change on domestic spread in both first and second quarter.

I think we have to keep an eye on what happens in Asia, Far East, especially China. Because the improvement in spread over the year -- the last year or so has a lot to do with improvement in economic performance, both for in Europe and China sustaining the level of economic activity it had in the past.

So if you see further reduction in growth in China, that may change from the probably better than I've been told [indiscernible] China major that. Apart from that, we've seen the spread pretty much where they are right now. In terms of volume of sales and then briefly in Europe and U.S. a doing fine, actually better than last year.

We see a very sustained growth in the U.S. that's [indiscernible] the kind of growth in Europe so I don't see concerns in that area. In this year, I would saw most of our products and see make most of all return our EBITDA.

We see the second quarter, probably not as strong as typically we have, because of seasonality every single year we have a growth in, say, coming from the first to the second quarter of the year. In Brazil, we will have a short one.

Actually, we have a shorter month for February everywhere, [indiscernible] In Brazil, carnivals we have the less working days, so typically we have a second quarter better than the first.

That may not be the case this year, we're seeing growth in demand in Brazil in the first quarter of 3% year-over-year and if we go back to the first quarter of 2013.

And we believe that because of the World Soccer Cup that will happen in June, July, some production change we have already increased or our changed, therefore, manufacturing in preparation for the World Cup and some -- a lot of people taking vacation during the World Cup, a lot of consumption growth and that consumption may have already reflected in the first quarter.

So we see more of kind of a flat performance between first and second quarter, where the traditional weight has a stronger second quarter than the first one.

When we talk about -- first, the whole first half of '14 compared to the first half of last year, we've don't see been that it's going to be unbelievable to have this same 3% we have year-over-year. And right now, concluding the first quarter. So volumes maybe mild, not as stronger as the traditional year would suggest.

Between the exchange rates and it's critical for the performance [indiscernible] of our business, we do have the vast majority of our costs associated with U.S. dollars, so that we feel it's naturally hedged but we have some [indiscernible] percent of our cost they are [indiscernible] real denominated.

Therefore, a stronger Brazilian real make us a little bit less competitive. And that's what we are seeing right now, the average exchange rate for the first quarter was BRL 2.76 to the dollar. Right now, the exchange rate is BRL 2.23. So we have the real, unfortunately, a bit stronger than it was the first quarter.

And that plays against our EBITDA generation, even if we measure that in U.S. dollars because [indiscernible] and that having a bigger expression when converted to U.S. dollars. Regarding government stimulus, the Brazilian government has been also quite active.

It's the government that was and has a policy of stimulating the economy to be more private in the economy. In the past, we've managed to get a tax reduction from our raw materials, a relevant one. You're familiar with that. We call it the [indiscernible] for opportunities [ph], and but there are other things that can be done.

One thing that right now we have already conquered is [indiscernible]. It's the Pintorera 1 where, if hadn't given to us if at any time that the government is still doing the technical study, it should come to a final conclusion. One thing that right now we have already conquered is anti-dumping, major.

It's a temporary run that it had been given to us in the meantime that the government is still in the technical study should come from -- final conclusion, there is really dumping of quality polypropylene but it has already given us the provisory protection, the provisory defense, if it's a -- in the meantime, we're going through the numbers.

And we do hope that they would conform that we have this right because, in our belief, there is nothing being practiced from a few countries in polypropylene, they are dumping polypropylene. Maybe one final comment on that was the return of what was called St Integra.

It's the way for the government to move back towards supporting companies, some of the taxes that end up being swept in the cost of the project. So you don't take it right back word it in another country but there are several factors that are [indiscernible] but in the production process that is hard to get out of the cost of exported product.

We have that over the last 2 years, that was presented 3% of the exported product so for every exported of manufactured product, and Braskem is among the 10 largest exporters of the petrochemicals in the Brazil. That exported manufactured product will be word on the amount of the export of [indiscernible].

