Braskem SA (BAK) 2015 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Braskem's third-quarter 2015 earnings conference call. Today with us, we have Carlos Fadigas, CEO; Mario Augusto da Silva, CFO; and Pedro Teixeira, IR Controller and Project Finance Director.

We would like to inform you 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 session. At that time, further instructions will be given. (Operator Instructions)

We have simultaneous webcast that may be accessed through Braskem's IR website, www.braskem-ir.com.br. The slide presentation may 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 you that questions which we will be answering 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 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 future events, and therefore, depend on circumstance that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, 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 Pedro Teixeira, IR Controller and Project Finance Director. Mr. Teixeira, you may begin your conference.

Good morning, ladies and gentlemen. Thank you for participating in another Braskem earning conference call. Today we will be commenting on our results for the third quarter and the first nine months of 2015.

We would like to remind you that pursuant to the Brazilian federal law, the results presented in today's presentation reflect the adoption of International Financial Reporting Standards in IFRS. The financial information in today's presentation has been reviewed by independent external auditors.

Now, let's go to the next slide, where we will begin our comments.

On slide 3, we present the highlights for the third quarter of 2015. The favorable international market dynamics and the new exchange rate level supported an increase in exports. Resin sales for foreign market totaled 454,000 tons, up 22% and 43% compared to the second-quarter 2015 and third-quarter 2014 respectively.

USA and Europe business units reached a new polypropylene sales record this quarter with 502,000 tons, an increase by 2% from the previous quarter. Construction of the Mexican project continued to move ahead. The project reached 98% of completion and pre-commissioning activities are already in progress.

Brazilian economic recession has been affecting the resin demand in the country. Total resin demand in the third quarter reached 1.2 million tons, 1% higher when compared to the previous quarter; however, 11% lower when compared with the same quarter as of 2014.

Braskem sales achieved 866,000 tons on the third-quarter 2015, 9% higher than the second quarter and 8% lower when compared to the 2014. If we exclude the Rio de Janeiro cracker, whose production has been limited by a lower supply of feedstock, the rate would have reached 95%. The high utilization level is explained by a good operational performance, the increase in competitiveness of naphtha-based crackers when compared to gas-based crackers and the ability of the Company to increase its sales abroad.

Given this context, Braskem recorded a consolidated EBITDA of BRL3 billion in the quarter. This increase over the second quarter is due to depreciation of the real by 15%, higher international basic petrochemical spreads, good operational performance and higher sales volume in the domestic market and exports.

The leverage as measured by the net debt-to-EBITDA ratio in US dollars was 2.05 times, which is the lowest leverage in nine years. This represents a decrease by 10% and 24% on second-quarter 2015 and third-quarter 2014 respectively. For the fourth consecutive time, Braskem was included in the New York Stock Exchange Dow Jones Sustainability Emerging Market Index.

On slide 4, we will discuss the performance of the Brazilian thermoplastic resin market and Braskem's sales performance. The Brazilian thermoplastic resin market totaled 1.2 million tons on the third-quarter 2015, 1% up on the second-quarter 2015 and 11% lower when compared with the third-quarter 2014.

In the first nine months of 2015, the resin market in Brazil totaled 3.8 million tons, 5% down on the same period as of 2014, as a consequence of the deterioration of the Brazilian economy and its impacts on durable and non-durable segments. Braskem sales totaled 866,000 tons in this quarter, 9% up on the second-quarter 2015. In the first nine months of 2015, Braskem sales achieved 2.6 million tons, 4% down as compared to the same period of 2014.

On slide 5, we present the factors that influenced EBITDA in the third quarter in comparison with the previous three months. Consolidated EBITDA reached BRL3 billion. The increase over the second-quarter 2015 is due to an average depreciation of the Brazilian currency of 15%, a good operational performance and higher sales volume in the domestic market and exports.

The reduction in the third quarter resin spreads was partially offset by a higher level of basic petrochemical spreads in the international market. EBITDA in dollars came to $870 million in this quarter, 2% up on the previous quarter.

