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Executives

Guilherme Mélega – IRO and Corporate Controlling.

Carlos Jose Fadigas de Souza Filho – Chief Executive Officer

Marcela Aparecida Drehmer Andrade – Vice President Executive Officer and Chief Financial Officer

Analysts

Frank McGann – Bank of America Merrill Lynch

Braskem S.A. (BAK) Q4 2012 Earnings Call February 7, 2013 11:30 AM ET

Operator

Good morning ladies and gentlemen. At this time we would like to welcome everyone to Braskem’s Fourth Quarter 2012 Earning Conference Call. Today with us we have Carlos Fadigas, CEO; Marcela Drehmer, CFO; and Guilherme Mélega, IRO and Corporate Controlling. We would like to inform that this event is being recorded and all participants will be in listen-only mode during the company’s 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 simultaneous webcast that may be accessed through Braskem’s IR website at www.braskem.com.br/ir.

The slide presentation may be downloaded from the website. Please feel free to flip through these 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 will be posted in advance on the website.

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Braskem management and on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to the future events and therefore, depend on 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’ll turn the conference over to Guilherme Mélega, IRO and Corporate Controlling Officer. Mr. Mélega, you may begin your conference.

Guilherme Mélega

Good morning, ladies and gentleman. Thank you for participating in our Braskem earnings conference call. Today, we will be commenting on our results for the fourth quarter of 2012. First, we would like to remind you that pursuant to Federal Law 11638 from 2007, the results presented in today’s presentation reflect the adoption of International Financial Reporting Standards, or IFRS. Note also that as of the second quarter, the company began to recognize investments in jointly controlled companies using the equity method instead of the previous method delivered on proportionate consolidation.

In addition, unless stated otherwise, for the periods presented, Braskem’s consolidated results reflect: the proportional consolidation of Refinaria de Petróleo Rio-Grandense, or RPR, until the first quarter of 2012; as of the fourth quarter of 2011, the polypropylene business acquired from Dow Chemical. At Braskem that in the last quarter of 2012, the company divested its interest in the capital offset (inaudible) and is currently negotiating that as (inaudible). Therefore the result of this company for the quarter is (inaudible) 2011 and 2012 are recognizing as profit or loss from this discontinued corporations.

In addition to this presentation was reviewed by an external auditor. Let’s go to the next slide, where we’ll begin our comments. In Slide 2, we presented the highlights of the fourth quarter of 2012. In line with the seasonality of the fourth quarter, Braskem incorporated its crackers at an average utilization rate of 82%, dye, from the previous quarter which also reflects the operational problem resulting from the volatility power supply. (Inaudible) market compared to about 8% in the fourth quarter to 1.2 million tons; lastly, comparing the weaker demand with sales volume of 867,000 tons, leading its market share in the quarter to remain stable at 70%.

Net revenue was R$9.3 billion, in line with the third quarter and 8% higher average price for resins and Basic Petrochemicals. In the last quarter, full year EBITDA was R$1.4 billion, or $677 million. These amount includes the recognition of a gain of R$409 million from divestment of interesting total of the half of the water treatment units and R$107 million related to the sale for oil cost at Braskem America. Excluding these effects, it designed a fourth quarter with R$883 million.

As part of the strategy to diversify its feedstock metrics Braskem continues to make progress and its greenfield project in Mexico to ensure the units start off by mid-2015. Earthmoving works have been concluded in the project civil construction, which is 20% completion in line with the timetable. Note that the company’s interest in the project was included some 65% to 75% and that the project finance structure, the amount of $2.3 billion was concluded, in line with its commitment to sit its financial help, Braskem contracted another standby credit line in the amount of R$450 million and also contracted a new line from Nexi, the amount of $200 million that will be reversed in the first quarter of 2013.

Let’s move on to Slide 4. This slide presents the performance in fiscal year 2012. Braskem’s crackers operated at an average duration rate of 89%, including six percentage points compared anyway till 2011. And yet the factor was scheduled and unscheduled maintaining shutdowns.

The higher level of operating efficiency allowed the company to deliver on its strategy also recovering share in Brazil’s thermoplastic resin market, which extended by five points to stand up 70% in the year end. EBITDA reached R$4 billion, or $ 2 billion excluding nonrecurring items such as while receipt of compensation under one of the operating supply conflicts in the United States and their divestment of non-strategic assets in the fourth quarter, EBITDA was R$2.1 billion. As part of its strategy (inaudible) existing trends, growing, diversifying and expanding to national Braskem (inaudible) productions at or exceeded PVC plant and the capacity expansion project at its Butadiene plant.

