Roberta Varella - Carlos José Fadigas de Souza Filho - Chief Executive Officer.

Frank J. McGann - BofA Merrill Lynch, Research Division Fernando Perez Lizardi - GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division Andre Sobreira Andres Portilla Leroux - GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division.

Good morning, ladies and gentlemen. At this time, we'd like to welcome everyone to Braskem's Third 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 the website. Please feel free to flip through the slides during the conference call. There will be a replay facility [ph] for this call on the website.

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

Forward-looking statements are based on the 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 circumstance 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 over to Roberta Varella, Head of IR. Ms.

Varella, you may begin your conference..

Good morning, ladies and gentlemen. Thank you for participating in another Braskem earnings conference call. Today, we will be commenting on our results for the third quarter and first 9 months of 2014.

We'd like to remind you that pursuant to Federal Law 11638 as of 2007 the results present in today's presentation reflect the adoption of International Financial Reporting Standards or IFRS.

Note also that due to the decision of maintaining its investments in quantiQ, the chemical product distribution company, Braskem restated its consolidated quarterly results for 2013 to include the results of this operation. The financial information in today's presentation was reviewed by the independent external auditor.

Let's go to the next slide, please, where we'll begin our comments. On Slide 3, we present the operating and financial highlights of the third quarter of 2014.

The average capacity utilization rate of Braskem's crackers was 90%, 6 percentage points higher than in the second quarter, reflecting the resumption of operations at the Triunfo cracker following the scheduled maintenance shutdown and the normalization of fixed cost supply at the Rio de Janeiro site, which partially offset the scheduled shutdown of the São Paulo cracker that started in September and was concluded in October.

Brazilian demand for thermoplastic resins was 1.4 million pounds, increasing 5% from second quarter, which is explained by the better performance of factors related to consumer bid and by seasonality. Braskem's sales followed this trend and grew by 7%. Sales of propylene in the U.S.

and Europe business units held 2% on the previous quarter, mainly due to the slow down European market. Compared to the third quarter of 2013, Braskem's sales grew by 9%, reflecting the better microeconomic environment.

Consolidated EBITDA in the third quarter was BRL 1.5 billion, which is sustained by the higher spreads in international market and the growth in total sales volume. In U.S. dollars, EBITDA was $660 million. In this scenario, Braskem posted net income of BRL 230 million in the quarter.

The company leverage, as measured by the ratio of net debt-to-EBITDA in U.S. dollar, stood at 2.7x, practically in line with the previous quarter.

In October, Fitch Ratings revised its rating outlook for Braskem from negative to stable, reflecting its ongoing commitment to delevering the process made and the strategy [indiscernible] by the fixed cost profile and the consistent improvement in its operation results.

Another important factor in the outlook change was the expectation of better petrochemical spreads in the international market. Let's go now to Slide #4. This slide presents the quarter's highlight related to projects and awards received by the company.

In line with the company's strategy to diversify and gain assets to more competitive [indiscernible] stock sources. This is the completion of the Mexico project, which is 82%. The pre-marketing activities continue to advance with the number of active clients already reaching 276.

The project, which will start operations by the end of next year, is the first greenfield project to be commissioned in North America and will use ethylene at competitive price to produce polyethylene.

In addition to the fixed [indiscernible] competitiveness [ph], another advantage of the process is its focused on closing the growing demand for polyethylene in Mexico market, which currently is an unvested market and has around 70% of its demand supplied by imports.

Another highlight was the withdrawal by the subsidiary Braskem-Idesa of the fourth installment of the project finance in the amount of $383 million.

As part of its commitment to promote the development of the Brazilian plastics chain, Braskem made progress in the program creating jointly with the industry [indiscernible] also known as PIC or Plastics Chain Competitiveness Incentive Plan.

Highlighting the quarter was the creation of the Exporter Qualification Project, a total action focused on technical and market aspects and that has already supported 70 companies. The project aims to double the volume of export of plastics manufacturing goods made from polyethylene and polypropylene within 2 years.

Braskem also won the Transparency Trophy award by ANEFEC, National Association of Executive in Finance, Administration and Accounting (sic) [National Association of Financial, Administration and Accounting Executives]. And for the first time, the award for Best Annual Financial Statements in the category of companies with revenue over BRL 5 billion.

Let's go now to Slide 5. This slide shows the performance of the Brazilian market of thermoplastic resins and Braskem sales. In the third quarter, Brazilian market for thermoplastic resins grew by 5% compared to the previous quarter, mainly reflecting the recovering segments related to consumer good and as well with the quarter seasonality.