Now, on slide 6, we present the EBITDA in the first nine months of 2015 in comparison with the same period last year. Consolidated EBITDA stood at BRL7.1 billion. The improvement was due to the 38% average depreciation of the Brazilian currency, which generated a positive impact in the amount of BRL2.7 billion, consisting of a positive effect of BRL9.6 billion on revenues and a negative effect of BRL6.9 billion on costs.

A further positive impact came from the excellent operating performance and the upturn in total sales volume, especially in the international market. EBITDA in dollars reached an amount of $2.2 billion, 20% more than the same period last year.

On slide 7, we show Braskem's debt. Given that the Mexican project is financed on a project finance basis whereby its debt shall be amortized exclusively by its own cash generation, the analysis presented here excludes this amount.

On September 3rd 2015, the Company's gross debt totaled $7.3 billion, in line with the previous quarter. In reais, however, debt rose by 28%, reflecting the 28% appreciation of the US dollar. 79% of the gross debt was dollar-denominated. Cash and cash equivalent stood at $1.6 billion, equivalent to BRL6.4 billion.

As a result, net debt came to $5.7 billion, down by 3% over the second-quarter 2015. In reais, net debt was 25% up on the second-quarter 2015 as a result of the appreciation of the dollar.

In line with liquidity strategy, the Company also maintained two stand-by credit facilities in the amount of $750 million and BRL500 million, with no restrictive covenants that could prevent the Company to disburse it during adverse market scenarios.

The reduction in dollar-denominated net debt combined with a EBITDA growth of 8% in the last 12 months generated a positive impact on leverage measured by the net debt-to-EBITDA ratio, which improved from 2.27 times to 2.05 times when measured in dollars, 10% down on the quarter before, the lowest leverage since 2007. Leverage in reais came to 2.65 times.

On September 3rd, 2015, the average debt term stood at around 16 years. Considering dollar-denominated debt only, the average term was around 19 years. In September, the risk rating agency Fitch reaffirmed Braskem international scale rating at BBB- with a stable outlook. According to the agency, the rating and outlook remained the same because of adequate credit metrics, strong liquidity position, higher level of petrochemical spreads in international market and the depreciation of the Brazilian currency.

It is worth emphasizing that the Company's high level of liquidity ensures that it has sufficient cash and cash equivalent to cover the payment of its debt obligation maturing over the next 35 months. If we include the standby credit facility, this coverage is 45 months.

Slide 8 shows our CapEx in the first nine months of 2015. Braskem invested BRL1.4 billion in the period or BRL806 million when excluding the Mexican project. On this total, around 90% went to industrial operations including investments related to improving operational efficiency and productivity. The remainder was allocated to other strategic products such as the production of UTEC in La Porte in the United States.

The Mexican project, which is scheduled for startup at the end of 2015, absorbed investments of $180 million or BRL552 million in the first nine months of 2015. The complex construction conducted by Braskem Idesa, a company controlled by Braskem, is completed by 98% and engineering and procurement activities were already concluded.

Pre-commissioning activities are moving ahead. The utility season is already in operations and the entire product dispatch logistic area was already concluded and the first batches of railcars for product transportation already reached the site. On September 8, the Company withdrew the sixth and the last installment of the project finance amounting to $24 million.

Moving on to the last slide, where we will comment the global scenario and Braskem priorities. The modest recovery of developed economies and the slowdown of emerging economies led the International Monetary Fund to revise its annual global growth estimate down from 3.3% to 3.1%. The IMF also highlighted the economic slowdown in emerging market countries, with weaker growth in countries such as China and recessions in countries such as Brazil and Russia.

The risk factor associated with this scenario remains the higher volatility in financial markets, which could lead to a reversal in capital flow to developed nations. Turbulence in financial markets could also be exacerbated by the concern with China's growth potential, Greece future in Eurozone and impact of lower crude oil prices.

The Brazilian outlook remains challenging given the deterioration of the economic scenario. Annual GDP is expected to shrink by 3% this year. For the global petrochemical industry, spreads are expected to remain at good levels in the short run. The points of attention are still related to geopolitical risks in the Middle East and North Africa and its impact on oil market dynamics and world GDP. In addition, oscillating demand from China, which is the world's largest feedstock consumer and the recent negotiation to end the trade embargo on Iran may put further pressure on oil prices.

