Good afternoon, ladies and gentlemen. At this time, I would like to welcome everyone to Braskem's Third Quarter of 2020 Earnings Conference Call. Today with us, we have Roberto Simoes, CEO of Braskem; Pedro Freitas, Vice President of Finance, Procurement and Corporate Affairs; and Rosana Avolio, Investor Relations Director.

We would like to inform you that this event is being recorded and all participants will be in listen-only during the company's presentation. After Braskem's remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given.

[Operator Instructions] We have simultaneous webcast that may be accessed through Braskem's IR website at www.braskem-ri.com.br and the MZiQ platform, where the slide presentation is available for download. 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 will be answered during this Q&A session may be posted in advance on the 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 the beliefs and assumptions of Braskem's management and on information that's currently available for the company. They involve risks, uncertainties, and assumptions because they relate to the future events and therefore, depend on the circumstances that may or may not occur in the future.

Investors should understand that general dynamic 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 Rosana Avolio, Investors Relations Director. Ms.

Avolio, you may begin your conference..

Gender equality; social and economy; race and ethnicity; people with disabilities; and sexuality and gender identity. Between 2017 and2019, we trained our teams, both individual and leadership, on diversity and inclusion. And in addition, the diversity and inclusion program become global with initiatives in the U.S. and also in Mexico.

This year, we continue to work to create an even more inclusive work environment by creating an internship program with a greater focus on university. Lastly, in our 2020 internship program, some selection criteria remain more flexible, such as the English language, which is no longer mandatory in 40% of the cases. Moving to the next slide.

To conclude the presentation, we will talk about the priorities for the fourth quarter2020.

In relation to productivity and competitiveness, the priorities to start of our chlor-alkali operations in Alagoas, and also to conclude, negotiations to renew the supply of naphtha for the industrial units in São Paulo and ethane and propane for the industrial units in Rio de Janeiro.

As for the diversification of feed stock and suppliers pillar, we will continue the ramp-up of the complementary solution for importing ethane at Braskem Idesa and continue evaluating the definitive first structure solution for expanding access to ethane in Mexico.

With regard to geographical diversification, our priority is to continue the ramp-up of our new PP plant in the United States and maximize synergies among the regions where Braskem has industrial operations.

About people, innovation, governance and reputation, we will work to increase the volume of global production and commercialization of recycling resins and continue with the advance of the financial compensation and support for location program in Alagoas.

In capital allocation and financial discipline, the priority is to continue with the implementation of the deleverage plan initiatives and maintain capital allocation discipline. That concludes today's presentation. Thank you for your attention, and let's move to Q&A session. Thank you..

[Operator Instructions] Our first question is from Bruno Montanari from Morgan Stanley. You may proceed..

Good afternoon, and thanks for taking my question. I have two questions. First one, I understand it is difficult to estimate the full amount of the Alagoas provision.

But how should we think about the timeline to say, now this is over, and there will be no more provisions, and this is how much we're going to spend? And what is also the latest about your insurance coverage for the incident? And the second question is about Mexico.

If there are any updates on the discussions with PEMEX about the take-or-pay fines, the potential revision of the ethane purchase contract? And also when we could seethe conclusion for the definitive import solution in Mexico as well? Thank you very much..

Hi, Bruno, this is Pedro. It's a pleasure to be with all of you this afternoon to discuss our results for the third quarter. On Alagoas, what we have, and we try to be pretty clear around what we have provisioned and what is still not -- we're still not able to foresee whether there is any additional amount or not is this.

And always with the caveat and with the view that it's a geological event. So there are aspects of it, which may be unforeseeable, right? So we are working with the known facts and known expert studies, and that's what we're basing our decisions on.

So what I'm going to talk about a little bit is also, I mean, subject to this situation, right? So on -- I mean, you can think about Alagoas as kind of -- there is, broadly, right, the side of it, which is relocation of people.

And another side of it, which is the -- what we call the social environmental aspects of it, which include the closing of the mine and other aspects, which I'm going to talk about.

So on the relocation of people, we have put together the maps that are published by the Civil Defense, the maps that our own experts have developed and which we received in September and which led to the additional provision that we booked in the third quarter.