Braskem's resins sales followed the market dynamics and reached 900 to 9,000 tons, a growth of 7%. The company's market share stood at 68%, up 1 percentage point from second quarter.

Compared to the third quarter of last 2 years and demand was affected by the slow down in resin [ph] production and by eventually rebuilding the chain in the prior quarter, both Braskem sales and market demand increased by 5%.

In the 9 months of the year, the Brazilian market of thermoplastic resin reached 4 million tons in line with the demand presented in the same period of last year. Meanwhile, Braskem's sales [indiscernible] by 2% [ph]. Let's go to next slide, please.

Slide 6 details the factors that influenced EBITDA in the third quarter of 2014 compared to the previous quarter.

Braskem's consolidated EBITDA was BRL 1.5 billion, a growth of around 30% on the second quarter, mainly reflecting a higher sales volume and a higher thermoplastic resin spreads in the international market, which were partially offset by the nonrecurring expense of BRL 34 million from the negotiation of tax liability and the [indiscernible].

The 2% average depreciation in the Brazilian real against the U.S. dollar was another important factor that impacted the result in BRL 54 million, which resulted from an positive revenue of BRL 250 million and a negative cost impact of BRL 161 million. In U.S. dollar, EBITDA was $606 million, including 30% from EBITDA in the second quarter.

Let's go now to Slide #7. Slide 7 shows the change in EBITDA in the 9 months of 2014 compared to the same period last year. Braskem's consolidated EBITDA reached BRL 4.6 billion, growing by 16% on the 9 months of 2013. On a recurring basis, EBITDA grew by 10%.

The main drivers of EBITDA growth was the recovery of thermoplastic resin spreads in the international market and the average U.S. dollar appreciation of 80%, which generated a positive gain of BRL 567 million, which resulted from a positive revenue impact of BRL 2.6 billion and a negative cost impact of BRL 2.1 billion. Let's go now to Slide 8.

This slide shows Braskem's debt profile. Since the investment made in the Mexico Project by the subsidiary Braskem-Idesa financed under our project finance model, with debt repaid using the project's own cash generation, the debt analysis presented here does not consider this financial structure.

In this context, on September 3, Braskem's gross debt stood at $7.8 million, decreasing 4% from the balance on June 3. In Brazilian real, gross debt increased by 7%, reflecting the impact from the 11% dollar appreciation in the end of the period; 68% of the gross debt was denominated in U.S. dollar.

Meanwhile, the balance of cash and investments stood at $1.4 billion, practically in line with the balance at the end of the previous quarter. The company due to its liquidity strategy has Brazilian credit facilities that do not include any of its covenants on results during the times of adverse market.

As a result, Braskem's net debt stood at $6.4 million. In Brazilian real, net debt increased by 7% to BRL 15.8 billion. Net debt denominated in dollar was 74%. Financial leverage, measured by the ratio of net debt-to-EBITDA in U.S. dollars, ended the quarter at 2.7x.

In Brazilian reals, the leverage ratio stood at 2.9x, increasing 11%, which is sustained by the Brazilian real depreciation between the periods. On September 3, the average debt term stood at around 16 years. Considering only the portion of debt denominated in U.S. dollar, the average debt term was 10.5 years.

Only 3% of Braskem's total debt matures in 2014, and its high liquidity ensures that its cash and cash equivalents cover the payment of obligations maturing over the next 27 months. Let's go into the next slide, please. Slide 9 shows CapEx in the 9 months of 2014.

Maintaining its commitments to making investments [indiscernible] the cost of capital, Braskem invested around BRL 2 billion in the period.

Of this amount, 6% was allocated to the corporation, including part of the amount for the scheduled maintenance shutdown, and around 30% was allocated to the construction of the new petrochemical complex in Mexico.

As a remainder, this disbursement is related to the other ongoing projects announced by Braskem, such as investments for the production of quantiQ at the La Porte site in the United States and the conversion and expansion of on of its polyethylene production lines in Bahia to produce metallocene-based polyethylene.

It's important to remember that the amount invested in the Mexico Project shown here does not include the amount from the project financed or for the project minority shareholder. For 2014, the estimated investment remains around BRL 2.7 billion. Let's go to the next slide, please.

On Slide 10, we present the currency areas in the international petrochemical industry. Higher oil production especially in the United States and India [ph] diverts the attention from the geopolitical issues in Iraq, Ukraine and Russia, [indiscernible] to reverse the upward trend in oil price.