In this context, Braskem's strategy remains based on the development of the petrochemical and plastic chain and investments in projects designed to diversify the feedstock mix and improve global cost competitiveness through the execution on a competitive basis of the naphtha supply agreement with Petrobras and completion of the construction of integrated project in Mexico and its operational startup at the end of 2015.

In line with its commitments to a healthy credit profile and cost discipline, the Company intends to focus on cash generation and implement a program to reduce costs, which should generate annual and recurring savings of around BRL400 million.

That brings us to the end of our presentation and we will now go to the question-and-answer session.

(Operator Instructions) Pedro Medeiros, Citigroup.

Well, as we said on the Portuguese conference call, congratulations for the result. I just had a follow-up question for that. Can you elaborate a bit further on your expectation for the polypropylene margins in the US part of the business? I understand that since the second quarter margins have been very, very strong, partially driven by lower propylene prices, can you comment a bit more about the sustainability of those margins throughout the fourth quarter and 2016?

Sure Pedro. We've seen a healthy increase in margins actually beginning 2014 if we compare the performance of polypropylene. Our polypropylene business in the US from 2014 to 2015 we've seen a healthy increase in margins. And we see this dynamic happening throughout this year and actually getting stronger over the year. In that regard, we do expect to have a better fourth quarter than we had in the third quarter. So that's the dynamic from quarter to quarter.

On top of that, it's important to emphasize two other things. First of all, we've seen the market demand in most of what the producers are able to produce in the US. So the market is getting tighter and tighter. And that's a trend that we see happening going forward. So it's a healthy demand. I speak about segments like the automotive segment where we have a good market share. And we've seen -- if you just look at the average growth for GDP in the US, between 2.5% and 3%.

So on the demand side, we see good demand. It's not an easy market for you to send polypropylene into the US. So the local producers are enjoying, I should say, certain logistic advantage or logistic protection if you wish.

On the other extreme of that, we have a very positive dynamic on the raw material as well. With the production of oil -- light oil, we have the refineries running more than ever. We have the PDH that's coming on-stream. Dow Chemical PDH is going to start operations at the end of this year. For the next year, we have the startup of the Enterprise PDH. Formosa is also building a PDH. So you have at least two very relevant routes for the production of propylene.

So the raw material is very competitive. Just to give an idea, we started the year, if I remember right, at $1,300 per ton of propylene. At some point at the end of last year we had $1,500 per ton. And we are down at this point -- at this point of the year we have $600,000 per ton of propylene in the US.

So you have a positive dynamic outlook and then you have a good demand on one side that is expected to keep growing. You have competitive propylene at the other side. And this competitive propylene is really a domestic local dynamic. We don't see that happening the same way in Europe. Naturally, we don't see it happening in Brazil as well. So it's associated with -- locally with PDHs and the light oil introduced and the refineries produce more propylene.

That's one of the reasons why we are not only debottleneck -- it's a very small debottleneck, but just to mention it -- and we are considering building a new polypropylene plant. So we do hope to see that as a multi-year dynamic going into 2016, 2017 and hopefully also into 2018 until someone adds capacity in the US -- and that could change operating rates and therefore, spreads. But I think we are headed for a good period of polypropylene margins specifically in the US as we move forward.

Okay, thank you so much. Very useful. Just as a follow-up to your response, when you talk about considering to do a new polypropylene plant in the US, would you mind enlightening us -- classifying on which kind of stage of development the plant is, ballpark capacity side and potential start up date that is currently being considered?

Sure. We are still in the engineering phase. We have some way to go as we move into the other phase of engineering, field 2 and 3. It's not a complex thing, especially coming from our Mexican perspective of Union Petrochemical complex. Clearly, one polypropylene line is not that complex.