Acquired in the United States, the company’s splitter unit can show the supply of its stock from a vatic sources and found that concrete with energized products which will be able to putt the hydro generation plant huge to supply (inaudible) located in the U.S. and continued to make progress on a timetable often related project in Mexico, which we highlight in the year including private pre-market efforts and (inaudible) conflict.

In line with its strategy to invest in the petrochemical, Braskem were invested most strategic assets, as noted earlier which forceable commitment to financial help. And at the end of 2012 work investment grade ratings under two major credit rating agencies.

Let’s go the next slide please; slide 5 shows the performance of Brazil’s Thermoplastic Resin Market and of Braskem’s performance. Demand for thermoplastic resins reached 1.3 million tons in the fourth quarter, now 8% on the previous quarter, mainly due to the seasonality.

In relation to the same last year, resin demand grew by 3%. In the year despite there is a lower growth in Brazil’s domestic economic, demand grew by 2% to rich 5 million tons, in line with its strategy – on our commitment to supply the domestic market and on expanding its market share. Braskem’s sales in 2012 improved to 10%, leading its market share to expand by five percentage points from 2011 to reach 70%. In addition, resin import decreased by 4%, which imports holding 24% market share.

In this scenario of rich global economic growth, it is important to note that Brazilian government strengthened domestic manufacturers by adopting measures to boost their competitiveness, which included raising import duties on fuel, which took effect in the fourth quarter of 2012, expanding the integral program, we’re boosting through taxes in selected industries and we’re boosting electricity carriers.

Let’s move to slide 6 please; this slide presents the factor of that influence EBITDA in the fourth quarter of 2012, compared with the prior quarter. Braskem’s consolidate EBITDA was R$1.4 billion growing by 60% on the third quarter. This figure includes the positive impact of R$409 million from the divestment of Cetrel and the water treatment unit and R$107 million from the divestment of the railcars at Braskem America, both of these assets were not related to the company’s core business.

Excluding these nonrecurring items, EBITDA in the fourth quarter was R$883 million, where 28% increase in Braskem’s Basic Petrochemical and improvement in process. I will partially offset the lower service volume, which was affected by further analogy, which are positive impact of R$112 million on the contribution margin.

Another factor in fact and the results were depreciation in U.S. dollar on the average exchange rate in the period, which generated a positive impact of R$27 million. Followed by a positive revenue impact of R$104 million and America’s cost impact of R$77 million.

The R$127 million increasing selling expenses is basically explained by the extension shift more and so prior sales (inaudible) and the expenses (inaudible) under the collective agreement acquired with proactively through September every units (inaudible).

Let’s go to the next slide please. The next slide will show the change in EBITDA in 2012 compared to the EBITDA in 2011. Braskem’s consolidated EBITDA in 2012 was R$4 billion, grown by 6% on the previous year. EBITDA and the real benefits from the R$860 million positive impact from nonrecurring items, which included a compensation received under one of the top earning supply countries in the United States and the press release and the divestment of non-strategic assets explained earlier.

Excluding this effect, Braskem’s EBITDA was R$2.1 billion or 70% lower then 2011. The higher sales volume and average U.S. dollar appreciation of 70% which generated a positive impact of R$1.1 billion, but not enough to offset the contraction margin and build petrochemical spreads in export markets which contracted by 21% and 7% respectively.

The duration between the two periods was also influenced by R$396 million including the cost on expansion which generated higher expenses related to distribution and storage following the consolidation of the PPF that was acquired in late 2012.

Let’s move on to slide eight. Slide eight shows Braskem’s debt on December 30, 2012. Braskem had consolidated gross debt of $8,569 million up slightly from the balance on September 30, 2012 which is mainly explained by the new funding contracted through, the bridge loan for the integrated project in Mexico. The bridge loan which totaled $317 million in the year will be repaid once the first installment of the project finance is (inaudible).

Indigenous Real consolidated volume debt grew by 2% in the period. (inaudible) preclude 68% after gross debt presented in U.S. dollars. In line with its strategy to maintain high liquidity and safe guard its financial halt, Braskem maintains three rewarding standby credit facilities in line within the aggregate amount of $600 million and realigned in the amount of R$450 million, make up these lines do not include any restricted covenant and listed us. Meantime, we have the material diverse change net cause. All (inaudible) with below the falls rates and high credit ratings participated in the transactions; with R$450 million new funding, the loss of cash and financial investments increasing by 10% in relation to the third quarter to $1.710 million.