That they don't expect will require in December last year because they have as make much because much [indiscernible] production process. So I hope in the effects that [indiscernible] for the tax break credit in the would be should provide to the in the industry. This will be the perspective of the Brazilian industry as a whole.

This enabled the [indiscernible] balance. It quality effects of we have reached a record last year of $105 billion given that we didn't have [indiscernible] $105 billion of product in each [indiscernible] of [indiscernible]. It's irrelevant that could move us export industry in the industry [indiscernible] together from this, from the business..

[Operator Instructions].

My question is, if your company is considering importing naphtha rather than buying it from Petrobras due to the increasing prices of the spread between imported and national naphtha has now? That would be my question --.

Hi, Andre [ph]. Thank you for your question, for your comment. We, as you know, we are already towards 8 million tons of naphtha and we buy roughly 7 million ton of naphtha from Petrobras. My answer to your question is, no, we do not want to import additional naphtha. There are few reasons for that.

First of all, we don't believe it makes much sense to run a petrochemical segment in Brazil, and when I talk about the petrochemical industry in Brazil, more than Braskem, because Braskem, it had a chemical plant that are supplied directly by Braskem. But Braskem is the first step in the production chain.

And the production chain that had several -- there were hundreds of plants and -- in all the different companies. And together we will present roughly this third, fourth largest import [indiscernible] industrial GDP. It's a relevant in segment in the [indiscernible]. It was not due to run on imported naphtha.

It doesn't make sense to run an entire segment of the Brazilian industry on imported naphtha. And more than that, we view Petrobras produces enough naphtha to keep a supply of rosin, improve rosin the whole petrochemical was to [indiscernible]. Some of the naphtha right now could be -- is being used -- is being added to the gasoline, too.

To provide gasoline, Brazil has had a huge growth in demand for gasoline and even in [indiscernible] the petrochemical segment.

I have also to tell you that Petrobras is in discussion we've had with them, our belief is that they understand the need to have the local industry supplied with not only by local [indiscernible], suddenly capture, it's important for us to import more than what we already import.

And in [indiscernible] we're going to find a way together to find a price formula and an equation that actually isn't just bid-stamping.

One final thing to add to that, is that we've been working very hard to come both should stand in between the 2 companies in a way to create, that is to accommodate the different feel in our --the naphtha [indiscernible].

And that we could find other ways to make money together that could help us compensate for the difference in perspective on what should we be a cause of not to be [indiscernible] Petrobras to be [indiscernible] in their search the petrochemical segment in the review..

Mr. Gustavo Gattass from Banco BTG Pactual, would you like to make a questions..

I have 2 quick questions for you. The first one, on the market share loss that we had from the quarter, So just wanted to touch base.

Do you guys see that as any structural change in the way that the business is going or is that just, thankfully, a one-off part of the story? And the second one, I just want to touch base that the press release talks about a pension fund charge. Yet on your presentation, there's no indication of an adjustment as a one-off for that.

I just wondered if you could talk a little bit about what that is and what it means for your EBITDA in the future and for the first quarter?.

Gustavo, thanks for the questions. Regarding the first question, market share. We read 65%, 67.5% market share. And you know that in the past, is that we'd like to have a market share around 70%. So it actually means that we'd rather have 70-plus, licensed, we have 71% about a year ago. So I don't see that a consequence of circled [ph] change.

It these are very competitive and tough market, we know that. It was even market has actually translated around high 60s, roughly market share, I mean high 60s, low-70s. So we had to be pleasant to in 2012. And then in '11, we grew to 70 plus and in 2012, and then back through 70, around 70.

So one important information is that it's not -- I don't think that's a structural change. It is the consequence of also -- it's really the consequence of how we price our products.

Like we said marginally charge [indiscernible] of the price of the imported [indiscernible] and therefore, the market share within reach and we always keeping eye on the progress of those 2 variables. As you do that naturally with on other areas with the customers to increase relationship and their interest to pay higher [ph] that month.

So I don't see that's going further down but that's a constant -- that's a constant battle. And probably one of the most important ones regarding the current operations. We still see some fiscal informality while meaning tax not paid by some imported material [indiscernible] from imported material, we're also working on that with the authority.

