Strategy and Competitive Advantages

Strategy

We seek to operate a competitive business platform in the intermediate chemicals industry and leverage our competitive strengths to further improve our profitability. The key components of our strategy include the following:

Focus on our core business and strengthen our leading position in our selected markets.

With the completion of our deleveraging program in November 2017, our management has been focused on our core businesses (Acrylics and Styrenics), which we believe will drive sales growth and offer value-added opportunities. We intend to continue to solidify our leading position in selected products of our Acrylics and Styrenics portfolios, building on our market-leading position in Latin America and use of idled capacity to continue growing sales in the Brazilian and Mexican domestic markets and through exports. We plan to strengthen our reputation as a qualified and reliable supplier with the ability to deliver high quality products and enhanced customer service, maintain and extend long-term relationships with our key customers and long-term contracts with our suppliers and offer differentiated and reliable logistics and technological support. We are constantly seeking to increase the penetration of our products, and encourage the substitution of non-plastic materials with our products. We also intend to further develop our relationships with key raw materials suppliers, such as Petrobras and Braskem.

Capitalize on our vertically integrated and flexible business model, maximizing our operational efficiency.

As key end-markets are expected to grow over the next years, we intend to take advantage of our position as a vertically integrated chemical company by increasing our capacity utilization rates at our large-scale production facilities. We have already integrated our Acrylics and Styrenics Businesses, increasing the benefits related to economies of scale, lower raw materials costs and more cost-efficient operations. Our efforts to constantly increase operational efficiency and cost competitiveness also include diversifying our energy matrix through the use of multiple fuel and energy sources, and the development of opportunities arising from our proximity to clients and suppliers. We will also continue to adapt our commercial strategy to different market conditions, responding more effectively to shifts in both macroeconomic and microeconomic environments, by focusing on certain product lines or geographical markets according to their respective price and market conditions.

Continue to efficiently manage our balance sheet and capital structure.

We successfully completed a deleveraging program in November 2017 and have significantly reduced our leverage and improved our balance sheet and capital structure. We intend to further improve our debt profile by using most of the proceeds from this offering to repay a relevant portion of our outstanding debt, which includes a sizeable amount of short-term, expensive indebtedness, and believe that the completion of this offering will give us further financial flexibility by (i) extending the average term and reducing the average cost of our indebtedness and (ii) allowing us to develop working capital initiatives that will permit us to improve our operational performance, such as by engaging in negotiations with key suppliers and customers seeking more favorable terms and conditions. We will continuously focus on strengthening our balance sheet and financial position through several initiatives, including the adoption of more conservative financial policies, commitment to strict discipline in our liquidity position goals, extension of the average maturity profile of our debt, and disciplined capital allocation with focus on accretive low capital investments in our own plants. We also intend to continue developing cost-saving initiatives and explore alternatives aiming at further financial costs reduction and tax burden optimization. For instance, in 2017, we developed our first Zero-Based Budget, targeting a total of approximately R$48 million in savings for the period between 2018 and 2019.

 

Competitive Advantages

Leading position in acrylics and styrenics in a large and expanding market in Latin America.

In 2017, we were the sole producer of acrylonitrile and MMA in Latin America (based on data from IHS) and we had the largest nominal production capacity of styrene and polystyrene (combined) in Latin America (based on data from IHS and ABIQUIM). As our domestic markets (Brazil and Mexico) are expected to grow through increased penetration of our products and gross domestic product growth, we believe that we are and will continue to be well-positioned as a leading established player to benefit from these positive trends. For example, with the end of Brazil’s recent economic recession and the general growth of economic activity experienced in Latin America in recent years, we are well positioned to increase our sales volume and market penetration on the back of a macroeconomic recovery with no significant incremental capital expenditures (e.g. use of idled capacity, and execution of marginal investments to lever our operational efficiency).

Attractive and balanced combination of exports and domestic sales, tied with a diversified product portfolio.