The lower-than-expected growth in oil demand also contributed to oil prices falling from levels of over $100 per barrel to between $85 and $90 per barrel.

In this context, the price of naphtha, the main fuel [ph] stock used by the petrochemical industry and which is highly correlated to oil price, continued to follow the dynamics of oil market and also retracted [ph] with a positive impact on petrochemical spreads.

However, over the coming months, petrochemical prices are expected to follow the downward trend observed in naphtha prices, the balance in the level of spreads, both which should still remain at high levels.

In the medium term, the outlook for the global petrochemical industry remains positive, and certainly with regard to the timing of this part of the projects already announced, it continues to act as one of the positive factors in the recovery of the industry's growth stability.

For the period from 2014 to 2017, our new project expectation was being planned for full capacity at the end of 2013 due to recent outlook. It also serves that the [indiscernible] economies in the start of [indiscernible] CapEx was $7.6 million, with $4 million of this amount is related to projects announced in China.

In the case of the yen, average annual growth was revised upward to reflect the [indiscernible] in mature economies, especially in the United States. In this context, petrochemical spreads are expected to remain at healthy levels over the coming years.

One point that merits attention is the start up of projects announced after 2017, especially in the United States, whose CapEx is forecasted with the demanded growth is related for the period and from hereon show up [ph] pressure on industry margins. Let's go to the last slide, please. Slide 11 presents Braskem's outlook and priorities.

The brightest prospects for U.S. economy were not enough to offset the weak performance for the many Eurozone economies and the slower growth in emerging markets. This led the IMF to revise its forecast for world GDP growth in 2014 to 3.3%, down 0.1 percentage point from its projected amount in July. In Brazil, this area remains challenging.

Country GDP growth forecast for the year was revised downwards 2.3% per year, reflecting the slowdown industrial production and continued spend as well as the low levels of investments and business confidence.

In this context, Braskem's strategy continues to focus on investing in projects to diversify its profile and improve its competitiveness in the global cost curve.

But due to the integrated petrochemical complex in Mexico to produce polyethylene and continuing to make progress on the study for the Ascent project with technologies for polyethylene and cracker productions have already been assigned.

The company also believes focus on developing the Brazilian petrochemical and plastics chain, renewing market spread [indiscernible] with Petrobras and its energy -- [indiscernible] continuing to capture operating efficiency gains by increasing its CapEx [indiscernible], completing the acquisition of the controlling interest in Solvay Indupa and maintaining financial health and cost discipline.

That conclude today's presentation. Let's go now to the question-and-answer session..

[Operator Instructions] Mr. Frank McGann from Bank of America would like to make a question..

Yes, I was wondering how you're seeing the competitive environment now thinking relative to imports.

With the foreign oil prices, have you seen some of the naphtha-based suppliers -- rather natural gas-based suppliers becoming less competitive, as a result it's becoming less of an issue? Or is it actually, perhaps, a reverse just because of lower prices in general?.

Frank, this is Carlos Fadigas. Well, the recent drop in oil price and, therefore, the reduction in naphtha prices as part of this year has not changed dramatically, and the gas-based producers remain much more competitive than the naphtha producers. And so the overall picture has not changed.

What has been actually positive for some naphtha producers is the fact that spreads have increased simply because although base petrochemicals have felt also along with the naphtha, but the resins have been coming down in a slower pace. So therefore margins were better in the third quarter and now in the beginning of fourth quarter.

But apart from that, when you compare gas-based with naphtha-based producers, no relevant change. We haven't seen any relevant change..

And how do you see prices going forward? Do you think they will become -- go under more pressure or?.

I think that the resin prices for the ethylene and polypropylene will come down over time to adjust for the falling naphtha price. You also asked in your first question about imports. We haven't seen any special pattern in imports in Brazil. We increased our share from the second to the third quarter from 67% of the Brazilian market to 68%.

We're going to try to increase a little bit more the market share in Brazil. Import levels have been fairly normal. So to address the point you have raised in your first question, so imports in Brazil are following the same pattern we had before.

Prices going forward, as I was mentioning, base petrochemical price react more fast to the falling naphtha prices. Resins are coming down in a much slower pace. So therefore we're going to have -- we're not going to do good margins.

We have had it in the third quarter and in the beginning of the fourth quarter, but that's something that will -- this dynamic is pretty much related to this quarter. I don't think that the spreads, if you like, now are sustainable long term. It's a result of -- the result of the adjustments to the falling naphtha prices.