So what I'm trying to say is that moving through field 2 and 3 could be a very quick process. But we don't have a final decision made. We don't have a final engineering made. What I can tell you at this point is typically what makes sense is to build what we call a world-scale plant and a world-scale PP plant would be something around 400,000 tons per year. So ballpark that's what is being considered.

Okay.

Okay?

Thank you so much, Fadigas.

Thank you too. Bye, bye.

Anne Milne, Bank of America, Merrill Lynch.

I'm sure you've answered this on the Portuguese call before, but there's been -- so my first question -- I guess it's two questions in one, has to do with the naphtha agreement with Petrobras. And I think there was a press conference that you had yesterday that said there were important differences on the price level of that, Braskem was willing to pay versus what Petrobras was willing to pay.

There was also a news report out today I think in [Oil Global] with Petrobras saying that you had reached an agreement and they were just having an outside consultant review it. So it's still a little bit confusing. I guess that's sort of -- the first part of the question is, if you can comment on what the status is?

And the second part is, I know the current agreement is just for a 45-day period. I know that your credit rating agencies are watching this very carefully. Fundamentally they are doing very well and very strong right now, but I know it's one of the factors for which the two agencies that have the negative watch -- have the negative watch since the naphtha agreement.

So I would appreciate any enlightenment you could provide on that topic for us because we would like to see you stay at your BBB- investment grade rating level.

Okay, Anne. This is Carlos Fadigas speaking. Thanks for your question. On the naphtha contract, what we have right now is a 45-day extension that will expire in December 2015. I do expect -- I hope and expect that in December 15 we sign a long-term contract. I have had that expectation before and it ended up on an extension. I do hope that this time it really materializes into a multi-year contract. That's what we are targeting.

Regarding price levels, what we said at the press conference today, just to make clear what's our position regarding price of naphtha, what we said yesterday is that we believe that a variable formula that could vary around ARA prices, European prices, Amsterdam, Rotterdam and Antwerp reference price, would be better suited to the changing reality of oil/petrochemical industry.

So we have advocated that we should have a formula that would vary between, let's say, 90% of ARA and 110% of ARA. Or it could be 95% to 105% of ARA. And naturally in periods of time where both oil and naphtha are low, we would pay a premium and when it is at high levels we should -- we, Braskem, should get a discount. And this variable price would, as I said, helps move the change in scenario -- and they do happen. If you go back 18 months, you will get to a point where naphtha was at $900 per ton and now it's $400 and something.

So these vary over time. And if we were to sign a long-term contract, that should help us. And that was mentioned yesterday. Just to clarify that at this point with the current result we have, Braskem could pay more than other reference. When I say could, it's both because we would agree -- we could agree to do so and we have the financial capability to do so.

The point is that Petrobras has stated that they do not like the idea of the prices coming below ARA reference at any point and that they wouldn't like to sell below ARA reference at any point. And then our position in accordance to Petrobras position is that if they don't want to have a contract that would ever go below ARA, we wouldn't like to have a contract that would ever go above ARA.

So we would go for a variable thing where one side help the other one or we go for a fixed percentage of ARA that wouldn't vary, but we wouldn't like to see this percentage be higher than 100%.

So these are two concepts. It's either variable and works both directions or a fixed one. It's the fixed one -- I think that ARA is expensive enough in a very high reference price, we don't need a premium on top of that. So that's our position and that's one of the things that are being discussed with Petrobras.

Regarding what is on the press, I will you what I've heard also. But then Petrobras should speak more in detail about that. And my understanding is that Petrobras is making a few studies to help support the decision of the executive board, but that has to do with internal governance of Petrobras. That's all I've heard and I really can't comment more than that.

Anne, having said all that, one final thing I'd like mention is that the chain of communication between Braskem and Petrobras have always been open. We have always been working together very professionally. Although we have different perspective on things, we have always been discussing these prospects in a very professional way and both Braskem and Petrobras are both engaged in trying to get to the solution of that. Both companies understand the -- I would say, their responsibilities towards the Brazilian industry, the chemical industry and so on. And I do hope we at a certain point, hopefully December 15, we get to an agreement and then we sign a long-term contract.