Exports of acrylonitrile and methacrylates (MMA and EMA), our main acrylics products, and which were exported to over 26 countries in 2017, accounted for 88.1% and 76.7% of our volume of sales for each of these products in 2017, respectively, while domestic market sales of styrene and polystyrene, our main styrenics products, accounted for 96.6% and 79.2% of our volume of sales for each of these products in 2017, respectively. In 2017, sale of styrene and polystyrene products represented, respectively, 49.9% and 50.1% of our total net sales in 2017. In addition, we have a diversified product portfolio, selling over 12 different acrylics and styrenics products, and polystyrene, our most sold product in terms of net sales, represented less than 26% of our net sales in 2017. Our attractive and balanced combination of exports and domestic sales, coupled with our diversified product portfolio affords us a flexible business model, creating a natural hedge that allows us to navigate through shifts in both macroeconomic and microeconomic conditions in all markets where we operate, and also reduces our exposure to exchange rate fluctuations.

Vertically integrated and flexible business model, with high market barriers for new entrants.

We have a vertically integrated business model that allows us to gain cost competitiveness by increasing the integration of our production lines across the chemicals value chain. First, we are strategically located adjacent to the Brazilian petrochemical complexes in Bahia and São Paulo, which allows us to receive our main raw materials by pipeline. The location of our production facilities promotes further integration as we benefit from shared logistics and infrastructure of our plants and principal suppliers and clients. Second, we benefit from synergies in the integration of our plants in both Acrylics and Styrenics Businesses, in which we produce raw materials and co-products that serve as inputs to other of our plants. For instance, we benefit from our integration by producing MMA in Brazil, which serves as a raw material for the production of cell cast acrylic sheets in Mexico. Also, we produce styrene in our Camaçari and Cubatão plants and acrylonitrile in our Camaçari plant, which are the main raw materials used by our São José dos Campos and Guarujá plants to produce polystyrene and latices. Third, our flexible technology allows us to determine different product mixes in our production based on market conditions. We have a diverse product portfolio and distribution capabilities that allow us to adapt our commercial strategy to different market conditions. For instance, in 2017, in order to maximize our net sales, we decided to direct more HCN to our MMA production than to our sodium cyanide production in order to take advantage of more favorable MMA market conditions in the period. In terms of flexibility, as a result of these significant capital and logistics requirements that have already been addressed by us, new entrants face an significant barrier to enter our markets.

Strong financial discipline, with focus on leverage reduction.

Over the past several years, we have taken a series of steps to restructure our debt and place our company in a stronger financial position. In 2017, we successfully completed a deleveraging program, by means of which we reduced our loans and financing to R$1,122.7 million (R$384.2 million in current loans and financing and R$738.5 million in non-current loans and financing) as of December 31, 2017 from R$1,973.4 million (R$450.5 million in current loans and financing and R$1,522.9 million in non-current loans and financing) as of December 31, 2016. This deleveraging program included the prepayment of a portion of our debt with the proceeds from the sale, in November, 2017, of our packaging materials business for R$585.0 million and the extension of the maturity of most of our remaining financing debt obligations to October 2023. We believe that these efforts to reduce our leverage will allow us to focus on our strategic objectives while assuming a sustainable cash generation.

Strong relationship with suppliers and clients.

We have built solid relationships with the main Latin American suppliers of our raw materials. Braskem, the largest chemical company in Brazil, owns and operates all four Brazilian petrochemical crackers, the largest one located in Bahia, where we believe we are their largest individual customer. We also have decades-long relationships with other of our main suppliers, such as Petrobras and Rhodia, that also have ensured the supply of our Acrylics and Styrenics Businesses plants. On the demand side, we have built a strong customer portfolio comprised of relevant companies across several industries, translating into more diversified sources of revenues. For instance, for the year ended December 31, 2017, our top 10 customers represented only 28% of our net sales. As a qualified and reliable supplier, we also enjoy a solid reputation with our key customers. We deliver high-quality products and enhanced customer service, and also offer differentiated and reliable logistics and technological support. In recent years, we were recognized as a high quality supplier by global companies in the home appliances market, such as Whirlpool, Electrolux and Panasonic.

Experienced management team.

Our senior management team is composed of highly trained executives, several with more than 30 years of experience in the petrochemical industry. Our management team is highly focused on the efficient management of our business, improvement of operating efficiencies and cost saving initiatives, and is guided by high standards of corporate governance. We employ highly qualified and trained engineers and technicians to design, develop, operate and maintain our production facilities. We also maintain an active training program for young university graduates

Last updated on

Close