But when you compare -- if you were to compare what we expect for the whole year of '15 with what we have had so far, I think that it spreads overall will remain pretty much the same next year.

If I were to be a little bit more optimistic in that maybe we have a small increase in the spreads due to the fact that demand keeps growing, not in Brazil but outside of Brazil, and not a lot of value -- volume coming to the market. But that's more on the optimistic side of the forecast rather than the conservative one..

Mr. Fernando Perez from GBM would like to make a question..

I have 2 questions.

The first one is how do you expect the decline in oil prices to affect the negotiations with Petrobras regarding the naphtha supply contracts? And the second one is, if you have a guidance regarding the domestic market for the next year, how do you expect it to behave in terms of volume?.

Okay, Fernan, thank you for the question. Regarding the fall in both oil and therefore naphtha prices, the impact of the negotiation with Petrobras.

First of all, a very important thing to mention is that the recent production in naphtha price does not solve the issue of competitiveness of the naphtha-based petrochemical producers simply because as naphtha prices fall, the price of the end products, the petrochemical products who need the resins for the base petrochemical products, they also fall.

And therefore, the profitability of the petrochemical producers is much more related with the balance between demand and production of petrochemicals itself, not very much associated with the absolute value of naphtha. Naturally, if it falls to close to the gas price, that we don't see happening, that could have an effect.

But the important message here is that in regards to the naphtha price, from $950 per ton in June, July to $650 per ton, does not change the fact that petrochemical producers are still less competitive than gas producers.

What I think that this fall in prices of oil derivatives and gasoline is a critical one for Petrobras could help Petrobras reduce the loss they've been saying -- they been stating they've had over time between cost of gasoline. So that may reduce some pressure on the gasoline price. Naturally, that may create pressure on other areas.

It's hard to get a conclusion from that and understand whether that will help or not the naphtha price negotiation. Our goal is to try to have a raw material that is more competitive when compared to the shale gas, try to close some of the gaps between -- in gas, and the fall in naphtha prices doesn't change the fact that we still need that.

With respect to your second question regarding the guidance for the fourth quarter in the domestic market, we saw an increase in demand coming from the second to the third quarter. It increased by 5% as we presented.

That has helped balance the overall demand for resins in '14 with the same one we've had in '13 when you compare the 9 months of '14 with 9 months of '13. So we have 0 growth now. So if we were to compare the -- our projections for the full year for '14 with full year of '13, we'd see the market's pretty much in line with what we had last year.

So at this point, we expect to finish the year with 0 growth. And we could talk specifically about the fourth quarter. Because of seasonality in Brazil, we expect to have a lower demand than we had in the third quarter.

It's hard to forecast exactly how much, but a 5% reduction would be a reasonable number to expect when we look at several periods with seasonality on the fourth quarter. I hope I have answered your question..

Mr. Andre Sobreira from Crédit Suisse would like to make a question..

I have one follow-up from the Portuguese call. When you were making comments about the Mexico Project, I had the feeling that you were somewhat cautious about your ability to sell in the Mexican market.

Did I understand that correctly? Are you a little bit more concerned about your ability to displace the imports in the Mexican market going forward? Do you see more competition? That would be my first question. The second question, also follow-up regarding the Ascent project in the States.

The decision on the structure of the project is it more because you don't necessarily want to own the project and you want to operate or just to be the off taker? Is that you're decision because you'd prefer that solution? Or it's a balance sheet decision from Braskem that you can also do it, therefore, you're trying to go in another route? That would be the 2 questions..

Thank you, Andre. Regarding the Mexican project, we're going to be producing close to 1 million tons naturally as we start up the plant. There is a ramp-up period, but at the end of the day, it's a 1,050,000 tons of capacity. We are very confident of our capacity of placing most of that in the Mexican market.

But what we said -- or what they tried to say at least is that especially in the beginning, you don't go from 0 presence in the market -- or very little presence, only through your pre-marketing, all the way up to 1 million tons sold in [indiscernible] in the very first year.

So right from the start, when we were planning this project and budgeting and so on, we knew there would have to be an adjusted period. Right now it's -- the market -- the Mexican market imports roughly 1 to 1.2 million tons of resin mainly from the United States, and we know the U.S. produces will try to keep the share of the Mexican market.

So the point is, there's a period of adjustment. We're going to go after our fair share of the domestic Mexican market, but we will also have to export. We understand that.