And that could be providing some changes for imported [indiscernible] rather than [indiscernible]. So that's something that has been contributing to it, but we also have an eye on it. As mentioned before anti dumping in PP, we got a temporary antidumping protection against imports from India, South Korea and South Africa.

We do hope that we got it confirm as I said and it's major because we believe [indiscernible] on the scale was [ph] from these 2 countries introduced here. So second point, relevant, not a special [ph] change, but not how we see, and that's the consequence of our commercial strategy.

But we're going to keep an eye on that, we're going keep working on that. Regarding pension fund. As we bought this should have everyone in the same page as we bought several different companies over time [indiscernible] several pension funds. At a certain point you almost had 16 different pension funds. We have migrate [indiscernible] to except the 2.

It's not great the other ones -- one common pension fund and no liability to pricing on those ones, but there are less. 2 pension funds there are associated and managed by PETROS.

And because of the performance of the assets were changed by PETROS as the manager of the 2 pension funds we still have, we have to account for a potential adjustment that could become necessary of $65 million. In this quarter, BRL 65 million.

In this quarter debt adds up to what we already have had before, making that to 265 -- BRL 270 of provisions for eventual losses on pension plan. We don't see that growing beyond that point. The position we made this quarter is exactly to accommodate the difference between what we had and what we see as a potential loss.

As we do that, we keep working very hard to find a way to have these managed by somebody else, managed in a different pension fund, not by PETROS.

They are managing much larger pool of money from [indiscernible] use of Petrobras and some other company and we just like to do what we do with other several pension funds we bought that we migrated to one kind of pension fund, that is called providencia, that because of its profile, it doesn't bring any liability to the company.

So to give you a broader answer, but in a nutshell, we don't see, at this point, we do not see additional [indiscernible] between what we had as a provision, what we believe will it have potentially as a loss..

Okay.

[indiscernible] Should I think about your EBITDA as being have been BRL 65 billion bigger or was it charged somewhere else?.

You should think of the EBITDA, that on a recurring basis, should have been over [ph] $65 million -- BRL 65 million..

[Operator Instructions] Christopher Buck from Barclays would like to make a question..

First, I just wanted to see if you could clarify for us a little bit some more on the antidumping. If you can tell us what the potential financial impact will be, that will be helpful. Second, if you could, you guys have done a bunch of liability management exercises this year already.

Any comments about any other plan you might have for the rest of the year? And then though, finally, just a quick housekeeping issue. I had seen a change in the 4Q '13 revenue number. That was on your prior release versus the one in this release, and I was just wondering if there was an adjustment there.

I didn't see it in the release but I'm wondering why there was a change there?.

Christopher I'll start with your question on antidumping [indiscernible] and then I'll pass on to Mario da Silva, [indiscernible] upon liability management and then will comment on the adjustment you just mentioned. What we got was a temporary antidumping protection against PP imported from India, South Africa and South Korea.

At a specific point in the past, these 3 countries represented roughly 50% of [indiscernible]. It doesn't mean that we see a 50% drop on import, what is [indiscernible] in that case is that they either keep coming but at different price point because the antidumping protection is in place, or they come from different origins.

This temporary right was given to us at the beginning of January. And therefore, in fact, [indiscernible] in the first quarter of the year. So that's one way of answering your question. We do believe that it has prevented us -- it has prevented from an additional loss in market share, and that's one consequence of that.

Having said that, we do hope that we still grow market share as we move forward.

So either it's on polypropylene only either it's for these 3 countries and actually what we've seen in the past was that some of the flow of import works its way somehow around this and that implies that if we know [ph] this sometimes the origin price can go [indiscernible] price and the end result is the informal [ph] price, we [indiscernible] would know that if we [indiscernible], as much as [indiscernible] will for them.

But we manage to hold market share as a consequence of that. I know the thing that we lost the market share but as I said in previous questions it has also to do with [indiscernible]. So this margins is all market share. I'll pass to Mario who wish to comment on the liability management..