And then when we look at all the maps, all the risk maps that we have, looking even forward upto three, five years ahead in a prospective way, those maps consider that none of the other actions that we're undertaking in terms of prior stabilization that all of them failed. So the best knowledge that we have today, include a certain area in Alagoas.

The provision that we have booked includes that area, that known area and even what is foreseeable for the map, these expert studies. So on this side, we think that the provision covers everything that we know, again, subject to the fact that these are estimate assumptions that can be updated in the future.

But I mean, everything that we know is there in regards to the area of relocation of people, even considering certain areas that may not be needed to be relocated, if the solid stabilization and the closing of the mine stop the subsidence and the situation there. So that's the first aspect of it.

The second aspect of it covers the closing of the mine and the social environmental actions, okay? So on that second side, what we have is we have booked a little bit more than BRL1billion for the closing of the mine. And that is based again on expert inputs and also submitted to the Brazilian mining agency.

So the plan to close the mine is a plan that is shared with authorities in Brazil. And the amount that we have estimated for that today is a little bit more than BRL1billion. The second side of that is what we call the social environmental aspects of the case.

So what do you do with all the land that that is there? Do you have to make any kind of compensation to the city? What do you do with -- I mean are there any environmental impacts that should be accounted for? Are there any social impacts that are not covered yet by the location of people and any indications there? So on that second side, have booked is in total about BRL 2billion, maybe a little bit more than that.

Including the BRL 1.2 billion for the closing of the mine and other social environmental aspects that we have already considered which include, for example, as we have discussed in other calls, tearing down the buildings, right, demolishing the buildings that are there.

And some other aspects in terms of safety, security, keeping the land, I mean, avoiding invasion into the land, people going back to live there. So that sort of thing is already covered. We are still in discussions with the authorities and with the prosecutors.

Regarding the two main legal actions against the company, which are the state --originally, it was a state prosecutor case around relocating people. And the second one is the federal prosecutors around social environmental aspects. So the first one, I mean, we have included all the known areas.

So we believe that, what is covered already by the provision is what will be needed. But again, there is still a discussion with authorities to close down that case.

On the second piece, there are certain aspects of it, which we believe, that could move quicker, because they touch on for example, the closing of the mine and things that we already have a lot of information on. And that -- I mean we're trying to move fast on that. But again, it's a discussion with the authorities.

So the timing is not controlled by us. And there is another aspect of which, which is more related to the environmental impact. There is an environmental study going on, in the region to see if the mining operation has created any environmental impacts in terms of impact on biodiversity, impact on water, et cetera -- water quality.

So that study is still going on. We think it's going to take a few months, for that study to be concluded. So I would say that, that piece of the environmental action, the environmental claim is probably going to be resolved only next year, so my best estimate today is, maybe a year from now or so. But I mean those studies take time.

And then the conclusion of that is going to take time. So it's a long answer, but I'm trying to be very transparent in terms of the amount and the timeline, especially -- I mean, we think a piece of it could be resolved this year.

A piece of it, we think probably will take us into the next year, especially because of these studies that are still going on. On insurance coverage, we are discussing with the insurers about -- I mean, we have civil liability coverage of $200 million, as we have discussed.

And we have submitted and are still submitting documents to the insurers to substantiate the claim. We have not received any values yet, but this is something that is going on as well.

Finally on Mexico and updates on PEMEX and the ethane contract discussion, we are in touch with PEMEX, we have this discussion going on with them about any potential changes in the contract, but we don't have anything yet that is defined on that. It's -- basically, it's still going on. We are still looking for a constructive solution.

And I'm afraid I don't have any concrete steps that have occurred in the past 2 months about that. On -- finally, on the last point about the fast track and the definitive solution. I'm happy to say that in the third quarter, the fast track contributed 12 percentage points to the operations of Mexico. So we ran close to 85% -- 84% utilization rate.

12 points of that were because of the fast track solution. There are 2 next steps there. One, is upgrading the fast track. We are working on a peer in the harbor. And with that, we will be able to discharge more ethane. So the utilization, the fast track utilization could go up to 20% or maybe even more than that of the site needs.

