Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Braskem Second Quarter of 2013 Earnings Conference Call. Today with us, we have Carlos Fadigas, CEO; Mario Da Silva, CFO; and Guilherme Mélega, IRO and Corporate Controlling. We would like to inform to you that this event is being recorded. [Operator Instructions] A simultaneous webcast may be accessed through Braskem ir website, www.braskem.com.br/ir. The slide presentation will be downloaded from this website. Please feel free to flip through the slides during the conference call. There will be a replay facility for this call on the website. We remind that the questions which will be answered during the Q&A session may be posted in [indiscernible] 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 beliefs and assumptions of Braskem management, and all information currently available to the company. They involve risks, uncertainties and assumptions because they are related to future events and, therefore, depend on the circumstances that may or may not occur in the future. Investors should understand the general economic conditions, industry conditions and other operating factors could also affect the future results of Braskem and could cause results to differ materially from those expressed in such forward-looking statements. Now I will turn the conference over to Guilherme Mélega, IRO and Corporate Controlling Officer. Mr. Mélega, you may begin the conference. Guilherme A. Mélega: Good morning, ladies and gentlemen. Thank you for participating in another Braskem earnings conference call. Today, we will be commenting on our results for the second quarter and first half of 2013. First, we would like to remind you that we recently locked 11,638 20,007 [ph]. The results presented…

[Operator Instructions] Frank McGann from Bank of America Merrill Lynch.

Just two quick questions if I might. One is, looking at the demand in the quarter and the stronger trends that you were seeing, part of it was destocking, and I know that's probably hard to determine how much is restocking of -- from your customers, as well as versus what is the underlying growth in the market itself. But I was just wondering what your thoughts on that and how you see trend continuing into the third quarter. And perhaps if you have any visibility on client demand in the fourth quarter. And then the second question, which is completely separate, in terms of the hedge accounting in Slide 7, just to understand a little bit better how this will work as we go out over the next couple of years and even longer term, 5 or 10 years. You have no accounting flow in 2014 and '15. And I was just -- and then you start to have the accounting flow after that. And I was wondering, that means there's no impact in terms of profitability. It's all essentially gain, because you recognize none of the losses in 2014 and 2015. And then in 2016 and beyond, the extent to which you would have had additional earnings because of movement in currency that would be related to exports and the change in the real versus the dollar, now that disappears. And so there would be essentially reduced income later on potentially, but there'll be no effect in 2014 and '15? And it's not a very clear question, but just how you see this affecting income flows over the next 3 to 5 years would be helpful. Carlos José Fadigas De Souza Filho: This is Carlos Fadigas. I'll start with your second question, and then address the first one.…

Yes, I mean, it's clear. I just -- what's not clear to me is why there's no effect in 2014 and '15. Is it just the decision made because your debt is due longer term or... Carlos José Fadigas De Souza Filho: It was an analysis made by the management in alignment with the external auditors to understand what was the best flow that would reflect the future flow of exports that are being somehow hedged by these debts in dollars. In '14, and '15, for sure, there are going to be a lot of exports, but these -- we had a cash portion that would compensate for the debt, maturing debt, in those initial years, and that's why we spread it out starting in '16. Again, it could have been done differently. It wouldn't make much difference in terms of income statement. We could have spread out the debt in 10 years rather than 9, starting in '15 rather than in '16, but we came to an agreement with the auditors that, that would reflect pretty much -- that would better reflect the future flow of debt we have maturing. And the 2 initial years were excluded also because we also had, on top of the debt, on the other side, we also had cash in U.S. dollars that would compensate for the debt. So that was roughly the rationale behind it. Okay? Going back to -- it's not an easy topic. It's a very technical one. We are doing our best to explain, but what I'd like to say is that I do believe that the Braskem income statement would be showing a much more accurate end result of the company instead of accounting for these huge monetary variations. I actually considered, we thought about having our books…

Yes, it was very helpful. So April was very strong because of the end of the -- of those tax benefits. And then it sounds like you saw a fairly sharp drop-off in May, but that came back in June as a result of essentially prebuying ahead of what was expected to be higher prices in the third quarter. Is that fair to say? Carlos José Fadigas De Souza Filho: Exactly. Exactly that.

