Unipar Carbocloro SA
BOVESPA:UNIP6
Earnings Call Analysis
Q4-2023 Analysis
Unipar Carbocloro SA
Unipar's fourth quarter of 2023 was defined by executive actions aiming to manage impacts of global market disruptions on value chains affecting various dependent industries. The company faced deceleration in demand, rising production costs, and notably, commodity price deflation across South American markets. These macroeconomic challenges were exacerbated in Argentina with significant currency devaluation affecting not only Unipar's financial results but other foreign companies as well. Despite these hurdles, Unipar exhibited resilience, outperforming the chemical industry's average production capacity usage by maintaining a rate of 81% in 2023.
In 2023, Unipar made a bold CapEx move, setting a new record by investing BRL 374 million, and projecting another increase in 2024. Specifically, a project for technological modernization of the Cubatao plant demands a CapEx of over BRL 1 billion spread across three years (2023-2025), with the company tracking well to its planned timelines. The Santo Andre expansion saw investments of BRL 100 million, resulting in a 20% increase in chlorine sodium hydroxide and hydrochloric acid production capacity. The new unit in Camacari, Bahia is on track for a Q4 2024 start, while in Bahia Blanca, Argentina, modernizations will tap into the lucrative lithium mining industry.
Unipar's advancements in France include a new client portal, with over 70% client adoption rate, fostering improved customer experience. Continuously evolving, the company ensures that 59% of the energy consumed by its plants in Brazil is from renewable sources, with a target to reach 100% by 2025. This comprises 80% in-house production and 20% through long-term agreements.
The company's culture emphasizes working cohesively towards resilience, high performance, and a robust workplace environment. During extreme weather in Bahia Blanca, which paralyzed activities for safety reasons, the Unipar spirit was evident as operations swiftly resumed, and the community received substantial support to mitigate the storm's impact.
Unipar proudly supports 48 projects across education, culture, sports, and sanitation, impacting over 2.8 million people. Recognition for their sustainability efforts came through awards and improving rankings in climate change and water resource management.
Despite significant impacts from Argentine inflation and currency devaluation, Unipar's adjusted net revenue in 2023 reached BRL 5.5 billion, with chlorine derivatives being a sales highlight. The company managed an EBITDA of BRL 1.5 billion, accounting for a 27% net revenue margin. These results attest to the effectiveness of Unipar's strategic investments.
Unipar showcased strong operational cash generation of BRL 1.5 billion, ending the year with negative net debt and evidencing industry downturn deflection. The company approved an additional payout in February of BRL 148.3 million, summing up to BRL 305 million distributed in 2023, equating to 39% of profit which is significantly above the minimum mandatory payout of 25%.
Unipar is ambitiously looking for opportunities both in Brazil and abroad, seeking to expand and diversify its portfolio to mitigate industry fluctuations. The focus is on broadening product offerings, geographical footprint enhancements, and fostering international competitiveness through strategic investments.
The quarter observed significant price fluctuations with soda dropping by 4% and PVC international prices by 8%. Such variances reflect commodity market pressures felt during the quarter and impact strategy moving forward.
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Good afternoon. [indiscernible] welcomes to the Unipar's earnings call 4Q '23. We have here Rodrigo Cannaval, Executive Director and IR, Raquel Turano de Souza, Commercial Executive Director and the IR team.
This meeting is being recorded. [Operator Instructions]. Presentation can be accessed in our platform MZiQ, and in our website, ri.unipar.com. Site selection will be controlled by ourselves. And the audio will be available at the company's website after finishing.
[Operator Instructions]. Before we proceed, we would like to reinforce forward-looking statements are based on the beliefs and assumptions of Unipar's management and the current information available to the company.
Also based on information currently available. Future considerations are not guarantee of performance that involve risks and uncertainties and premises as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should consider the general [indiscernible] situations as other operational factors may affect Unipar's future results that materially differ from those expressed in respect to forward-looking statements.
Now I would like to the floor to Rodrigo Cannaval, who will begin his presentation. Please proceed.
Thank you, Raquel. Good afternoon, everybody. On behalf of Unipar, I agree too. On my first presentation of results as IRO, from April on, I took the company on my hands, and I am available for you to contact me. I thank you all, and I commend with the support of all my team here present. Picking up what we approached on the last quarter's global stability to impact the value chains in the press, many segments, of which our industry depends. The decelerated demand raising cost of production, the prices of commodities are going low, still are challenged in South American market.
I highlight the scenario of exchange, financial and political volatility in Argentina. In the last quarter, there was an important [ excellent ] devaluation in Argentina that impacted not only our financial results, but also of all foreign companies that operate in that country.
In Brazil, besides the pressure of the commodity prices going down, we faced the growth on the participation of imported products. And that is affecting a relevant way the performance of national chemical industry. I also add the sector by means of its associations has dealt with this topic with the federal government in [ Brazil ] to adopt measures to stimulate competitiveness of national chemical industry, which is a relevant employer tax generator and much investment in the country. We have done our homework, and we are more and more prepared to face the cycles of decline with resilience.