So that would put us on a running rate of Braskem SA north of 90%, which is what we would expect from the beginning. And then the definitive solution, which is a pipeline, we're still engineering work around that. So we don't have a decision on that, but the project is advancing.

There are a couple of different solutions, different routes for the pipelines and different harbours that are being contemplated, and it's something that is still under evaluation in terms of which one is the best approach for this project. .

Thank you Pedro..

Thank you..

Our next question is from Ben Isaacson from ScotiaBank. Ben, you may proceed. .

Thank you very much and good to be on this call. And thank you for the very comprehensive overview. I have 3 questions. The first one is, given the provisions that you took in September, do you still expect your leverage to be at/or below 3.5x by the end of 2021? Number two, on PEMEX.

If you don't have -- if you don't reach a constructive conclusion, what is the legal threshold? Or how close are they to falling below the 70% threshold? And what happens once they fall below that point? And then my final question is, I've noticed over the last few years, you've been decreasing your naphtha exposure from Petrobras, but it's actually increased this year.

What are the reasons, why it's increased? And is that temporary and how should we think about that going forward? Thank you very much..

Hi Ben and thank you for the questions. On the leverage, I think everybody saw that our leverage, which was north of 7 turns and net debt-to-EBITDA in the second quarter fell below 5 in the third quarter. So it was a pretty steep de leveraging.

And basically because of the recovery in results, right, in the EBITDA, our net debt has been pretty much stable for the past, I would say, many years with a band, but pretty much stable. Looking at the year end, we have been talking to you and telling that we thought it could go down to somewhere around 4.5.

Because of this extraordinary performance in the third quarter. We now believe that it could be below 4.5 by the end of this year. And we still have the goal of getting to 3.5 by the end of next year. Of course, any settlement in Alagoas could change that perspective. But right now, this is what we are -- we have as a goal.

We have not closed yet our budget for next year because of the high volatility in the markets, we decided to close the budget actually in the beginning of January so that we know how the year end was for 2020. And also, we --I mean, have a closer look and a closer feeling of how the market will perform in the turn of the year, beginning of the year.

So that then we can have our budget approved by the Board. So that's going to happen at the beginning of next year. Next year, we are going to have some benefits or some, I would say, tailwinds helping us to improve our results. I'd like to mention, I mean, the new plant that started up in the U.S., the delta project.

It's already running at close to capacity utilization. So the ramp-up was pretty steep, pretty good. And we expect it to contribute a sizable chunk of EBITDA starting next year. I mean, it's already contributing, but looking at our full year results, delta for sure will be a good contributor to results.

We are also going to have the chlor-alkali plant back in operation in Alagoas. And with that, we do expect to have, I mean, a recovery also in EBITDA, which I mean our estimate is that we lost about $60 million to $80million in EBITDA because of that plant being stopped. So that going back, I think that's also good.

The ramp-up in the fast track that I already mentioned, we also have a perspective of better markets next year, some market growth, which could also impact both our volumes and spreads, right? So overall, we do expect a better year next year. At least looking at the drivers that we have today, we do expect that.

But as I said, we haven't closed our budget yet. The goal is still to get to 3.5. On PEMEX, PEMEX has been supplying us at 70% or a little bit more than 70% every quarter. So that legal threshold you mentioned has not been reached. There is, as far as I recall, no legal obligation for us to do anything.

But we -- I mean, there are certain rights that we get if certain conditions are not met, one of them being the supply threshold. So we are -- I mean, we keep looking for a constructive solution with PEMEX, as I said.

But of course, we are also looking at all other alternatives that are available to Braskem Idesa, including legal alternatives if need be. So, that's, that -- I mean, we are looking at plan A, plan B, plan C in this situation.

And in terms of naphtha, what happened was -- I mean, as you saw for the past couple of years, our strategy has been to import more naphtha than consumed from the local supplier from Petrobras. There are a few changes that occurred in the beginning of this year that led us to increase our purchases from Petrobras.

But I would say that, that was kind of an exception to what we expect to be the norm going forward. So looking at Petrobras, the supply in the beginning of this year, I would highlight two main points.

