Fernando Musa - Chief Executive Officer Pedro Freitas - Chief Financial Officer and Investor Relations Officer Pedro Teixeira - Investor Relations, Controller and Project Finance Director.

Adan Rodriguez - GBM Ingrid Furtado - Global Hassan Ahmed - Alembic Global Felipe dos Santos - JPMorgan.

Good afternoon, ladies and gentlemen. At this time I would like to welcome everyone to Braskem's first quarter 2016 earnings conference call. Today with us we have Fernando Musa, CEO; Pedro Freitas, CFO; and Pedro Teixeira, IR Controller and Project Finance Director.

I'd like to inform you that this event is being recorded and all participants will be in a listen-only mode during the conference presentation. After Braskem remarks are completed there will be a question-and-answer section. At that time further instructions will be given [Operator Instructions].

We have a simultaneous webcast that may be accessed through Braskem's IR website, www.braskem-ri.com.br. 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.

A reminder that questions will be answered during the Q&A session may be reported in advance on the website. Before proceeding, let me mention that forward-looking statements are being based 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 circumstances that may or may not occur in the future.

Investors should understand that the 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 Pedro Teixeira, IR Controller and Project Finance Director. Mr. Teixeira, you may begin your conference..

Good afternoon, ladies and gentlemen. Thank you for participating in another Braskem earnings conference call. Today we will be commenting on our results for the first quarter of 2016.

We would like to remind you that pursuant to the Brazilian federal law, the results presented in today's presentation reflect the adoption of the International Financial Reporting Standards. The financial information in today's presentation was reviewed by an independent out external auditor.

Now let's go to the next slide, where we will begin our comments. On Slide 3, we present the highlights of the first quarter of 2016. In Brazil, resin consumptions came to 1.2 million tons, increasing by 8% from the last quarter of 2015.

Braskem's sales followed this trend and amounted 708,000 ton increasing by 4%, when compared to the fourth quarter 2015. Braskem's crackers operated at an average capacity utilization rate of 89%, in line with the same period last year and 6 percentage points higher than the fourth quarter 2015.

To offset the effect from the Brazilian recession, Braskem exported 415,000 tons in this quarter, 62% higher than the first quarter of the last year. The EBITDA from the operations in Brazil amounted around BRL2.2 billion, representing 72% of the company's consolidated EBITDA. In U.S.

and Europe, our PP plants operated at an average utilization rate of 100%, reflecting the excellent operating efficiency and strong demand for PP in the U.S. market. The volume of sales amounted to 499,000 tons, 9% higher than the first quarter of the last year.

EBITDA in the international business was BRL855 million, equivalent to US$219 million, representing 28% of the consolidated EBITDA of Braskem. Braskem consolidated EBITDA in the first quarter was approximately BRL3.1 billion, 106% higher than the year-ago period.

This growth was mainly driven by the higher sales volume, better spreads for basic petrochemicals and PP in the U.S. market, higher volumes of resins exported, good operational performance of the U.S. and Europe operations, and average Brazilian real depreciation of 36% between the periods. In U.S.

dollars, total EBITDA amounted to US$780 million increasing by 54% over the same period last year. The consolidated net income in the quarter came to BRL747 million. Braskem's leverage, as measured by the ratio of net debt to EBITDA in U.S.

dollars stood at 1.72x, which is the lowest level of the last 10 years and 33% lower as compared to the first quarter 2015. On Slide 4, I will comment on the performance of the Brazilian resin market and on Braskem's sales in the first quarter. Total demand in Brazil was 1.2 million tons of resin, 18% down from the first quarter of the last year.

This is mainly explained by the deterioration in the Brazilian economy and by the atypical restocking effect that happened to plastic converters in the first quarter 2015. Braskem's sales followed the market trend and amounted to 782,000 tons, 18% lower from the first quarter of the last year.

Compared to the fourth quarter, resins consumption in Brazil and Braskem sales volume grew by 8% and 4%, respectively. On Slide 5, we will comment on the dynamics of the international market.

With the contraction in the Brazilian resin market, Braskem continued to seek out opportunities in the international market to keep its cracker running at high utilization rates. As a result of these efforts, the company exported 415,000 tons of resins, 62% more than in the first quarter of last year.