Christopher, this is Mario. Regarding the liability management. I mean, it's important to mention were in a petrochemical industry by definition is an industry of very long cycles. As a consequence of debt, the exercise that we do here is to try to have a debt profile, as long as possible.

This year we give 2 exercise of liability management, the first one was in January. We issued a 10-year transaction $500 million and we bought back the bonds maturing on '17, '18 and 2020. And we added to that transaction 15 days ago, 2 weeks ago, $215 million.

In the future, the work that we do here, every time that we see an opportunity a good moment in the market we buy it eventually and go again to the market in another exercise. But again, the target is obviously to have a negative [ph] debt profile in the [indiscernible], given the long cycles that we have within the petrochemical industry.

The last point that you had, I'll pass to Roberta to comment on the revenue of difference that you found..

Christopher, this is Roberta. And remember that by the end of last year, we decide to keep our investment [indiscernible] it was just quarter of what we had, it was a quarterly adjustments.

So you can see now we're really talking results [indiscernible] at table by the end May, in release in the appendix that will show you all the FX that we have quarter-over-quarter..

Let me just to add to that, the -- when we had quantiQ, our chemical distribution business up for sale, we -- the auditor asks us to segregate all the numbers from quantiQ from the consolidated Braskem income statement. So throughout most of the year '13 or the year '13, we had the consolidated Braskem numbers, not including quantiQ.

And now we are including quantiQ. and to make it comparable first quarter with the first quarter of '13, we had to add quantiQ back to the beginning of '13, so it's comparable with the first quarter of '14..

Yes, [indiscernible] we are adjusting on a quarterly basis because I don't know if you remember, in fourth quarter, we give everything in the fourth quarter of 2013. Well at that time that we decided that we we're not selling quantiQ. So now to be comparable, then we are adjusting the first quarter of 2013 with the first quarter of 2014.

I don't know if it's clear..

No, that's great. And maybe just one additional question would be, you guys have provided some pretty clear margin guidance for the rest of the year. I know there's a lot of different factors that go into that.

But any additional thoughts about where we should think about EBITDA margins coming out for the year in a whole or should we just think about that as being status quo and go with the guidance you gave previously?.

Well, sometimes it's tough for us to answer the question on where we see the EBITDA on the next quarter, you're asking about the whole year.

But let me tell you that, if we look at the whole year of 2014, it seems irrelevant that could change the performance we've had in the first quarter would be associated with what happened in Asia, with the slow down the economy in China. What happens with exchange rates, it's relevant. We had BRL 2.36 for dollar in the first quarter already.

If the reais, Brazilian reais gets stronger, it reduces our EBITDA generation. If the Brazilian reais gets weaker, it's good for the performance of the company. In terms of economic performance, the consensus for Brazil economic growth at this point is roughly 1.6% EBITDA growth.

I don't see, at this point, changing materially so I don't think big surprise would come from there. So if you want a forecast for the year, what I would do is to take the first quarter and then play with these variables, according to your perspective of these variables to try to come up with a whole year EBITDA.

And I think those are the most relevant things to take into consideration. That's a probably answer we can give to you, given the uncertainties around economic growth, exchange rate and some of these other variables..

Fernando [ph] from GBN [ph] would you like to make a question..

I have just 2 brief questions. The first one is regarding [indiscernible] the constitution [ph]. I was wondering if time premium wonder what's going to be [indiscernible]. And the second one is if you see any further benefit in Mexico, after the one [indiscernible] secondary loss have been [indiscernible] ..

[indiscernible] you probably have some problem with the audio. I'd like to, if you could repeat the question please, we have some trouble understanding them. [indiscernible] a little bit closer to the phone or something like that to help us understand you..

My first question is regarding the [indiscernible] acquisition. I was wondering if you have any timeframe whenever it's going to be complete. And the second one is regarding the Ethylene XXI project.

Did you see any sort of benefit or do you think secondarily, that, that relationship pertains to the companies?.

