Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Braskem's Third Quarter of 2019 Earnings Conference Call. Today with us, we have Fernando Musa, CEO; and Rosana Avolio, Head of Investor Relations. We would like to inform that this event is being recorded and all participants will be in listen-only mode with the company’s presentation. After the Braskem remarks are completed, there will be a question and answer session. [Operator Instructions] We have simultaneous webcast that may be accessed through the Braskem 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 the questions which will be answered during the 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 Litigations Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of the Braskem management and on information currently available to 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 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, Rosana Avolio, Head of Investor Relations. Ms. Avolio, you may begin your conference.

Hi. Good afternoon, everyone, and thank you for participating in Braskem earnings conference call. Today, we will present the third quarter of 2019 results. So we are starting our presentation. Let's go to Slide 3, which will present the highlights in the period. First one, in the third quarter, Braskem posted a consolidated recurring EBITDA of $389 million, in line with the second quarter 2019, due to lower spreads in the international markets, which were partially offset by higher sales volume arising from Brazil and higher PP sales in Europe. Free cash flow generation of the company was $101 million and considering that the financial leverage measured by the ratio of net debt-to-EBITDA stood at 2.8 times in U.S. dollars. Other highlights in the year is the Extraordinary Shareholders' Meeting held on October 3rd. It was approved a distribution of R$667 million of the minimum mandatory dividend for the fiscal year of 2018 to be paid by the end of 2019. One of the highlights, which was very important for the company was with the filing of the 20-F forms for fiscal years of 2017 and 2018 also with the SEC. The trading of Braskem American Depositary Shares was resumed on NYSE. Also in October, Braskem placed $2.25 billion in bonds in the international markets, making the largest bond issue in Braskem's history. In November, including the liability management strategy of the company, Braskem also issued R$550 million in commercial papers due in up to five years. Those proceeds are being used primarily to repay other shorter-term, medium-term debt and higher-cost debt as well. In terms of value creation, the construction of the new PP plant in the United States reached 78% in the end of September with investment to-date of $523 million. To conduct the pre-market activities for the…

Thank you. [Operator Instructions] Our first question is from Gabriel Barra from UBS. Gabriel, you may proceed.

Hi, Rosana, thanks for the presentation. The questions are - the first one is regarding the PVC operation in Alagoas. How do you see the operations in Alagoas going forward? And are you maintaining partial PVC? Or is there any other possibility, for example, for salt instead of PVC? Again Alagoas, regarding the measure you proposed to AIN by the company, the 400 constructions, is there any forecast on how much is cost for Braskem? And if I may, I have another one on the Braskem Idesa. How has been the product of the important terminal Mexico? And what are the next steps for the product after the fast track step? Thank you.

Hello, Gabriel, this is Fernando Musa. Thank you very much for joining us, all of you. So, I'll start with the Alagoas situation. The current operational plan is for us to find a way sometime in the first half of next year to restart the chlor-alkali plant with salts that we are going to bring from Rio Grande do Norte, another state in the northeast of the Brazilian country. With that, we will recover part of our integration. Today, we are importing EDC. With salt from Rio Grande do Norte that, as I said, we expect to finalize the small investment that needs to be done at the plants and figuring out the logistics sometime in the first half of next year. We expect to have the chlor-alkali plant back and therefore the EDC production back in Alagoas to serve both the PVC plants in Alagoas and the PVC plant in Bahia. We are also working in parallel to identify an area in a rural setting outside of the Mexico City to go back to extracting the salt from the current reserve that exists in Alagoas State. This is going to take a little bit longer as we need to identify the right location and develop the projects to start the new mine and build the pipeline to remove the brine from this new location to the plant. As far as the cost for the process of shutting down the current mine, we're still working on that. This decision was made late last week based on some reports that we got earlier last week. We are still discussing with the authorities the detailed work plan and activities for the shutdown of the mine and if – whenever we have the – an estimate for the time line and cost to share that with the market in the future. And the last question is on Braskem Idesa, we are starting the fast track project until the end of the year. With that, we expect to have enough feedstock to run the cracker closer to its full capacity, which would lead to us therefore running the PE plant also close to full capacity. It's important to highlight that this feedstock will be imported from Texas, therefore, priced at Mont Belvieu reference. And as I said, we expect to have it up and running by the end of the year here.