Braskem's export of basic petrochemicals came to 282,000 tons, down by 14% from the first quarter of the last year, which is basically explained by the shifting of gasoline sales into the domestic market and the priority given to export of PP against the export of propylene. Braskem's operations in U.S.

and Europe maintained the same strong results it delivered over the course of 2015. PP spreads in the U.S. expanded by 116% from the first quarter of the last year due to the lower propylene price as a result of oversupply, and also strong demand for PP in the U.S. market. In this scenario, operations in the U.S.

and Europe in the first quarter amounted to 500,000 tons growing by 9% year-over-year. Slide 6 details the factors that influenced EBITDA in the first quarter of 2016 as compared to the same quarter of 2015. Braskem's consolidated EBITDA was BRL3.1 billion, growing by 106% on the first quarter of last year.

This was explained by the higher volume of resins exported and sales by the operations in U.S. and Europe, better spreads in the international market for basic petrochemicals and polypropylene versus propylene, and 36% local currency depreciation between the periods. In U.S.

dollars, EBITDA came to US$780 million, 54% higher than in the first quarter of last year. Slide 7 shows Braskem's debt. Since the Mexican projects were financed under project finance, in which the project debt is repaid exclusively with its own cash generation, the project finance debt is not included in this analysis.

In this context, by the end of March, Braskem's gross debt stood at US$7.4 billion, 2% higher from December 2015. In reais, gross debt decreased by 7%, reflecting the effect from the 9% depreciation of the Brazilian currency between the two periods. A total 78% of gross debt was denominated in U.S. dollars.

The balance of cash and equivalents stood at US$2.1 billion or BRL7.4 billion. As a result, Braskem's net debt ended the quarter at US$5.3 billion, down 1% from the end of the fourth quarter 2015. In Brazilian reais, net debt fell by 10%. By March 2016, 83% of the net debt was denominated in U.S. dollars.

In line with its strategy to maintain high liquidity, Braskem also maintained two standby credit facilities in the amount of US$750 million and BRL500 million, which do not include restricted covenants on withdrawals during times of adverse market scenarios and were not used yet.

The balance of the company's cash and equivalents is compatible with its indebtedness, maturing over the next 37 months. Considering the standby credit facilities, the coverage is extended to 42 months.

The reduction in net debt, combined with the 11% growth in EBITDA in the last 12 months had a positive impact on the leverage ratio, which decreased from 1.91x to 1.72x, measured in U.S. dollars, 10% lower than in the fourth quarter 2015. Note that this is the lowest leverage ratio since 2007.

In Brazilian reais, the leverage ratio stood at 1.72x, 23% down from the fourth quarter 2015. On March 31, the average debt term was approximately 15 years. During the period, Braskem's credit rating remained above Brazilian sovereign rate at the three main risk-rating agencies and with investment-grade rating at Standard & Poor's and Fitch.

Slide 8 shows the CapEx for the first quarter and the forecast for 2016. Braskem invested an amount of BRL746 million in the first quarter, with the majority allocated to operating investments and to the Mexican project. The latter mainly related to working capital needs and contractual obligations related to the project finance.

In 2016, Braskem should invest approximately BRL3.7 billion, with 50% of this amount flagged to the dollar, related to operating investments in the United States and Europe, and Braskem's investment for the Mexican project.

Of the total investment forecasted for 2016, 49% or BRL1.8 billion will be allocated to maintenance, productivity, health, environmental and safety, and operational efficiency, including the disbursement for the scheduled maintenance shutdown of one of the lines at the cracker in Bahia in the fourth quarter of this year.

32% or US$329 million will be allocated to the Mexican project and 15%, BRL537 million, will be allocated to other strategic projects, including the feedstock flexibility project in the cracker in Bahia; the UTEC production site in the United States; the capture of productivity gains at the PP plants in the United States and Germany; and study for a new PP plant in the United States.

Slide 9 shows some of the details in the operations in Mexico. As part of the gradual ramp-up of the petrochemical complex in Mexico that began in December, with the startup of facilities area in March, Braskem was able to successfully complete the startup of the cracker and the specification of the ethylene.

On April 6, the petrochemical complex reached another important milestone with the production of its first lot of PE after the startup of the first high-density polyethylene plant. And on April 28, the second high-density polythene plant in the complex started its operations as well.

The premarketing activities were finalized in the first quarter, with a total of around 200,000 tons sold over 350 clients and the development of sales channels in the country. Braskem Idesa production is already being sold in the Mexican market and the first export was registered in April.