One was, with oil prices falling, it makes more sense for us to --given the structure of the contract, it makes more sense for us to get supply from Petrobras; but also, -- and I think more importantly, the market was long gasoline in the beginning of the year, especially with COVID, I mean a lot of refineries, stocking, et cetera.

And then Petrobras came to us with, I would say, a good proposal that would be beneficial to Braskem in terms of consuming more naphtha from them and reducing imports so that Petrobras then could run their refineries at a higher rate, that would be mutually beneficial.

We got a discount there around April of $15 to $35per ton, which is very, very substantial. So that was a good deal or a good approach for us there.

Going forward, we expect to have more imported naphtha, looking at the contract that were closed for the south and for Bahia, the volumes there are smaller than the historical or the volume that we have in the current contract, we expect the volumes for the São Paulo cracker to remain the same as we have today.

So we expect to have more imported naphtha going forward..

If I could just ask a very quick follow-up. When you think about the PEMEX, there's two issues. One is you are forced to run at a lower operating rate. The other is, that you're making less margin per ton. Can you provide some colour of the magnitude of the impact on a margin per ton basis? How much are you losing by importing ethane from the U.S.

Gulf versus from PEMEX?.

Yes. So, the import cost is around $200 per ton. I mean, full cost, fully landed. So that's about the margin that we're losing..

That's great. Thank you very much..

Just an additional comment Ben that I think is relevant. With the additional solutions, step 2 and step 3 that I mentioned, I mean the step 2 or fast track and then the pipeline, those costs should be lower going forward, because, I mean, we would be able to bring larger ships, so reducing shipping costs in the first step.

In the second step, I mean, it's a pipeline, so it's much lower cost in running trucks, which is what we're doing today. .

Our next question is from Ricardo Rezende from JPMorgan. Ricardo, you may proceed..

Hi, Pedro. Hi, Rosana. Thanks for taking my question. So the first one, just on free cash flow. I remember that earlier this year, we talked about the free cash flow for the year, and we even discussed if it was going to be possible to have breakeven for the year.

How do you see cash flow on the fourth quarter? And also how do you see the first quarter given that there's seasonality, but at the same time, we're seeing this improvement on the demand side? And then the second question is on your ESG initiatives. Congrats on that announcement.

My question is, is there any relevant CapEx involved on the implementation of these ESG initiatives? Thank you..

Ricardo, thank you for the questions. On free cash flow for the fourth quarter, we are seeing still in October. We have seen good market performance. Results were better than we were anticipating for October. And looking at the end of the year, I mean we see some of our clients still in a high demand mode.

We see also some sectors that have given people kind of their holidays, there -- in Brazil, it's usual to have the year-end collective holidays, right? Some factories shut down and people over Christmas and New Years, they go home. And I mean, a lot of plants are closed even for maybe 15 days sometime.

So even Braskem does that with, I would say, the administrative people and even some of the industrial people. So we think that some of those companies will not—they have already given, because of COVID, they have already given their employees, the holidays.

So we think that December this year will be atypical in the sense that it could -- we could have a positive surprise in volumes in December higher than what would be usual. Looking at cash flow again for the fourth quarter and then for the year-end, I mean, positive cash flow in the fourth quarter for the year-end.

And looking at the full year, we think that cash flow could be neutral, potentially still positive by the end of the year. We have a much lower amount of interest to pay in the fourth quarter compared to the third quarter. And third quarter, the interest payments for the bond were really material. Fourth quarter, it should be a much lower amount.

And also, I mean, a more stable operating cash flow. We also have resumed imports of naphtha. And as you know, for important naphtha, we are able to negotiate many times extended payment terms. So that would also help with working capital.

So in all, I would say that a good perspective in terms of maybe even achieving positive cash flow by the end of the year.

In terms of ESG, so I will split that into two pieces, right? There is a piece of that, which is what we are already doing and many initiatives that we're already promoting in terms of circular economy, innovation around recycling chemical recycling, mechanical recycling, as Rosana mentioned in the call, and also reducing our carbon footprint.

We're doing a lot on the energy front, working with sustainable renewable sources of energy, wind, solar. And I mean, right now, and I would say, for the next five years, the CapEx numbers for all of that, they are not expected to be very material. Because it's still, I'd say, in some cases, like energy, it's a third party investment.