Okay, great. Thanks, Musa.

Our next question is from Petr from Barclays. Petr, you may proceed.

Hi, good morning. And thanks for taking my question. Petr Grishchenko from Barclays. I just wanted to follow-up on what you are just discussing on Braskem Idesa. In terms of this temporary solution, I didn't fully understand when do you expect to come up with a permanent solution? And basically, you are saying that starting late this year, you'll run the cracker and the PE plant at full capacity, is that right? And then, I guess as a follow-up, obviously, there is a – Braskem Idesa entity is in the market trying to deal that I think, is the point I guess, is to release dividends from the entity. Why - I guess, do you need to do the deal, then if you operate the full capacity and will be able to take dividends?

Hello, Petr. On the fast track, we do expect it to start by the end of the year. We are working on the engineering alternatives for a long-term solution. We still don't have a time line for that. It is a priority for the Braskem Idesa team. As soon as we have the fast track operational, the team will dedicate their time to the long-term solution. As far as the current offering, because there is a current offering going on, I am not at liberty to discuss any of those details that you asked. Unfortunately, given the process that is going on I have restrictions on answering your questions.

Got it. And I guess, maybe just generally then, you mentioned, I think in the interview came out this morning about certain sectors in Brazil that you are seeing stronger demand. I am just trying to understand - if you can discuss specifically where do you see kind of stronger versus softer demand next year? I think one of the things you mentioned was automotive, but we saw about a month ago where the cessation came out very bearish on auto production, I think, the weakest increase in - like since 2016. So I am just curious like what success will be the drivers of demand next year in your opinion?

I think the relevant aspect for the Brazilian demand next year is the expected improvement in GDP growth, given all the reforms have happened. My comment on automotive was probably – should be taken probably more in comparison to other regions where we are seeing declining production for automotives in the U.S., Europe, even China, and Brazil still has positive growth. Yes, it's a little bit less than where it was running at the beginning of the year, but still, let's call it, a bright spot, given the reduction in industrial production in general in Brazil. Agriculture and agri business continues to be quite strong and it's a competitive and comparative advantage of the Brazilian economy and there is more and more plastics being used to support multiple aspects of the agricultural business in the country. And we start to see some positive signals coming from consumer-based businesses where, I mean, we start to see some of the retail sales improving. And there is good expectation when we talk to our clients about the impact that – I mean, higher growth next year should have for several of the value chains. The one challenging aspect continues to be civil construction. There is a good expectation for infrastructure and also for residential. But when those tend to have a big lag between any big decision/announcement and concrete increase and pickup in plastics demand. So - if we continue to see positive announcements in the residential sector. There has been a lot of activity recently, but this usually takes several months until you start construction and then impact demand. So for that sector, I am more conservative. It's probably back-end of 2020, beginning of 2021, where we start to see a stronger demand coming.

Great. That's very helpful. And then, maybe can I touch quickly on dividends. I am just trying to understand little bit better, what's your take, let's say, for next year? I mean, you approved the minimum dividends of, call it, 670 million BRL. And for next year, what numbers do you anticipate? And also, just wanted to clarify the complementary dividend policy, I think, it referenced to net leverage, not exceeding 2.5. And I was just wondering, is that like net leverage that you report? Or is it based on the – like total EBITDA or recurring EBITDA?

So, by Brazilian law, we have to pay 25% of net profit every year as dividends and after that, the company has discretionary part, that's what you mentioned, complementary dividends. For that portion, we published a dividend policy over a year ago. The logic of the dividend policy is to look at the current year plus two years forward. And based on the expected results of the company maintain a leverage – maximum leverage of 2.5 net debt-over-EBITDA. The policy also says that if there is an interesting project and/or acquisition that is forecast for the period, that it would be okay to go above the 2.5 as long as the expectation is to come back to the 2.5. The decision on dividend will be done sometime earlier next year after the close of the year. And with the business plan for the future years taken into consideration this decision will be made by the March, April timeframe. As of today, at the end of the third quarter, we have a net profit of R$124 million after the large loss in the third quarter. That was directly a direct consequence of the exchange rate variation impact on our liabilities that are dollar-denominated.