As a result gross consolidated net debt in both Brazilian Real and US dollar included by around 6% to R$14 million and R$17 million and $6.859 million respectively. The level of denominating in US dollars was 69%. Financial average measured by the net debt EBITDA ratio decreased from 2.77 times to 2.42 times when measured in dollar reflecting the higher EBITDA in the last 12 months compared to the previous quarter.

The local currency ratio stood at 2.64 times. Excluding the total balance of the good loan before the Mexico project in the respected cash, the net debt EBITDA ratio stood at 3.2 times, in US dollars 2.42 times in Brazilian Reals. In December 31, 2012, the average of our firm was around 50 years that from the 12 years on average in December 31, 2011.

Considering on the (inaudible) the average debt turn was around 20 years. The average cost of serving the company debt on December 31, 2012 was 6.24% in dollars and 7.58% in reals compared to 5.98% and 9.82% respectively in the prior year, with the higher costs in the U.S dollar expanded by the longer-term by two years. Only 10% of Braskem’s preferred debt maturity in 2013 and its high liquidity ensure that its cash and cash equivalent covered payment (inaudible) maturing over 22 marks.

Considering the standby credit facility, which covers extends to 36 months. Let’s go to the old line (inaudible) maintaining its commitment to making investments with (inaudible) in 2012, Braskem provisional investments we’re R$1.713 billion in line with initial ethnic. Of this total 40% we’re $R670 million was located to products to expand the capacity of improving the operations of its assets, which the new PVC (inaudible) capacity expansion (inaudible) receiving $R531 million in the period both of which were commissioned on schedule. Braskem also (inaudible) $R341 million in maintaining in line with the objective of maintaining cash operating as a high levels of operating efficiency and reliability.

Other projects in Mexico were $2.2 billion project financed structure was concluded both in multinational through seven banks and credit agencies participating. Also beyond on the complex structure and improved marketing for product sales and innovations for the engineering procurement and construction concept were also concluded.

For the discussions to be made in 2013, investment is estimated at approximately R$2.3 billion with some 70% to be allocated to maintaining and improving the productivity in the liability of fixed assets and 25% bear the new petrochemical complex in Mexico. Their number is related to other operating investments and other project in progress, such as it is still related to the Comperj project, the construction of our pipeline project, future supply of stock room, the Acrylic complex in (inaudible) as well as other projects.

Let’s go to the next slide please. The ikon presents the outlook for the petrochemical industry. Despite the poor trend in petrochemical spread since the start of the year, the short-term scenario remains cautious with the recovery and demand remaining fragile and high volatility in preferred stock cost continues.

However, spreads in the year are expected to recover in relation to 2012. Expectations also points to improvement in the U.S. economy and to stronger growth in China’s economy due to the (inaudible) measures adopted about by the Chinese government during 2012.

In Brazil, we continue to grow in household income and the recent measures about for federal government to boost the amount and improve the competitiveness to have Brazilian manufacturers could also have a positive impact on the country’s chemical and plastic chains.

Let’s go to the slide 11, please. And this last slide represents the main areas on which management is currently focusing for 2013 in line with 30 (inaudible), it’s business and boost its competitiveness while it remains committed to supply into the negative market and continues to invest innovation, developing new applications and supporting the industry to grow, and should get subsequent expansion of its domestic market share.

The company is also making progress in dealing together with the volume and industrial percentages, an industrial policy for before Brazil that strengthens the competitiveness of the petrochemical and plastics chain and supports new investments in the sector.

Our highlights include, the consumer’s pursuit of operational efficiency by capturing the similar revenue five times reducing fixed cost and including capacity deterioration rates. We’re seeking the displacement of the project finance for the Mexico project and moving forward in the time period for the project’s construction on budget and on time.

In order to diversify, it makes a quick start, that’s competitive prices was then to start by 2015 to look beneath, followed by the shortage of polyethylene in the Mexican market. Finalizing the (inaudible) engineering studies for the industrial mergers and the combined petrochemical project looking to (inaudible) and defining deferred stocks to be used by that complex and external review, if we need full stocks.

And all those without losing sight as maintaining the company’s financial solidity. That concludes today’s presentation. So let’s run out to the question and answer session.

Question-and-Answer-Session

Operator

Thank you. This line is now open for questions. (Operator Instruction) Mr. Frank McGann from Bank of America would like to make a question.

Frank McGann – Bank of America Merrill Lynch

Hi, good afternoon. Just two questions, one I’m sorry, I got cut off from the call for about 10 minutes. So I don’t know perhaps you discussed this. But, the SG&A, I think your selling expenses seem to rise quite a bit in the quarter. And I was just wondering what would account for that, and certainly relative to sales that seem to be up?