Mr. Luis Carvalli [ph] from [indiscernible] would like to make a question.

I have 2 questions here. The first one is, could you give us an update on the Mexican project? When are you going to be able to access, say, new installments from what you got in the second quarter? So just to have in our numbers here. And the second point is, do you think that the 94% that your reached in crackers utilization rate is sustainable going forward? Or is it something that we should see, let's say, coming back to the 90s or low 90s? Carlos José Fadigas De Souza Filho: Starting with the Mexican project, it's under construction, as I said. We've crossed the 40% -- the number we showed was 38% at the end of June. Naturally, 1 month has gone by, and we are above 40% at this point. We are on track to start operations in mid-'15. It's really June, the target, June, the term from June to July. It's hard to say the exact day, but that's the forecast. So we expect to start selling revenue in the second half of 2015. There's a ramp up, naturally. It's a complex with capacity of 1,050,000 tons of polyethylene in 3 lines: 2 high-density lines, 1 transitional low-density line. But naturally, you don't turn it on and start producing at the rate of 1,050,000 per year. So there is a ramp up. We don't know exactly how this ramp up will be. We're going to try to ramp it up as fast as we can. But yet, second half of 2015, that's when we plan on accessing the market and have the plant running. Regarding the 94% for the crackers we have in Brazil, that was the best performance in 4 years. Net with that, our permanent goal is to have these crackers run, let's…

Just going back to the first question. You mentioned -- you already probably mentioned that you already have access to the first installment, which is $1.5 billion. And you have access to $650 million. When are you going to be able to access the next installment that you're going to access? And for me, any updates in that would be useful also. Carlos José Fadigas De Souza Filho: Okay, okay. Basically, the project finance package for the Mexican project is $3.2 billion. So that's the whole package. The Braskem subsidiary, which happens to be called Braskem-Idesa, the name of the 2 parent companies, they will get this loan as they viewed the petrochemical complex, in a rate of 70-30. Meaning that every time they need money, they will go back to the banks to get 70% of what they need, and 30% will come from equity from the 2 shareholders, Braskem and Idesa, which is worth $1.5 billion, because it took us a while to get the first disbursement. And not to stop the project, the 2 shareholders have advanced money to the subsidiary. Now that it has had access to the debt, it has repaid some of the advances that we made. Basically, the rate at which we disburse these loans is every quarter -- once every quarter. So the next one would be close to the end of the year, around October. So from now on, it's, let's say, business as usual. If they need money every quarter, they'll go to the bank and to the shareholders and get the money they need for the next 90 days of construction. And that's we're going to reach the full amount at the end of the project in mid '15. Regarding divestments, during this call in Portuguese, we had about…

Mr. Fernando Ceres [ph] from Geben [ph] would like to make a question.

I had, of course, just a big question regarding the energy reporting mix, Carlos. I was wondering if you expect to see a net impact in case the reformation is approved or witness an increasing competition? Carlos José Fadigas De Souza Filho: If I understood correctly, you want me to comment on the competitive environment inside Mexico, once we have the plant running?