Okay, thank you very much. But can I just ask you a follow-up. Let's just say in the sake of increasing diversity and options going forward -- I know it's very difficult today because I believe your facilities are connected to Petrobras refineries and so forth. But let's say hypothetically it did make sense to open up your imports to more than the 30% that you currently import. Would you need to invest in additional port pipeline or other sort of transmission facilities so that you could accept a greater percentage of imports of naphtha?

Well, Anne, let me answer to you in two different ways. First, from a technical objective point of view, yes, some investment would be required, right. But the second point of my answer is that we don't think that would make much sense and that's also something that has been on the table in the negotiations and the arguments of this negotiation with Petrobras.

We have to bear in mind that the Brazilian petrochemical sector has been developed to process local naphtha. We didn't create a sector to run on imported naphtha and it's a very tough business for you to be competitive globally, especially of shale gas -- for you to run a petrochemical complex or for you to run a petrochemical industry based on imported naphtha.

To be honest with you, Brazil would have never built its petrochemical industry if you were to rely on imported naphtha. Simply the math doesn't add up. If you think about what is happening right now with Japan, if you think about what is happening now in some other places, they are simply shutting down their capacity.

Europe itself, that is not buying imported naphtha, but it's tied to this very expensive raw material. It's closing plants, let alone paying logistics on top of naphtha. So this 30% we have is, I would say to a certain extent, a weakness we have, a weak spot. It's something we wouldn't like to see growing.

So although we could from a pure logistic point of view, from a pure technical pipeline/storage point of view could be done, we feel that Brazil is abundant in both oil and naphtha and we should be supplied locally. That's the logic behind this industry for the last 40 years and we hope to see that support in this industry for the foreseeable future.

Okay, thank you very much. Good luck with your negotiations.

Thank you very much. Let me pass on to Mario Augusto.

Regarding your second question about the rating agencies, let me just comment. Yes, the uncertainty regarding the naphtha contract is affecting our rating -- especially in two of the three rating agencies -- but on a qualitative basis. Because on a quantitative basis all the three rating agencies recognize the quality of our numbers, the evolution of our performance, the leverage, the strong position in liquidity that we have at this point.

Needless to say that all the efforts that the -- the management team at this point is reaching an agreement on that contract and as a consequence, we could move on that topic. So that is the current position and the dialogue with the rating agencies regarding this point.

Okay. Well, I hope -- we all hope that it works out. So good luck on that also.

Thank you.

Thank you.

Diego Mendes, Itau BBA.

So two questions for you guys. The first one is related to the situation of the Maua plant, if you have any kind of guidance of what's going to be the financial impact and also if this plant has any kind of insurance, if they are going to cover the entire loss of the plant?

And second, regarding the PVC demand here in Brazil, we saw a very significant drop in the sales in the country and it's actually for the second quarter that is happening. Also, if I'm not mistaken, and if I'm, please correct, but you guys are losing some kind of market share in the PVC as well. So if you could tell us what are your expectations for PVC going forward, if you plan to increase your market share here in Brazil or if you are going to continue exporting the amount of volume that you did on the third quarter? That's it. Thank you.

Okay, Pablo, let me start with Maua and then move on to PVC. First of all, at this point we are forecasting to have the plant back running at the third week of this month of November. It has stopped -- the accident happened on October 14th, so we are talking roughly about something between 30 and 40 days of this plant being offline. The main concern naturally is safety. It is an industrial site that is surrounded by quite a community, by their houses and residence and so on.

It's actually one of the few that unfortunately are so close to the community. The other ones are located on industrial districts. Well, this one was in an industrial district some 40 years ago, but in the end population moved closer and closer to the plant. But that's why safety is a top priority and we do believe we are going to be able to bring it back online in the third week.

In terms of losses, there are no relevant, let's say, physical loss. If you look at the asset itself, we didn't lose much with respect of this type of event. What we will end up losing is the profits we are not going to be making throughout these 40 days, right. It's the effect that will be offline in a period of good margins.