And then the second question is, when looking at the future, looking at the next couple of quarter, how you see supply demand trends and overall pricing, I mean cost structure right now? It seems as your comments are – which have tended to be quite cautious over the last year, year and a half. You seem to be perhaps just a little bit less cautious, a little bit more optimistic now. I’m just wondering if that is how you see things.

Carlos Jose Fadigas de Souza Filho

Okay, Frank. Thanks for the question. I’ll start with your second question and then pass to Marcela and few of the rest, the SG&A question you had. Yes, you’re right. We had been very cautious and I think there was reason for the year of 2012 that as much as we do are the very past year for the petrochemical sector. Apart from those correcting shale gas in the U.S. and the margins internationally were tight.

The business in Europe, especially for those who have important exposure in Europe, not the case for Braskem, but again a very tough year and it reflected on maybe the petrochemical space on that is a very big case for Braskem. We saw a very soft market in the middle of 2012, especially around June and that’s why we had been cautious.

I would say that in the beginning of this year, we are a little bit more optimistic about the bad economic environment, starting with economic and (inaudible) important things, I think that the general consensus about Europe is in a better position it was a year ago, nobody is now questioning the end of Euro zone. So although Europe will remain recession, the (inaudible) constructed scenario is much lower at this point.

And the same way the U.S., there is no discussion about the U.S. going back to recession that has improved as well. In China the so-called shuffle in China I think it has been made nicely in forecast for China remains around 7.5% to 8% of growth.

So I think that overall economically, you are not going to see a greater increase in economic activity. The risk of downside has been greatly diminished. So the risk of negative effect in every major economic area, region of the globe has been very much diminished and that has helped as well.

We’ve seen price go up in January that’s happened in Europe, happened in Asia, happened in the U.S. We saw a (inaudible) go up roughly 7% to 8%, since new price go up less than that around 2% and that’s the positive news. So we do expect to have throughout the year better economic environment and therefore better strategy throughout the year of 2013.

I’ll just mentioned again that these are the kind of forecast that is a very tough one for me, because it’s also impacted by the price of NASDAQ, and it’s also impacted by the price of the good products with the diamonds and several other one. So overall, I think we are going to have the better year ion 2013, just to go back briefly to 2012 out of the $R4 billion of 80,000 – almost $900 million came from one-time non-recurring item, so to reflect that we go back to a number of (inaudible) R$2 billion.

So I do hope we have a better year in ‘13. Internationally from the economic perspective, in terms of petrochemicals spreads as well and to Braskem, it’s peaceful not only a better spread, but also coupled with a better market chain as we grow more share of the market from 65% to 70%.

So if I was to say that overall – overall, I think we’re going to have a better year in ‘13 for these specific reason both Brazil market changes, but also globally with better spread. Marcello will comment on the SG&A.

Marcela Aparecida Drehmer Andrade

Hi, Frank. And just to segregate my answer between the selling expense and MD&A, regarding the selling expenses, there are some expenses related to the third quarter that’s we recognize only on the fourth quarter. That’s why there was increment around the 12%.

Just to remember, the third quarter sales were above this last quarter. So that was the main reason why it led to this increment. And regarding the G&A, basically the main sector, I mean the increment between the two quarters was around 4%. And the main sector was an incremental sellers and wage because of the quality bargain that was concluded in the last quarter but was reflecting the increments facing the third quarter. Okay.

Frank McGann – Bank of America Merrill Lynch

Okay, great. Thank you very much, very helpful.

Operator

(Operator Instructions) (Inaudible) would like to make a question.

Unidentified Analyst

Hi good afternoon guys. Just some follow ups from the discussions a little bit earlier. I’ve got really two or three quick questions here. I think Fadigas, I think some from myself, some are for you. But I just initially wanted to come back to the story of pricing of polymers and such things in Brazil.

If we look back you guys have what was five straight quarters of falling prices in dollars. And this is really the first one that actually has ticked again. And I know you were mentioning that it was still early to know – say, what things were looking like in the first quarter. But I just really wanted to double check if you could say anything with regards to where prices were just going into 2013 relative to the quarter. Was it even higher, so you were in enough trend or kind of closer to average or something like that? Just try to get an idea of where we were in the beginning.