It's somehow like with Brazil where although we are the sole producer, the only producer in Brazil, we understand it's an open market, and it's natural that we export some resins, and there'll be some resins being imported in the market.

The exact percentage that we are planning to export, that's a more delicate point because it ties with our [indiscernible] interest, strategy and how aggressive we are planning to be in the beginning. I will not go in that detail, but we were and we remain very confident in placing product in the Mexican market.

It's just that we also and have always understood we have to export some of that. Next, we're going to keep production through the maximum quantity. The project is so competitive that regardless of export and selling domestically we're going to be making money. And that's why we plan to produce as much as we can and sell domestically and also export.

Regarding the Ascent project in the U.S., which we are studying, the structure we are trying to put in place is a balance sheet strategy.

It's linked with the fact that we do not want you to bring all these leverage inside Braskem balance sheet, and we are trying to find a way of keeping most of the benefits of the project, meaning being the offtaker, keeping to Braskem most of the risk and the profitability associated with converting ethane, into polyethylene, pretty much the same thing we did with enterprise on the PDH project.

So you want to keep most of the benefits of the Ascent project being in one side as involved with the [indiscernible] production of ethane on the other side as the offtaker of the polyethylene and at the same time not brining the asset and the debt to our balance sheet.

And in doing that, we'd keeps the balance sheet of Braskem open for other projects, like the Copa [ph] energy project that we expect to happen at a certain point in Brazil, and also eventually other projects we are going to be analyzing in South America and United States.

So in essence, it's a balance sheet decision rather than not wanting the asset..

[Operator Instructions] Mr. Andres Portilla from GBM would like to make a question..

I wanted to ask you, when do you expect to close the acquisition of Solvay Indupa in Argentina?.

Andres, it's Carlos Fadigas. We announced the decision in December last year. As you remember, the Brazilian antitrust authorities are analyzing that. They have a deadline to make a decision on that between now and the end of the year, meaning over the next weeks, and we expect to hear from them in that time frame.

If we have an approval and we are hoping -- we are working very hard to have an approval, then we'll close the transaction immediately.

After closing the transaction, then we will go on and deal with the other things associated with the decision, meaning a public offer to buy the shares of the minority shareholders of Solvay Indupa at the Brazilian [indiscernible] stock exchange, and naturally all the other asset integration activities behind thing combining the effort the things and stock planning, production and sales on a more integrated phases.

We remain confident in getting this transaction approved just like we had other polyethylene, polypropylene decisions approved in the past. In the PVC market, we see the same reality. There is no local markets.

It's really a global market and even with the acquisition Braskem will remain a small player globally and, therefore, unable to define prices to the market. Meaning we're going to remain a price taker just as it is with all the players in the petrochemical sector. Because of that, we believe and we're hoping to get this transaction approved.

We are in constant contact with the Brazilian antitrust authorities to provide the data to get this transaction approved, and we hope we get this done between now and the end of the year. Having said that, the Brazilian antitrust is the final decision-maker on this topic, and it's up to them to make a final decision.

We are doing everything we can in [indiscernible], but we have to respect their position on that..

[Operator Instructions] I will turn now over to the company for closing remarks..

I'd like to thank you all for participating in the call. I'd like to thank for the questions and having the chance to address some of these relevant points. Only 2 or 3 comments from my side.

First of all, we are -- as we were in the past, we remain very focused on the gas-based projects in Mexico, hopefully at a certain point up in comparing that these are transformative projects for Braskem, and they are very critical for us to diversify our raw material matrix.

At the same time, we're working very hard to extract all the possible value from the assets we have. That's why we work hard to get the crackers running at maximum capacity and adjust our domestic strategy in Brazil to generate most of the [indiscernible] possible.

As we do that, we also work and try to influence the debate about competitive of the Brazilian industry because of several factors, cost of electricity, raw material, the labor, exchange rate, taxes and so on.

The Brazilian industry as a whole has lost competitiveness over time, and it's relevant that we find ways to get a more competitive industry segment in Brazil due to the petrochemical or any other segments. Braskem as a large Brazilian industrial company is engaged in this debate.

We are glad to see some of the efforts that were made by the government recently, the Entegra [ph] mechanisms to reimburse some of the taxes embedded in the cost of products, export, was an important initiative from the side of the government.

And we plan to try to [indiscernible] involve trying to contribute to the discussion so we can improve the competitiveness of the Brazilian industry. So thank you all again and I hope to meet you on our next call. Bye-bye..

Thank you. This concludes today's Braskem's earnings conference call. You may disconnect your lines at this time..