Okay, I will start with your question on Ethylene [ph] Grupa [ph]. And then I'll move to the question on the Ethylene XXI project. First of all where we are on the [indiscernible] position It's a process to go through. Right now, the Brazilian [indiscernible] commission [indiscernible] resolution.

They have based on how they classified the resolution, is a complex one. And they have roughly 300 days, 10 months. We started -- we filed the case with the [indiscernible] January this year so roughly around October we'd have, October-November we'd have a final decision. I do hope if ever they reach a final decision, it's a positive one for us.

I do hope they reach a little bit sooner than that. But that how our [indiscernible] it can go. In Argentina, we also have filed for public offer, change of control of public offer. We had to do that because certain people they know is a public company [indiscernible] in the stock exchange.

The monetary -- the capital market authority in Argentina is analyzing our proposal to come up with a conclusion ready. It's a valid proposal [indiscernible] and then afterwards, that will be presented to the minority stakeholders of certain group.

Having said all that, I think we might be on track the critical path, the longer path [indiscernible] first.

We have [indiscernible] that [indiscernible] is a global market and therefore we don't see a concentration that could jeopardize competition on the [indiscernible] market, in that we hope to have the projection [ph] approved by the Brazilian Antitrust Committee in Brazil. Regarding the -- your second question. Let me see if I got it right here.

Give me just a seconds.

Fernando, regarding your question in the Ethylene XXI and environment and the change to the development in Mexico has made, to summarize of the point I have made, what we see next is on the petrochemical chemical segment, as a segment very much related with the oil and it's a segment [indiscernible] if the government moves [ph] in to private [indiscernible] Actually, as you know the Ethylene XXI is consequence already of that the private [indiscernible] petrochemical segment.

So the energy reforms, the staff in Mexico is a huge [indiscernible] of the Mexican society -- Mexican authority to welcome more private money [ph], and therefore, even more in petrochemical. It was actually more open through the private investment to start with.

Big petrochemical companies like [indiscernible] so and so we you see a big business environment, both in terms of regulation but also in terms of energy cost, in term of label cost, in terms of trade agreement. Mexico had several free traded limits with different countries. So it is [indiscernible] environment.

We are comfortable with the way the project is progressing. And actually we have, I'd say we have the obligation to keep our eyes open to new investment opportunities in Mexico. So [indiscernible] that or [indiscernible] different investments, I'm not that particular [ph] about the certain point, we may consider that.

Right now, the focus is really on finishing the construction, but we are open, especially in the environment that we feel we need to be in, as we [indiscernible]. I hope I have answered your question, if I haven't, let me know, and I can complement what I said..

I will turn over to the company for closing remarks..

Well, I will be very brief. Thank you very much for participating in this call. We remain focused on the true parallel [indiscernible], first of all; optimizing profitability of the assets we already have. In that line, we are working to improve the business environment in Brazil to the extent [ph] at the Brazilian industry.

The antidumping measure is a consequence of debt. The tax incentives has brought [indiscernible] is actually another extent [ph] Of that. The next quarter is [indiscernible] -- is another example of that and our constant efforts to keep increase market share is also [indiscernible] of debt. We also have launched a program to support our customers.

It's called TIC [ph]. I hope the translation of that would be a continuous [ph] problem for the tax [ph] industry, while we support innovation, export of transformed material, the products produce by our customers and so on.

So as we work on the current asset that we have trying to increase profitability, we also work on, as I said, a parallel agenda to give you asset [indiscernible] to remain competitive.

That's the case for Mexico where the assets, products [ph] in the United States, where the content [ph] project in the state of Rio De Janeiro in Brazil, and also the [indiscernible]. So as we work on that, it's always a positive to better EBITDA coming from the business we have right now, as we have improved from the first quarter.

And I think we've got the benefits [ph] of the first quarter of last year. So thank you again for your interest, and I wish you all have a good weekend. Thank you..

Thank you. This concludes today's Braskem's earnings conference call. You may disconnect your line at this time. And have a nice day..