It is important to mention that Braskem's international sales network in Latin America, the U.S. and Europe will support the export operation from Mexico. Let's move on to the Slide number 10, where we will comment the scenario in the world economy and petrochemical industry. World economy growth should remain moderated in 2016, at around 3.2%.

Emerging economies will represent the largest portion of global growth and are expected to grow by 4.1% this year, with China's growth slowing. Meanwhile, for developed countries, the expectation is for growth of 1.9% in 2016.

In Brazil, the expectation for 2016 is for the economy to perform as bad as in 2015, with another year of negative GDP growth of 3.8%. Brazil's recession continues to impact the job market and income level. In the petrochemical industry, the expectation is for spread to remain at healthy levels in 2016.

Some volatility is possible, especially in the Asian market, with new PP capacities coming online in China, which will be counterbalanced by a more positive scenario in the U.S. PP market, where PP spreads remain high given the oversupply of propylene and no new capacity of PP until 2019.

Moving to the last slide, in 2016, Braskem's management will focus in Brazil on the operational efficiency of plants for serving the domestic market, exporting any volumes not sold in the domestic market, converting maintenance shutdown on one of the lines at the Bahia cracker in the fourth quarter, the feedstock flexibility project in Bahia, and evaluating new opportunities for diversifying its feedstock profile.

In the U.S. and Europe, the focus will be on taking advantage of the positive spread in the United States, driven by stronger PP demand and oversupply of propylene, and seeking new opportunities for growth in PP, based on competitive feedstock in the U.S.

In Mexico, the focus will be on ensuring the startup of the third low-density polyethylene plant, the operational stability of the complex, sales in the Mexican market and strengthening relationship with local clients, and converting exports in synergy with the various other Braskem operations in U.S., Europe and South America.

In terms of liquidity and financial health, the focus will be on cash generation and ongoing implementation of program to cut fixed costs with potential annual and recurrent savings of BRL400 million. That concludes today's presentation. Let's go to the Q&A session..

[Operator Instructions] Mr. Adan Rodriguez of GBM would like to make a question..

Until now you've been able to unload your products in the international market. If the situation in Brazil continues, do you believe you will be able to continue to sell your products abroad or could you see Braskem reaching a saturation on those markets? And secondly, this quarter you've had record-breaking margins.

I would like to know your outlook on profitability, mainly do you see these margins as sustainable? And also a follow-up; what's your outlook on polypropylene margins in the U.S.?.

This is Fernando Musa. Starting with your question about exports outside of Brazil, given the weakness in the domestic markets, we have increased significantly the volumes shift outside of Brazil to other regions.

We have been very successful in doing that, not only from a logistics point of view, but also from a value creation point of view, in particular, whenever we're sending products to our operations in the U.S. and in Europe, where we have a very strong local presence, with production plants, large teams directing the clients on a day-to-day basis.

So our ability to move product, especially in those two regions, is very differentiated. And we could take even more volumes towards those regions and from there serve our very diversified base of clients that we already serve today. On top of that, other regions have large markets and large -- therefore large needs for imports.

So we do not see any short-term limits to our ability to put product in the international market. Even with the start of the Mexico project, which is happening as we speak, we do expect to start exporting some product out of Mexico.

And this product will also be absorbed by our operations, both in South America, as well as in the northern part of the hemisphere with U.S. and Europe taking some of these products. As far as the margins we see spreads in the international market have strengthened in the first quarter.

We do expect the spreads to be basically in line with the last year for 2016, some volatility during the year, some products being a little bit more affected to the negative side, others to the positive side. The core message is that, globally the spreads should have similar profile as far as average price compared to the previous year.

The one challenge could be the appreciation of the real, which, because of our large cost base in Brazil, any weakness in real is helpful for our margins. Any spreads in real will impact the margins.

But given our increased presence in the international markets, we believe that this effect is somewhat minimized by the strength of the operations in the U.S., in Europe, by the start of Mexico that will start contributing to margins and cash flow with the ramp-up that is going on right now..

And just can you comment on the polypropylene margins in the U.S., what's your outlook?.

The polypropylene margins in U.S. have been very healthy up to now. The expectation of the market, if you look at key value drivers from a demand and supply point of view, as well as from major consultants is that the margin should stay very healthy. We do see a very strong demand, very competitive propylene.