Great. And maybe can I ask one more question? On – in the item that you report on the kind of adjusted leverage for judicial deposits, that was already - like, technically, like released or the Supreme Court announced that's supposed to be released. But as the third quarter was still frozen, is that how we should think about it, this $906 million that you showed?

Yes. The...

So , the $908 million.

The court has frozen R$3.7 billion to $900 million plus that you mentioned. This amount that is a decision by the ST Justiça, which is the Superior Tribunal Court of Justice of Brazil, saying that we should get the money back. We are dealing with the "bureaucracy" of the legal system to get the money back. So we have a superior court’s order to have the funds released. So as of today, we still don't have the money back into our accounts. But I mean, we are constantly discussing this with the court given the ST Justiça decision that the insurance bonds would provide protection that the courts require and there is no need for assets froze.

Excellent. Thank you so much and best of luck to you guys.

Our next question is from Hassan Ahmed from Alembic Global. Hassan, you may proceed.

Hi, good morning, Fernando. First question, on the ethylene, polyethylene side of things. And a 2-part question, if I may. As I took a look at Q3 earnings across a variety of sort of producers within the Americas, I think one thing that became quite clear was there was a fair degree of divergence in terms of the profitability reported by earnings based on flexibility of feedstock. And it seems to be a recurring theme nowadays that you see extreme feedstock movements, a lot of volatility within even NGLs themselves and obviously, that continues to have an impact on the overall profitability within the ethylene polyethylene chain within the Americas. So how are you guys thinking about adjusting to that, maybe importing more flexibility into the system, maybe more rapid sort of switching between feedstocks and alike? So that's part one of the question. And part two of the question is, it seems that 80% of the ethylene polyethylene capacity that was supposed to come online in the Americas has already come online. And I know you flagged incremental capacity in China as a potential threat 2020 and beyond. But China has a long history of sort of underwhelming in terms of bringing online capacity on dates on which consultants say that they bring that capacity online. So could it be that maybe we are a bit too paranoid about the near term?

Hello, Hassan. Nice talking to you. On the first question around flexibility, this is certainly the key point in our industry as volatility increases and different sources of feedstock appear around the world. If a company has the flexibility, it will navigate this challenging and volatile moments with better results. As all of you are aware, we made an investment in our Bahia cracker to create flexibility, so that we can crack ethane up to 15% of the ethylene production. The challenge we've been facing in the recent past is the problem in Alagoas, which is forcing us to run the cracker at the slightly lower rate because there is no ethylene being consumed for the EDC plant. And under that logic, it makes it very hard to import the ethane to benefit from that flexibility given our needs for the other streams, especially propylene that if we flip to ethane just as our availability in the cluster there in Bahia and for the system here in Brazil. So, unfortunately, this investment in profitability, we have not been able to use it in the short-term. Having said that, we continue to look at the possibility since we do plan to have the chlor-alkali plant and EDC plant back online pretty soon. We do have – we do continue to look at the opportunity to increasing the flexibility in Bahia. This is a project that we've been looking at from an engineering point of view for a while. As it would be the second tranche, it is compared to the first one a more expensive. That's why they got a little bit longer to find the right engineering solution. So that it is competitive and therefore implemented. We are looking at other alternatives for the other crackers. Those probably take a…

Understood. Very, very helpful. And as a follow-up, just moving to the chlorovinyl side of things, you mentioned that in the near-term, you'll be able to start your chlor-alkali facility, EDC facility and alike. On the chlor-alkali side, we – at least the industry was getting a bit more positive about the prospects of caustic pricing for the back half of the year. But it seems that never really materialized and I think potentially the culprit maybe industrial production or more specifically, the production of aluminum. So, the first question on that is, how do you see 2020 shaping up from a caustic perspective? And part and parcel with that, how do you see 2020 shaping up for the PVC side of things as well, because it just seems to me that EDC profitability obviously depends to a high degree on the ebbs and flows of ethylene margins because -- particularly for the integrated guys, it seems the bulk of the PVC profitability lies in the sort of margins you attain within ethylene. So, in a nutshell, what I am asking for is, prospects for caustic pricing for 2020 and prospects for PVC margins in 2020?