This number right now is being calculated around $50 million and it's -- 95%, more than that, are related exclusively to the profits we are not going to make and that will show up at the fourth-quarter results, will be fully reflected at the fourth-quarter results.

The accident happened and hopefully we will be -- the plant will be back both during the fourth -- the fourth quarter. The plant is insured. And let me pass to Mario Augusto to comment a little bit on that.

We do have insurance to cover the damages on the property of the facility and so we do expect to get all the necessary investments to put the plant back on operation to be recovered by insurance. As Fadigas mentioned, the only portion that there's going to be an impact is associated with the profit that you would make during the period that you don't have production at that plant. But the whole fixed asset portion of the store is covered by insurance.

But just to make it clear, for the bigger portion of the loss that is associated with the profits we are not going to make, we are not going to reach the threshold to use the insurance on that piece. We are also insured for --

Business interruption.

-- business interruption, but the threshold is higher than --

Usually business interruption the threshold is 60 days and we expect to have the petrochemical complex back on operation much before that, okay.

Okay.

Pablo, let me now move on to PVC. What we are having in Brazil is a dramatic reduction in demand of PVC, right. It's one of the resin that has been most hit by the recession, right. So demand on a yearly basis on PVC could slow down as much 15%. Out of the three resins -- if polyethylene is one side more diversified and therefore associated with consumer goods and therefore you have the lower -- the smaller heap, PVC is at the odd extreme, very much associated with long-term construction, with durable goods and therefore with the biggest drop in demand.

Because of that, the dispute for market share is a tough one. We actually increased the market share from the second to the third quarter. The second we had roughly -- we had 46% market share; it has gone up to 51%. We are exporting some PVC and we will remain exporting due to the new size, smaller size of the Brazilian demand.

So we are going to defend our market share. We are going to work on holding the market share we have. But we are also going to try to run the plants as much as we can so that we export the excess. So we capture the benefit of running the plants close to full and we export. So that's one of the reasons why we increased from only 3,000 tons in the second quarter to roughly 50,000 tons on the third quarter, at the same time we were recovering market share. And we are just planning to keep doing on that, as I said, keep our market share to run the plants full and export the balance due to the smaller mid-size of the Brazilian demand.

And actually, you can only hope that at a certain point in the short future we have both the housing market and the infrastructure market back on track so we could see more demand for PVC in Brazil.

Okay, thank you very much.

Thank you too.

[Vucent Falongo], Bank of America Merrill Lynch.

Apologies if I'm somehow being repetitive because we were just able to join the call. But I have basically two questions. First of all, one element that has been surprising us is Braskem's amazing ability to place its products in the international markets. Based on our data, exports or PE and PVC have reached most recent 150,000 tons per month, more or less, which is almost twice as much as the normalized levels for the past five years.

My question is, based on your vast experience in the industry, do you think the most important element in this case is the whole exports? Right now at these levels it's mostly the FX and do you see more room for imports to improve even further if FX levels continues to depreciate?

And my second question, we understood Braskem -- the explanations regarding the booking of the Etileno XXI debt as a hedge to fuel future sales. What we are trying to get more color on is the effect of this looking forward. Is it fair to assume that when we have an FX depreciation the Company will not have a significant FX gain in the financial expenses until the plant starts to ramp up? Thank you very much.

Thank you, Vucent. You're right, we have increased the exports within -- I'm mentioning that -- 450 KT in this quarter. There's roughly 50 KT there, but the other 400 are for polyethylene and polypropylene that we began to -- plan to remain exporting.

I think that the main driver, the main sector that has been enabling us to export are the spreads. The FX -- the exchange rate helps naturally. Having BRL3.8 exchange rate is way better than having BRL2 to BRL1 to dollar. But the part of our fixed cost that is associated with Brazilian reais is not that big.

So, yes, the exchange rate is important, but the spreads have been helping more. We have very open spreads at this point. The fact that naphtha is close -- not that far from the cost of cash makes us more competitive when compared to the US producers and that has allowed to, let's say, spend some of these open spread to pay for freight and still have a positive net back in Brazil.

If the spreads close, then at a certain point it will drop below the cost of moving these goods all the way to Asia and we may reduce our capacity to export.