Yes. And well, as you know, the President [indiscernible] is proposing an energy reform next week. So I was wondering if you have measured some of the effect that these reforms will have [indiscernible], so I don't know if you could -- if you see an increasing competition or probably equal benefit like old sales of the -- of your project? Carlos José Fadigas De Souza Filho: Okay. Now I've got it. Well, first of all, we've been keeping track of the efforts to reform of President Pena Nieto. I think he's very consistent to everything he said during his campaign. And if I may add to that, I think that it may become a very positive factor for Mexico. As you may now, we have a model in review where, following international companies -- countries to participate in the exploration and production of oil in Brazil. In some of the fields, the national company, Petrobras, has to be the operator of the oil field. So I think what you've been hearing from the Enrique Peña Nieto, from the President, on this reform, is similar to that [indiscernible]. Naturally, Pemex will remain the take-on [ph], through the take-on [ph] company, but private capital will be welcome in the exploration production eventually in partnership with Pemex. I think it's good for the future of production supply of both gas and oil. I also think that it may be very positive for the Mexican economy, as we do see dependence on Pemex alone. And I think it's positive for the petrochemical environment as well. I mean, the ethylene XXI, if I may say, it has been one first step in the direction of welcoming more private capital into strategic areas, or so-called strategic areas. So in essence and to finalize my answer, I think that the project and the idea of having maximum visibility in this quarter are in perfect alignment with the idea of more private capital. I think that the more private capital would help the petrochemical sector by adding both gas and oil availability in the future. I do hope that it helps the Mexican economy in that regard, on the demand side, as would benefit as well. I do not see that creating additional competition for the ethylene XXI project at this point. As far as we know most of the butane available is being -- will be used by this project. In addition, ethane will go to projects in other resins as well. There's demand for ethane for production of ethylene upside for NG, for EDC and so on. So I think it would keep improving the performance of the petrochemical sector but in other resins, but it's positive to everyone.

Mr. Gustavo Gattass from BTG Pactual would like to make a question.

I had a couple of questions here. I just wanted first to touch on -- or do a follow-up here on the question that Frank asked, with regards to the hedge accounting. Just follow up with a possibility and see if I understood this well. But you've denominated a number of contracts that are basing the hedge accounting now, they have theoretical dates of amortization. What I just wanted to understand was in the event that, let's say, you have a bond denominated for $150 million for, I don't know, 2022. In the event that you decide to prepay, would you effectively have the acceleration on the given year? Or are you allowed to just move things around to try to keep these things scheduled? That's the first thing I just wanted to understand with regards to the mechanics here, and how we should forecast the story. And the second part of my question, still on accounting sides of things. There's a mention in your press release that you had a lower situation or a lower level of expenses on the sales side because of improvement and the quality of credit concession. I just want to understand how relevant that was for the quarter, just try to have a feel for how that impacted results? And lastly, you guys had a major improvement in working capital. I just wanted to understand if there's something here that is not necessarily cyclical, it's something that's more structural that you think you can hold at a higher level, so that we might expect working capital to be more supportive throughout the rest of the year. Carlos José Fadigas De Souza Filho: Let me take your -- a minute here before answering your questions. You mentioned something I should have mentioned in the beginning…

Thank you for the introduction. It's really not an easy task to explain the accounting in English, but let's give a try. It's a pleasure talking to you again and to continue the relationship that we have at the oil and gas industry. Let me go straight to the question. In the case that we prepay a debt, for instance, that is maturing in 2022, what we define, the moment that we will flow the exchange valuation to the net income of the company, it's going to be the exports, right? So in the case we prepay a debt that is allocated to hedge the exports, we have the option to put another debt as the hedge of the same export. So the trigger of bringing in the exchange rate variation to the financial expense -- or to the financial result of the company, is the moment when the export is realized. Carlos José Fadigas De Souza Filho: And the size. Just to add to that, what's also important is to say that this hedge accounting will not constrain any export from Braskem and will not constrain any other decision whether to prepay a debt or roll a debt. So it still keeps pure flexibility in both exports and debt management. And on top of that, we have, what I believe to be a better way of showing the Braskem net results.

Mr. [indiscernible] from Citibank would like to make a question.

I just had a question on your international business. I saw that margins have constrained a little bit in the past quarter and, really, in the past year. So I just wanted to see what your future outlook is. And, particularly, because of what you guys mentioned in the Brazilian call, that you plan on experiencing [indiscernible] To your immediate outlook, and also how that impacts your growth outlook. And the second question is just a follow-up on the maintenance stop in September. Do you have any idea how long you expect the stoppage to last? Carlos José Fadigas De Souza Filho: Fernando, I got the second question. I understand the first question's about international presence of business of Braskem. Could you go through that again, please?