Hassan, I think the vinyls chain is one where we see compared to C2 PE or C3 PP way less investment in general. I agree with you that during the caustic pricing uptick that everybody was expecting it's frustrating that it didn't come. I – it's probably driven by some of the challenges, as you mentioned, in industrial production, where a lot of the caustic soda ends up and a direct consequence of the global economic slowdown. And so, having said that, I mean, we do believe that different than PE and even PP, which I mean, PE is clearly in the down cycle, PP is still very healthy. But quite a lot of capacity coming online in the Americas. We are going to see the new wave of construction starting with our plant next year. So, we should expect a small reduction in margins in the PP. The vinyls chain should have healthier margins going forward, even though they've got a lot of growth in caustic, they are limited to zero capacity addition. So any growth will increase utilization rates. The same applies to PVC. And PVC, there is a lot of need for infrastructure around the world and this should drive the PVC demand pretty positively. And in Brazil, we should see an uptick with the improvement in economics for the overall country. We should see a healthier PVC demand that would contribute to improving our margins. We do expect sort of better margins for the vinyls chain going forward.

Very helpful. Thank you so much.

Our next question is from [Indiscernible] He is an investor. You may proceed.

Good afternoon. First one regarding the Alagoas issue. Can you help us to contract your analysis on the utilization rates going forward? So, it has increased between third and second quarters. So first quarter for 2020, what's the utilization rate target the company is pursuing? Second question is regarding for Mexican fast track project. So, who is paying for the investments? And who pays for the logistics to transport tanks from Texas to Mexico going forward? And is that Braskem Idesa utilization rates can we expect for 2020 for Mexico project? And third and last question for also the environment of lower spreads, how could be the investments for 2020 considering the company already decreased investments for 2019? Thank you.

Hello. [Indiscernible] On the vinyls utilization rate here in Brazil, as I said, we do expect to have the chlor-alkali plant back up and running sometime in the first half of next year. This will help us have a local EDC production that we will combine with imported EDC as we ramp up the chlor-alkali plant. So, we do expect to have increased utilization rates by mid late next year as we ramp up this process. In the short term, we don't expect any relevant change until we start bringing salt from Rio Grande do Norte to restart the plant. On the Braskem Idesa fast track project, the investment is being done by Braskem Idesa. The molecule, the ethane will be bought by Braskem Idesa and imported from Texas to Mexico, with all the cost paid for by Braskem Idesa. This will provide us with additional flexibility to bring a relevant amount of ethane that should help us run the cracker and therefore the PE plants very close or at full capacity next year after we ramp up this fast track facility. The expectation is that the fast track could bring in anywhere between 20% and 40% roughly of complex needs. So, as today, PEMEX has been delivering – in the third quarter, they delivered 72. If we max out the fast track, we could be at full capacity in the complex. As far as the investments in general for the company, given the down cycle, we've been revisiting the portfolio and many of those small projects that we are adding on a recovery of the cycle, sometime late 2019 and during '2020. Now that we have a scenario where we still don't see that recovery many of those projects have been either postponed or canceled. We do expect 2020 to have a lower CapEx spend this year, simply by the termination of construction of the new plant, the new polypropylene plant in the U.S. in 2019, this plant took around $240 million of CapEx. And the expectation is that for 2020, it will take only $100 million for its completion. So in that movement alone, we should see a reduction of around $140 million in the CapEx. We've been managing the portfolio of investments very carefully. Recognizing the challenges of the cycle, but also very much attuned to the safety needs and reliability needs of all plants around the world. Safety is our first priority and we will continue to invest in the proper maintenance for all the plants as we should be doing.