According to the most recent data of have a [ key ] in the segment closed the first 9 months of '23 with a 65% rate of use. In operational excellence, I emphasize our performance that was significantly above the average of chemical industry in Brazil. Our -- and those figures show our resilience and operational capacity. We closed 2023 with 81% of use of the average rate of production capacity, considering already the increasing capacity of Santo Andre and even the climate event that happened in Bahia Blanca in December last year.
Besides remaining resilient, we keep building the future in spite of the drop cycle of the petrochemical sector, we follow with our strategic view of long-term investing in structuring projects that we will improve our performance, profitability and resilience. And also, they ensure that we will meet our sustainability commitment.
We reached a new CapEx record in 2023 investing BRL 374 million in the year, and we have announced new investments that, for sure, will make us reach a new record in 2024. The project of technological modernization of Cubatao plant, for instance, we count on a CapEx that is above BRL 1 billion between '23 and '25. We are already following the planned time line.
At the end of '25, Unipar, we have the largest manufacturing and operation in South America with gains of operational efficacy, efficiency, competitiveness and sustainability. The expansion in Santo Andre that contend with investments of BRL 100 million was 100% ready -- is ready and is totally operational with a 20% increase in our chlorine and sodium -- in chlorine sodium hydroxide capacity of production besides increased in capacity of production, hydrochloric acid. The project of the new unit in Camacari, Bahia. It follows within the timetable. We expect to start it over the last quarter of '24.
In Bahia Blanca, Argentina, we have finished modernization and improvement that were done in the last few years that enabled increasing productivity and production of chlorine. And with that, we are out to access the market opportunities, especially in lithium mining that has been growing in that country and where hydrochloric acid is a key input.
In France, and regarding excellence, we advanced in digitization. We launched the customers' portal, improving the experience and simplifying transactions with our customers. We have gone beyond 70% of our clients are using the portal. We are beyond that mark. In competitiveness, I emphasize continuous evolution of and renewable energy cell production, reaching 59% of the capacity of generation of our farms. So we meet our commitment of having 100% of all energy that feeds our plants in Brazil will be coming from renewable energy until 2025. 80% are produced and 20% in long-term agreements.
In our cooperative culture, our objective is to guarantee that everybody acts towards the same direction to ensure resilience, high performance in deliveries in a safe and healthy environment and excellent work to work -- place to work. Recently, we had a large example of Unipar Spirit, where we had an extreme climate events in Bahia Blanca impacted our operations, even paralyzing the activities on behalf of everybody safety, we could maintain the operational levels, and we were able to resume the work in a very short period of time.
It's worth emphasizing the role of Unipar in their teams in supporting the community of Bahia Blanca with donations that helped alleviating suffering of people, who lost a lot and also contributed for the city to fix the damage caused by the storm. Once again, Unipar showed its commitment with the communities in the surroundings of its plants.
In sustainability, we emphasize that we support 48 social projects, education, culture, sport, mission-driven actions and sanitation that impacted positively more than 2.8 million people. And also for your attention for the recent achievement of Unipar that we're very proud of, which is the CEO of Pro Etica company by the general control of the country that acknowledges our governance. Also an award were -- sort of an award was that our grade went from C2B in the climate change cycle '23 of C2b Inside Action. And we maintain the grade in Water Resources.
Now I will detail our financial results of the fourth Q '23. The financial results consolidated in Unipar were extremely impacted by the effects of inflation in '23 in Argentina. In exchange devaluing of the local currency in December '23, [ EMEA ] had better report in operational performance of the company, we will present the adjusted results and do not consider incidence of such effects according to the application of the norm by IAS 29.
In '23, we reached an adjusted net revenue of BRL 5.5 billion where we highlight the growth of experience in sales of Chlorine Derivatives. This result is from the demands of this sector of sanitation supported by our investments in the production of chorine and Chlorine [ Derivatives ] hydrochloride acid in Brazil.
In 2023, the EBITDA of Unipar reached the level of BRL 1.5 billion even going through a cycle of drops, the margin was resilient corresponding to 27% of net revenue. We attribute this resilience to the structuring investments already mentioned here.
Therefore, we registered a net profit of BRL 791 million in 2023. In our capital structure, I emphasize the strong operational cash generation of BRL 1.5 billion, resulting in a net generation of BRL 732 million. Additionally, we closed -- we closed that year with negative net debt, even facing a cycle of drop in the industry. Throughout 2023, we adjusted the capital structure of the company and strengthen our -- strength with financial markets to ensure our sustainable growth.
We also approved an additional payout in the February of BRL 148.3 million that added to the payment done in December will be a total of BRL [ 305 ] million in 2023. corresponding to 39% of profit in the period, [ 14 PPs ] above the minimum mandatory of 25%.
Now I'll give the floor to Raquel to open for Q&A.
Thank you, Rodrigo. Now we're going to collect the questions. Please feel comfortable to send them via webcast.
[indiscernible] or anything new in the sense of looking for opportunities abroad?
Good afternoon, Unipar has been looking for opportunities in Brazil and abroad, as has been announced previously. And we'll keep on doing that.
And that said. 1 question from Vladimir Pinto from XP, what was the prices drop that you noticed in 4Q?