So margins have increased and should stay healthy as we go forward. And this will be leading to an increase to around US$700 to US$780 per ton over the next couple of years..

Ms. Ingrid Furtado from Global would like to make a question..

I have three questions for you. The first one is about regarding the feedstock for Braskem Idesa.

Are Braskem getting all the ethane you need? And if the answer is no, do you have the plan B outside to get more ethane?.

As far as the feedstock for Braskem Idesa, our complex is in startup and ramp up mode, and so is the infrastructure that is investment on the Pemex side to provide us with the ethane. Right now this process is in ramp-up. So today we're not receiving 100% of the contract.

But as our plants evolve and as the infrastructure on the Pemex side evolves, we believe this number will be reached in the near future. Based on this, we don't have a plan B developed right now..

And my other questions are the following. About the PVC export to the U.S., I read the report that was sent earlier. And I saw that the [indiscernible] Braskem exported PVC was Japan, Singapore and here in the U.S.

Can you be more specific about these exports, please, here to the United States?.

Well I understand the question is about PVC, right?.

Correct..

Yes. So the construction market in Brazil has been falling. And we historically haven't been exporting PVC at all. But since last year, we have. Because of the market conditions in Brazil, we have had to export PVC. And we've developed some clients, some distribution avenues into the U.S.

So it's a part of the need to export from Brazil due to the fall in the markets here. It's not a structural move..

Do you have any specific about volume that was exported to here, the United States?.

So in the first quarter, it's about 9,000 tons of exports to the U.S. and 34,000 tons that were exported overall..

And my last question is about the Braskem Idesa. I also read that this first quarter, Braskem already exported feed from Mexico.

Which countries were those?.

We've just started the operations of the first plant late last month. We have started to access all the different channels. So we sold product produced in Mexico to Mexican clients, in the different logistics, modalities. But we also started to test the processes for exports. So we've done our initial export sales to Central America..

And as far volume, can you disclose that?.

These were very small volumes from the start of the company. We're not disclosing these several details right now..

Hassan Ahmed from Alembic Global would like to make a question..

There seems to be some debate nowadays, obviously with naphtha-based ethylene margins as sort of strong as they are, there seems be some debate going on as to who right now is globally setting the price for ethylene.

And the question really is that there's some people in the camp that believe it's the MTO producers that are setting the price of ethylene, versus others that continue to believe that things are actually very tight. And economics have sort of flown up above a level dictated by tightness rather than the marginal guy setting the price.

Would love to hear your views on that?.

A very challenging one, but I'll take it. I agree with you. And naphtha crackers, with the lower oil price, have enjoyed, especially in the last 18 months, very, very healthy margins.

Having said that, we do have, around the world, some smaller crackers that have uncompetitive logistics for their feedstock that contribute to a somewhat steep curve on the margins, very close to where demand for ethylene is.

On the other hand, when we look MTO or even CTO, especially in the Chinese market, my observation has been that all the simulations we see done internally or from consultants show that their cost position is very stable, no matter what the cost of oil is or the cost of natural gas is.

But depending on the level of oil, they are either very competitive or they can be really the marginal producer, as you were saying. I don't have a detailed view of the latest cash curve globally here. But I would not be surprised if your point that MTO is now the price setter is happening. We do see in some of the markets some tightness.

The global economy is still growing. The margins for the ethylene to polyethylene are pretty healthy in multiple regions. Even in Europe the players are enjoying interesting margins, which used to be a region very challenged.

So I think this world of lower oil price leads the industry to a situation, which is a little bit more driven by the demand and size, and a little bit less purely about the cash cost side. It's hard to see globally a relevant tightness in ethylene. There's always some length.

But when you factor in pockets of access to feedstock or the comparisons or specific derivatives attached to one or another cracker, we do see some tightness as of to date. With the new wave of investment in the U.S., this might change. And this might change with a very competitive cost base from the U.S.

new plants, on top of our plant in Mexico, which is already starting as we speak..

Now, as a follow-up, you guys obviously recently inked an ethane import contract with Enterprise. And if memory serves me correctly, it's a 10-year-duration contract. Now obviously the debate over here within the U.S.

is that with obviously oil prices having come down as much as they have and with the rig counts coming down as they have, what was perceived to be an oversupply in ethane in the U.S. may actually sort of bring them into an undersupply as all these new crackers come on stream in the U.S. and then more and more exports happen as well.