We're actually enabling investment by third parties to -- in solar farms or wind farms. And in the other businesses, I mean, we expect, for example, in recycling, it's an investment in technology development, but that should yield results in the future, right? So it should come back to us.

So looking at all of that, we don't anticipate, again, a very material investment beyond what we're already doing. What we're doing is tweaking the investment portfolio towards the sustainability investments which are synergistic in many ways with what we already do.

And on the other hand, I mean, if you're at the -- if you look at the long-term goals, right, the 2050 zero carbon ambition, for that we don't know yet all of the solutions that we'll need to implement to get there, right? So I would say that the 2025, 2030 targets, we have, I would say, a more known roadmap.

And there are many partners working with us on that. But the long term solutions, we don't know yet. And that's the fact. I would like to close this with just highlighting again that sustainability is a strategic pillar of our business. We're not talking about sustainability starting now.

Now was the announcement about our ambitions around carbon neutrality and a reinforcement of the commitment that we already had around circular economy But I'd like to remind everyone that in the charter of the creation of Braskem back in 2002, one of the first items there, it's in our website, everybody can look at it.

I believe, Item number four, and there was a commitment to sustainable development practices. So it's along-term, long-standing commitment of the company and are just moving on that going forward..

Okay. Very clear. Thank you so much. Good luck.

Our next question is from Rodrigo Almeida from Santander. Please you may proceed..

Hi, Pedro, thank you for the call. I have two questions here from my side. The first one is related to the PP plant in the U.S., given the solid start and the good demand over there.

Do you foresee any faster ramp-up for the plant, or is it more of an operating side? Any colour that you could give us on the more, say, medium-term ramp-up of the plant would be nice to understand. And the second question is related to the working capital initiative that you mentioned.

I understand that increasing the naphtha imports will help working capital dynamics, but what else could you do on the working capital front to benefit from that a little bit more. Thank you very much..

Hi, Rodrigo, on the PP plant, I mean, it reached a 95%utilization rate so -- already. So it's -- I mean, I would say, it has ramped up with, I would say, a simpler, amore unsophisticated portfolio of products. So now the effort is to specify in the plant additional grades that have not been produced yet, and we are moving forward with that.

One thing that is helping is that the recovery of the market in the U.S. has led some clients to fuel some restriction in supply from some of our competitors, also given the hurricanes that occurred in the Gulf Coast. So some clients have been reaching out to us, looking to specify and amalgamate the product from the new plant faster than we expected.

So that could also help us on the market side. But again, it's already running pretty well. In terms of working capital just a few comments, right? If we break down our working capital, you can look at accounts receivable with the recovery in the market and also the moving exchange rates. The accounts receivable in reais are higher now.

And that's natural that also -- that actually reflects a good moment in the business. And we have a very, I would say, thorough credit management of our client exposures. It is expected that there would be an increase in accounts receivable because of the recovery in the market and also exchange rates.

Inventories have also gone up a little bit because of exchange rate. But we are working on several digital tools to manage inventories better. So there are several initiatives in our digital center that are geared towards reducing working capital. And especially inventories, we are looking at the way that we are doing our forecasting process.

We are implementing warehouse management systems, a new warehouse management system that probably will reduce the amount of parts that we have inventories in our MRO inventories. Also work in terms of feedstock, we're working on that. So we're working a lot on investment -- on inventories.

And on the supplier side, I already mentioned the increase in imported naphtha, which also helps with working capital. And finally, we have a lot of taxes to recover, right? Tax credits to recover in our balance sheet. The largest amount of that is related to specific tax recovery in Brazil, called -- it was a claim that we won in the court.

We call it the PIS/COFINS tax. We have still in our balance sheet somewhere around $300 million of PIS/COFINS to monetize. But we have already calculated in this claim, there are certain specific claims that have not yet been awarded by the courts, but those could amount to an additional BRL 2 billion.

That could add to, I would say, more future cash flow -- non-operating cash flow that we could be see in the future. It's exactly the same type of claim that we have already won. It's just a matter of the courts getting to that case and awarding the same decision that was already awarded in multiple other players in Brazil. .

Perfect. Thank you very much for the complete answer. .