Sure. The margins over the past year has really compressed. I think most of it because of the rise of gas prices in the U.S. So what I wanted to understand is what's your outlook as far as margins in the international segment for the remainder of the year. And also, you mentioned on the Portuguese call that you're planning on expansion, and particularly in North America. So I just wanted to understand how this rise in prices and constrained margins impact your growth outlook in North America? Carlos José Fadigas De Souza Filho: Okay. Okay, much clear, thank you. So let's start with this question. We saw -- we had a tough year in both '11 and '12, with lower margins and, therefore, less profitability. The spread internationally improved this year. I would say, Fernando, that I believe that compression in margins, and that's my interpretation, has more to do with the demand side of the question than the supply side of the equation. We had a very tough economic environment in Europe. We had a lot of uncertainties regarding the pace of growth in China. For instance, one year ago, when we were talking about the second quarter of '12, it was a very tough quarter because of these things. So the gas side of the equation, the supply side, the P produces based on gas, yet sell at the same price we are selling and keep the margin to themselves. That may become a major factor in '18, when we're going to have more supply of polyethylene coming from cheap gas. Right now, we have better margins than we had last year and even better margin than we had at the end of '11. I believe we're going to have similar margins going forward, as we have…

[indiscernible] from Credit Suisse would like to make a question.

Two questions. One is, can you please discuss in a little more detail what you are seeing more recently in terms of imported products into Brazil, especially in light of the FX movements after the quarter end? Carlos José Fadigas De Souza Filho: Salina [ph], as I mentioned, we had this increase in imports in April, some of that in May but mainly in April. What is happening at the current from the second to third quarter and in July is that, FX exchange rate keeps going up. The customers know we're going to have to move price in reals up to keep in line with international prices. And because of that, because we do that at a certain pace, it's not automatic. It's not a formula in U.S. dollars. So it's really a price in Brazilian reals that we have to adjust monthly, sometimes every 2 weeks. And because we have a pace to move the price up, for certain periods of time, our price is a little bit below parity, as we are still working to adjust the price. And that's probably the main factor behind lower imports. We don't have the precise number. It becomes available over time. And we don't have yet any hard data for July, so it's more of a perception. It's still in the first days of August, so it's still perception. But we do believe that imports will go down, especially because Braskem's prices are more, let's say, competitive, not just, say, cheaper than imported products as we work to pass the exchange rate variation into our Brazilian price.

Okay, that's helpful. And my second question is about the rating agencies. Can you update us on your latest conversations with them? And is there anything specific that they expect from you for the rest of the year, maybe in terms of additional debt paydown or leverage levels?

This is Mario speaking. As you have heard, S&P has just reaffirmed our rating and stable outlook. In terms of the leverage, you can see that we have a very good reduction in the leverage of the company. If you consider right now we are excluding project finance from Mexico, we have a net debt to EBITDA of 3.01x. We expect, down the road, to continue to reduce debt and have a number by the end of the year below 3. Okay? Rating agencies, we're working with them. The other 2 that have negative outlook with Braskem, I think we had [indiscernible], at the beginning of the question, we had very strong results in the first semester. And with that, we expect that we're establishing conversations with the rating agencies, and we have to target to remove the negative outlook that we have, both from the Moody's and Fitch.

I will turn over the conference call for closing remarks. Carlos José Fadigas De Souza Filho: So I'd like to thank you all for participating in the call and for the interest in discussing with us Braskem's second quarter results. We remain focused on improving market share, to run the crackers as fast, as high as we can, work on the, let's say, the tax environment in Brazil to reduce taxes in our raw material and increase the competitiveness of both the petrochemical and the plastics segment in Brazil. As we do that, we also work on our growth strategy. We are at the peak of the construction of our Mexico project. We are working very hard with Petrobras to make the complex project something viable and real. And we explore opportunities also in other geographies, and other areas, like the U.S. as an example. So again, thank you all for participating. We meet again at the third quarter conference call and I wish you all a good weekend. Especially for those in the Northern Hemisphere, I hope you enjoy the summer. Thank you.

Thank you. This concludes today's Braskem Earnings Conference Call. You may disconnect your lines at this time.