And the second thing that I just wanted to check with you guys, I was looking at the break up of the costs of goods sold and just maybe even following up on the point that we saw there with regards to the selling expenses. Was there significant shift in the electricity build if you had from one quarter to the other because the matter of my data is wrong? But I’m saying, in some places, a 2% cost of electricity for the previous quarter rising to 3% and another saying that it was 3% and it continues to be 3%. I just wanted to double check.

Carlos Jose Fadigas de Souza Filho

Let me start with your question along polymer. By understanding – if we start at 2013 at the better price point than we were on average compared to the last part of last year, is that your question?

Unidentified Analyst

Yes

Carlos Jose Fadigas de Souza Filho

Okay. So my answer is yes.

Unidentified Analyst

Okay.

Carlos Jose Fadigas de Souza Filho

Price went up nationally between the areas Asia, U.S and Europe and they went up for the three resins, polypropylene, polyethylene and PVC. And we entered the ER13 at better price points than the average of the fourth quarter of 2012. Having said that, I need to bring back also the fact that we also mentioned that lots of prices went up as well, not to around $930 in November, I don’t that’s exactly the fourth quarter average. But for sure it’s a wrong bet and right now it’s at $990.

So although we are happy about the price and see that would be going up and that contributes to our results. A lot of the result was explained by the price of raw materials in NASDAQ, if this prices in NASDAQ translating to higher core products, especially benzene, butadiene and even propylene that we also we sell propylene to our customers. Then that will compensate that and we will last for better express over those spread.

But it’s something – and that’s the point where I mentioned it’s too early in the quarter. Only one third of the quarter is gone. Just to say that overall, we are going to have a better results. The only part we are seeing that we’re sure about, but yeah the price of resins went up. We entered the year in a better position, but then we have to see the order. The rest of the features see extended results, we will be one that we save Braskem or not.

Marcela Aparecida Drehmer Andrade

And Gustavo.

Unidentified Analyst

Yeah.

Marcela Aparecida Drehmer Andrade

You do have the wrong number. The number that we have in the previously leased is 322 regarding electricity.

Unidentified Analyst

Okay. So the 3.2 to 3.0 zone, that is right.

Marcela Aparecida Drehmer Andrade

Yeah. 3.2 were the previous quarter and 3.0 in this quarter.

Unidentified Analyst

Perfect, perfect. And Marcela if I could just have a very quick follow-up on what Frank was asking about. You do mention in the press release that you had higher, I would say, sales cost, but if you said it righty now, we can able to catch it, are you disclosing more or less how much of an impact that was?

Marcela Aparecida Drehmer Andrade

Yeah, but just and you are not providing at the sale number, the majority of thing, the 12% increment and this number regarding that. But we are not providing the number itself.

Unidentified Analyst

Okay. So I would say lower volumes and I should think about the delta has been the 12%, or the move in unit costs would be mostly the impact?

Marcela Aparecida Drehmer Andrade

Yeah. We have lower cost. And though I would say that we are supposed to have a lower sales cost in this quarter, let’s see what we can provide you with more details, Gustavo, okay. Let’s see what we can provide you later.

Unidentified Analyst

That’s perfect. Thank you, guys.

Marcela Aparecida Drehmer Andrade

You’re welcome.

Operator

(Operator Instruction) I will turn over the floor over to Mr. Carlos Fadigas for closing remarks.

Carlos Jose Fadigas de Souza Filho

Well, I’d like to thank again for participating the call. I’d walk through to answer more questions and it seems that the release was to deal and often the discussion we had in the column quarterly. We also have to clarify the doubt and I make two, three comments at the end of this call is just to say that we did everything that include in 2012 during the third fiscal economic environment to guarantee we have positive results for Braskem.

I’m glad to finish the year with $R4 billion EBITDA. Although not all these EBITDA came from current operations that has found ways to generate EBITDA and to keep the company at a reasonable leverage even in a period when we’re finishing two new platform to deal when we’re investing in Mexico and that’s our company. We had a better intends of sales and market share. We had a better intends to production.

We had intends to run our crackers close to 90% capacity. We get the investment base, so we kept building stronger more profitable Braskem going forward with Mexico and also discuss some point which compares as well. So I hope the economic environment improved.

The year since in 2008, haven’t been particularly easy to any industry. 2012 was a 30 years petrochemical industry and I think we managed to do as good as we could in such as fast economic environment. Hopefully, 2013 will be a better year and we will remain being very positive through all different possibilities of generating additional results to Braskem and also to keep things that is in the base that which we are building, Mexico and in a short period, we’re going to start building and comparing as well.

Thank you all again for participating in the call, we’ll see you again in the call of the first quarter. Bye-bye.

Operator

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

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