[Operator Instructions] Our next question is coming from Luiz Carvalho from UBS. Please Luiz, you may proceed..

Hi, Rosana, hi Pedro, thanks for taking the questions. I have basically two quick questions here. You say -- I know that you don't give guidance for the following year.

But of your best knowledge, looking to the spreads and utilization capacity, what do you think that to the next couple of quarters would look like in terms of when you compare to the results that you just presented in the third quarter, and of course, comparing the taking consideration the seasonality of the past quarter, right? And the second question, it's mostly a follow-upon -- any update on the controlling shareholder, potential divestments, anything that you have been consulted with that you can share with us? Thank you..

Hi Luis, thank you. I mean, looking at the basics of the business, I would say that utilization should be higher than this year, I mean, because of COVID and the hit that we had in the second quarter. So -- and we do expect, I mean, higher demand next year compared to this year just by market growth everywhere.

So, in terms of volumes, we think it could be a better year next year. The second main aspect of our business is -- are the spreads, right? And there, I think the signals are still a little bit mixed. On the one hand, we have demand growth. So, that helps with higher spreads.

But on the other hand, we had several players and suppliers that, this year, they have stopped. Some have not come back yet. So, the balance of-- and there are new plants that were delayed from this year to next year, right? So, the balance of supply/demand for next year is still a little bit unclear.

So, given the situation, I mean, I don't think spreads next year will be much higher than this year. They could be lower, especially in polyethylene. Polyethylene this year, we had spreads that were much higher than we expected. So I think there may be some reversal in the PP spreads for next year.

But when we look at PP and PVC, they are doing pretty well. And I think there its more solid. I mean there is not a lot of new PVC capacity coming online. We're seeing delays of the new your line is now open capacities coming out every quarter.

So, I mean to give you an idea of what I said, right? The spread in PP was close to double of what we were expecting. So, it's really uncertain. But I would not expect materially higher spreads. They could be, I think, the same or maybe even a little bit lower.

A lot will also depend on, of course, on the oil price and how that occurs, right? And how long that --any changes in the oil price fall through to the final products. And the last aspect of this, still on kind of the--on a running rate is FX. There was a strong devaluation of the hell this year, which is very good for us.

And I mean, then I think it's anyone's call, right, what's going to happen with FX. All the analysts that we follow and everything that we look at, leads us to expect an FX that is at around five or north of five, which is pretty good for us. So again, I would say we have good, good perspectives in volume and FX and mixed perspectives around spreads.

They could be same, a little bit better or a little bit worse than we had this year. And finally, we have all the aspect that I already mentioned, right? The new plant in the U.S., the coming back of the chlor-alkali plant in Alagoas, the increase in the fast track solution in Mexico.

So there are certain aspects of our business that will, I would say, comparing on a year-to-year basis, there will be some positive discontinuity in terms of those -- of those, I would say, plants, right? In terms of other Braskem, the controlling shareholder and their --so they advised that they would start a process, a sale process.

We have established with them a protocol for exchange of information and we have started to provide them with pieces of information around Braskem so that we can prepare the sale process. But we are not a part of that process. So we will not --we are not expecting to have to engage with multiple counterparties.

And I mean, we are trying to keep that disruption away from the company. And to provide the Braskem and the controlling shareholder, they have a right to the information. And then they will talk to the potential counterparties and decide what to do with their stake.

So the only new thing that I have to say is, I mean, this process of exchange of information has started. But I'm not aware of any, I'd say, next step in this process or any external steps that may have happened at this point..

Okay. It's very clear. Thank you very much..

Our next question is from Fernanda Cunha from Citibank. Fernanda, you may proceed..

Hi. Good afternoon everyone. I have a couple of questions on the Mexico project. Can you explain how can we think of margins going forward with your fast track import strategy.

It just -- it seems to me slightly compute that this quarter versus second quarter, your margins actually they went down when spreads were significantly higher, and I'm talking against second quarter for this year.

So I'm trying to do this reconciliation and how we can think about these margins going forward? And then the second question I have is on the imminent of a second wave of COVID.

What lessons can -- have you learned from the first wave? And you think that margins could be better protected from this learning that you had?.