So my question is, obviously you can't give me sort of very specific details with regards to the contract, but are these contracts or this contract that you've structured, is it a relatively fixed-price contract, meaning that if a situation does arise five years out, where all of a sudden we see a huge sort of run-up in ethane prices here, will you still have locked into a price?.

That's an interesting point. My point of view on that is that it's not about the contract; it's about an investment to create the flexibility at one of our crackers to make arbitrages in the future, given specific pricing at specific times. So we are investing in trading the capability at the cracker to crack ethane.

This is today a naphtha-only cracker. So we are adapting part of the cracker to be able to crack ethane. We're adapting the logistics, so that we can take the ethane that will be shipped by boat to Bahia and therefore transport it from the terminal into the cracker.

And we have the ability under the contract that is market-price-indexed, we have flexibility to resell the ethane. So if naphtha is the most competitive, we'll crack naphtha. If ethane is competitive, we'll bring as much ethane as possible. If ethane is not competitive because it's expensive, it means somebody wants to move to buy it.

So we have a lot of flexibility. The concept of the project was more around creating flexibility, so that we can play an arbitrage game than locking in a long-term contract for the ethane market..

Felipe dos Santos from JPMorgan would like to make a question..

Just another question to follow-up on the [ph] complex use.

First one, can you give us an update on the set of the allegations and the class actions that are happening in U.S? And also can you give us some color regarding the feedstock agreement with Pemex? I know that the contract is not open, but any direction that you could give us would be really helpful..

Around the class action, and this is the process that started some time ago, based on some allegations by the plaintiffs around the volatility of the share price. We have been in a dialog through the courts with the plaintiffs.

We have a motion to dismiss, presented some time ago, that was retrieved because of the amendment of the plaintiffs' requirement. The plaintiffs are supposed to put a new -- rectify their claim in the upcoming days. We still believe that this class action has no merit and will provide another action to dismiss. This process will continue.

It's due process in the legal system in U.S. These are not common -- these are frequent events in the legal system in the U.S. And we will defend our interests as best that we can. As far as the feedstock contract for Braskem Idesa is concerned, this is a long-term ethane contract. Its price is indexed to the [ph] nobility of price, with a discount.

It is a 20-year contract. It has a series of provisions that have been included to protect our investment. It is a very significant investment.

And therefore it has strong penalties and strong guarantees around take-or-pay penalties in the case of no delivery that provide the right incentives to align the incentives, so that our return is guaranteed from the supply point of view.

It is a very structured contract, because it was a relevant and crucial part of the project finance agreement that had the scrutiny of 17 banks understanding the contract, so that they were comfortable to take the project risk. The contract includes a very minimum list of force majeure events from a Pemex point of view.

Therefore we believe it's a very strong contract that provides the base for very good competitiveness for the local market, for the North American market and therefore globally..

I'll turn over to company for closing remarks End of Q&A.

I would like to thank all of you for listening to our conference call. This is, both Pedro Freitas, our new CFO, and myself, the first time we had to interact with most of you. So this is the first of a series of hopefully very productive dialog. I want to end the call and the Q&A session with a message around our overall strategy.

The transition that we are undergoing now in leadership is the consequence of a series of achievements that marked the, what one might call the end of a cycle, what we guys delivered on significant achievements, with record results, reduced leverage of the company, significant improvement in productivity, relevant expansion of the presence in the international market; finally, the startup of Mexico, which is a key milestone that led to the timing of the transition.

The future of the company is one of continuity in the quest for delivering our strategy.

Our strategy has different pillars, starting with making sure that all our operations are very productive and competitive globally, a continuous search for growth opportunities outside of Brazil to continue our path towards a more global company, all of that while making sure that we're managing our financial health, making sure that our balance sheet is strong, so that we can act if and when the right acquisition opportunity or investment opportunity is presented to the company.

So I would like to thank you all. And I'm very excited by the challenges that the shareholders have asked me to lead. Braskem has a very big management team, very good teams in all the current regions we operate in.

And I'm very sure that with the dedication and motivation of this great team, we will continue towards a new cycle of growth in profitability, in productivity, in competitiveness, and the expansion of our global footprint. Thank you all..

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