Having said that, naturally exporting to South America, exporting to Europe will remain part of our strategy. But we may go back if spreads move down. We may go back to the situation we had, let's say, in 2013. But typically we would reduce the final production, the last 100 KT, 150 KT of production in one of our sites, typically at the Rio Grande do Sul site because the last pounds -- the last tons wouldn't be profitable.

So I would credit more to the spreads rather than to the FX. Naturally both help, but spreads we feel are more relevant to support the exports.

I will pass to Mario, who will comment on our hedge accounting.

Hi, Vucent. This is Mario. Let me comment on the hedge accounting question. Just to remember that on the Braskem SA level we have adopted the hedge accounting July 2013 and we are going to start seeing these FX expense in the income of Braskem beginning next year in 2016 until 2024.

In the case of Braskem Idesa, which is the Mexican project, we have adopted by the end of 2014 and also we are going to start seeing these FX expenses in the income of Braskem Idesa, and as a consequence of that, on the consolidated income of Braskem beginning 2016.

In the case of the Mexican project, the adoption of the hedge accounting was based on basically two things. First, the project will have a portion of its production being exported throughout the years; and number two, different from Brazil, in Mexico you are able to issue invoices in US dollars. So those two factors allowed us on an accounting perspective to adopt the hedge accounting and you are going to see the effect of these in the income of Braskem Idesa from 2016 until 2029, okay.

Okay, perfect. Thank you.

[Alejandro Martin], GBM.

First of all, congratulations with your report. And I only have one question. Would you have any comments regarding the bribery allegations between Petrobras and Braskem?

Alejandro, thanks for the question. Just to recap the whole issue, we heard from the press that allegations that Braskem in 2009 would have paid -- made an improper payment to have an advantage on its master contract, right? Right after hearing that and learning that, we started an internal investigation. It's an independent one. It's being conducted by a law firm from the US and a local law firm in Brazil. They have access to everything inside Braskem and they have been working so far inside Braskem looking for essential evidence to establish whether that has happened or not.

They are independent and therefore they have their own timeline. We have been giving them all the information they have been asking us. They keep on reporting on the progress of what they are doing to the authorities, both the Department of Justice and the Security and Exchange Commission.

As I said, we are following what they are doing. We are learning with them what they are doing. Nothing relevant came out so far. So we do hope that at a certain point in the future we have the closing out of the investigation, and naturally I hope we -- at a certain point in the future they are going to be able to establish that nothing happened. But at this point all we can do is really support their work. So I guess that's from a technical perspective, from a legal perspective, from an objective perspective. That is all I can mention because that's all there's to mention about that.

In the meantime, Petrobras has talked about this issue as well. At an interview the Petrobras current CEO has mentioned that he didn't -- they didn't find inside Petrobras any evidence of loss -- Petrobras -- any number or evidence that Petrobras had lost money on this contract. That's one of the things he has mentioned.

So that's what we've been doing. And as we do that, as we have this internal investigation being conducted independently, what we try to do is business as usual, keep working, keeping the team focused on running the plants, selling the chemical products and making the -- using the resources we have.

And again, I can only hope that it ends soon so we can turn this page and move on. So that's where we are right now.

Thank you very much.

Thank you too.

I would turn over to the Company for closing remarks.

Well, I would like to thank you all for participating in the call. I would like to thank you all that have congratulated us on behalf of Braskem. Everybody at Braskem, I would say, that we are very happy with the results.

We do understand and we know exactly that a part of that is coming from external factors and financial spread and exchange rates, but we also know that a part of that is coming from the long and hard work we've been doing over the years to increase production at the plants, to reduce cost, to reduce maintenance cost, to increase market share, to protect mainly the Brazilian domestic market from unfair trade practices and to keep growing the Company as we do that with the Mexican project and with several other initiatives.

So thank you all for participating in the call. We are going to remain very focused here in the last two months we have of the year to hopefully finish 2015 with another very good quarter for Braskem

Thank you again and I wish you all have a good weekend. Bye-bye.

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