Hey, Fernanda, it's Rosana. Thanks for the question. About the margins in Mexico, I mean, we have been running with fast track since first quarter, since February.

And in terms of margin, there is a decrease actually because we do have additional costs running informed, as Pedro mentioned, but we do sell more, right? And we are talking about a gas cracker in an follow-up or putting PEMEX plus in the fast track solution, is still a great project is to generate good margins, to generate cash flow.

So even considering that, considering the fast track solution that we are ramping up is still a very positive project with great margins even in the down cycle..

Yes. No, I agree with you. But I just wanted to understand why these margins dropped like from 54%EBITDA margins in the second quarter to somewhere like 45%. I know there’s an impact from the receivables from PEMEX. But at the same time, ethane did not come down so strongly. So I know revenue --from my math, it should have come down like 9%.

It came like 27% down.

And so I’m just trying to understand what would be the normalized EBITDA margin?.

Yes, the margin dropped because we are ramping our fast track, that I just mentioned. But we are talking about 48% EBITDA margin, right? We do not see that in any other company or project in the globe. If we compare, for example, to Brazil, where we have a much more diversified feedstock profile, a lot of products EBITDA margin is 24% this quarter.

So even with a drop in Mexico, EBITDA margin that you mentioned and it’s true, because we are ramping up fast track, we're still getting 48%EBITDAmargin, which is great, actually..

Yes. Rosana, just let me add another point here that think is relevant, right? If you look at our net revenue or the revenue, it went up by about 10% third quarter versus second quarter.

And what happened is that a part of that is that, I mean, if you have, let's say, a margin per ton of $800 per ton, okay? And the price that you're selling at is$1,000, that margin is 50%. But if you have thesame$500 per ton of margin, and you're selling at $1,500 per ton, the margin goes down to 33%. It's still the same $500 per ton.

So there is also a dynamic there of increasing PE prices, but the spread has not increased by so much, right? So the evolution of the denominator of the math to get to the EBITDA margin leads you to that. So a part of the explanation also comes from that. This is the fast track that Rosana mentioned..

Sure. So I can say because the discussion offline it’s just, I understand that gross margins did not change. But when you look at EBITDA margins, it did change a lot quarter-over-quarter. So I was just trying to understand what is the -- what's the difference here. But we can discuss this afterwards..

Okay. On COVID, just briefly, I mean, what we have -- we have learned, I would say, a lot in the first wave. And we don't know how -- I mean we see the second wave in certain regions. We don't see a second wave, at least so far in other regions like in Brazil.

So it's still -- I don't know how the second wave or a potential second wave could hit our markets. But we have learned to turn around our operations pretty quickly. So I mean, changing production schedules to adjust to changes in demand, also logistics. So I think we learned a lot around how to adjust and adapt our operations quickly.

And if anything happens in terms of a second wave, I think that would be helpful to us going forward. But again, it's really -- how we will react once things start to hit the market. And we have seen that the way that it happens is different in each region. It's different in each market.

So it's really having the agility of answering quickly is more important than, having a very well-established plan. Because, I mean, it's really an uncertain, unknown situation that may occur..

Okay. Great. Thank you..

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

We have Roberto Simoes here with us. So I'll ask Roberto to close..

Thank you all, again for joining us, for this call. As we discussed, in the presentation, we had a quarter of very good results. As you saw, the money in all regions is increasing. And as we keep seeing very healthy spread in the international markets, every month. Given that, we present a positive cash flow generation.

And in this quarter with a leverage of 4.98% or 4.98 and important reduction from previous quarter leverage of 7.11%, this reduction reinforces our commitment to be reassigned as an investment-grade company.

It's also important to highlight that, from a liquidity point of view, we are in a good situation with a longer debt profile, results in ratable maturities in the short and medium-term and a very robust cash position.

And finally, I want to reaffirm our commitment to sustainable development, in the announcement that we give regarding our new goals related to mitigate climate change and eliminate plastic waste.

We will continue with our strategy around efficiency, and competitiveness, diversification of feedstocks and the geographic diversification that has been leading to significant results for us.

So with that, thanks for your -- very much for your participation and looking forward to taking -- talking to you in three months' time, when we release the 2020 annual results..

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