The international prices of the main commodities behaved as such between the third and fourth Q. For soda, the drop was around 4%. In the case of PVC international prices dropped 8%.
We have one more question from Hudson [ Freighters ] from Heather Interactive. The energy agreements have been signed and who is the provider?
We have currently the energy has been already contracted. We have our JVs that in 2025, we correspond to 80% of the energy that's consumed in Brazil and the other 20% and long-term contracts in the case of high production energy, we have our partners with AES Tietê and Atlas renewables.
Question from [ Rooney ] how is the payback program going?
This program in Unipar is open. We have done some operations throughout '23 and -- '24, I'm sorry, and we will go on implementing the program.
Now we're going to see a few more questions. A question from [ Miguel ] from Santander. I'm going to ask the first part of the question. What can we consider as recurring CapEx looking on it maintenance for '23 and in relation of maintenance CapEx after the expansion of the new plant in Camacari to increase a lot?
CapEx historical recurrent around BRL 150 million a year. And with Camacari plant that has -- that is small when compared to the other companies, this average should not change with the new investment projects that will work for the best rate of reliability, the trend is to maintain or reduce the CapEx rate in the future.
We have 2 questions regarding commodities. The first one from [ Hudson [ Freighters ] what are the perspectives for '24 regarding commodities. And from [indiscernible] how are the most important markets behaving -- of Unipar behaving, commodities for '24?
In the beginning of the year all the same trend of the end of last year regarding international market with the expectation of improvement towards the second half of '24. Regarding the behavior of the most important markets. They also go along the same lines, like it was the end of last year. The perspective for the future is better, not only for Unipar, but also for chemical industry at large.
We have 2 questions regarding internal revenue service, Rodrigo made a different [indiscernible] and [ Mateus ] from AGF, why it was positive? Is this recurrent?
We would recover for this year the positive internal revenue was due to some effects. The exclusion of [ Silic ] exclusion on nonrecurrent tax debt and also credit on Cisco incentives. And this may happen or not and also adjustment of Argentina inflation that's also depending on the circumstances, it will depend on Argentinian policy this year or politics as a matter of fact.
We have one more question for Rodrigo. [ Miguel ] from Santander. If you could give us a shade of what are the most important characteristics that the company analyzes for M&As today, complement portfolio, increased volumes of the same products. What are the places where you think there will be more demand and why, for instance, the liability of raw material. You're looking at M&A opportunities abroad, what do you imagine are the most important challenges?
When Unipar is in petrochemical sector that lives its cycles of ups and downs and aiming at more resilience or softening these ups and downs. Our objectives are to open our portfolio, to have different sites broaden the geography. This report tools to mitigate the effects of the ups and downs of the petrochemical sector.
A question from [ Matthew Jr, SCF ]. Why did revenue fall by half? What adjustment did you do?
Well, when we consider the -- with the effects of IAS 29 in the consolidation of Argentina, yes, it dropped 53%. If you compare third and fourth Q, without the effects of IAS 29, the drop was of 7% in the same period, especially because of diversification of the most important commodities so then PVC.
A question from [ Lucidio ] was the expansion of modernization CapEx of Cubatao for 2004 -- for 2024?
In Cubatao, it's BRL 1 billion within the cycle of -- from '23 to '25.
[ Nishal ] from S&P Global. What's your perspective for the demand of PVC in Brazilian market in 2024?
PVC is a plastic resin that depends on civil construction. We are in many segments. However, the civil construction is very important. So PVC, we have to reduce the interest rates in our country and then the resumption of the civil construction market in our region.
Question from [ Bruno Olivier ] from [ AGM ]. Do you intend to change the shares?
We analyze that oftentimes but it's not being considered right now.
Thank you, Rodrigo. That was a break down of shares.
[ Warren from Sunny ] if AES Brazil left, how would it affect the joint venture?
There will be no impact, we'll go on with this new partner. And we have 20 years agreement. So it's a long-term relationship. We are checking other questions.
Now the last question, the IR will be available for any other questions. So Pedro [indiscernible] asks, what does the company think it may do to try to avoid international competition?
We have been investing in structuring actions to improve our competitiveness internationally wise. These by the projects of energy, the process of technological modernization of Cubatao that will give us a modern plan that is efficient and competitive. But also, we need governmental policies that will foster competitive and local competitivity.
Thank you, Rodrigo. We finish Q&A. I would like to give the floor back to Rodrigo for your final considerations.
We go to the end of one more earnings conference call by Unipar. Before I finish, I would like to enforce an important point, our personal [indiscernible]. We were resilient in the cycle of drops, delivering quality results. This resilience guarantees quality results. When we are low, and it's also traveling for the high cycles.
We go on in the pathway of investment improving and more resilience with the projects that have been announced. Our capital structure and access to different sources of loans are leveraged to guarantee our growth with portfolio diversification and expansion to new geographies.
We go on committed to value generation, financial health and pay the shareholders and reinforced by thanks to our partners and coworkers for being so involved in delivering our strategy and to the investors and counselors for the support and trust. Thank you all for your participation.