Very clear, Fernando. So, if I may have another question, so, regarding the operational issues in the U.S., can you – I don't know you already explained what happened in the third quarter. But is it totally solid or it should continue in the fourth quarter also in 2020?

Sorry, could you repeat the question? It was hard to understand what you said.

Sure. Regarding the operational issues that the company had in the third quarter in the U.S. operation has been totally solved or it should persist in the fourth quarter also in 2020? And also, what happened, I don't know if you've already told about it. So, thank you.

So we had several smaller issues in some of the plants in the U.S. All of them have been solved. We should be back at our full availability. We are facing a market in the U.S., especially because of the reduction in the production of cars that has been more challenging. Inventories in the industry have increased significantly in the last few months. Having said that, we continue to have very strong sales and continue with the pre-marketing activities for a new plant. So, there was no major events at the plants. It was smaller events at some of the five plants we have in the U.S.

Very clear. Thank you.

Our next question is from Lilyanna Yang from HSBC. Lilyanna, you may proceed.

Hi, thank you for the opportunity. I just have two questions. One is on the PEMEX ethane contract. So, they had not been fully fulfilling the contract. So I wonder if the receivables from PEMEX have been stable or have been mounting. We know about the non-fulfillment of the counter, but we wonder if they have made – PEMEX has made any kind of cash payments in terms of penalties for the non-fulfillment of the contract? The second question, if I may, is I wonder, what would be – how can we think about the Alagoas dispute is the end game of the strategy of the company. Would you be considering at this point an out-of-court settlement or you think it's too early for now? Thank you.

Hello, Lilyanna. On the PEMEX contract, they delivered 72% of the contract in the third quarter. They have been paying all the deliver or pay penalties pursuant to the contract. So, I would say, they have been fulfilling the contractual obligations. Whenever they don't deliver, they are paying for the delivery or pays. As far as the Alagoas situation, I mean, we made a relevant step in announcing the formal shutdown of the mine last week. We are working with the authorities on the detailed plan for that shutdown. There is still a lot of work being done to better understand what's happening in the different neighborhoods. It's a different topic and I mean, we are conducting a series of additional studies. And concluding by the end of the year, the sonars in all 35 wells. These sonars, plus the additional studies are crucial to have a better understanding of what's happening from a geological point of view and from a geomechanical point of view in the region. So, I would say we need to see how those two activities progress, the understanding of what's happening in the neighborhood and the progress of the discussion with the authorities on the shutdown of the mine to have any discussions from a legal system point of view. So, this is something for the future.

Excellent. Thank you so much.

[Operator Instructions] As there are no questions, I will turn the floor over to the speakers. You may proceed.

Thank you very much for participating in our third quarter 2019 results call. As we discussed in the presentation by Rosana and some of the questions, it has been a challenging time for the industry in general, but the company has had a very disciplined approach to capital allocation and cost management with adjustments of its CapEx plan for 2019. The bond issuance has had a very relevant impact on our short-term debt payments, which with the new bonds and the commercial papers, you should hear in Brazil, basically have reduced significantly our debt repayments for the next four years period for which we do expect to be out of the down cycle in the next four years. And I think, the relevant aspect I would like to let all of you with is that, despite the challenges that we face, both from a cycle from a Brazil economy, from a Mexico economy challenges, we have been generating positive cash flow. Even in the third quarter, we generated R$400 million adding up to R$2.8 billion up to now. And I think this is a direct consequence of the discipline of the company to pursuit strategies around improving its productivity and competitiveness; continue to look for opportunities to create flexibility and diversification in its feedstock matrix; and pursue a better diversification from a geographic point of view to assess different markets where the new PP plant is a key driver for increasing our presence in North America, for example. So, thank you very much for your participation. And looking forward to talking to you, all of you early next year when we will be announcing the fourth quarter results. Thank you. Bye-bye.

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