According to the company’s website news release on November 9, 2022, BRASKEM S.A. (B3: BRKM3, BRKM5 and BRKM6; NYSE: BAK; LATIBEX: XBRK), the largest resin producer in the Americas and the world’s leading biopolymers producer, presents its 3Q22 Earnings Release.
Recurring EBITDA in 3Q22 was US$371 million In the year to date, the Company’s Cash Generation was R$3.1 billion
- CONSOLIDATED
- In 3Q22, Recurring EBITDA was of US$371 million, lower 54% than 2Q22, mainly due to (i) the lower exports volume of resins in the Brazil segment, lower sales volume of PP in the United States and PE in the Mexico segment; (ii) lower international spreads for PE, PP and PVC in Brazil, PP in the United States and Europe, PE in Mexico; and (iii) the accounting effect of realization of inventories1 in the net amount of US$77 million (R$400 million). Excluding this effect of realization of inventories, the Recurring EBITDA was US$448 million (R$2.4 billion).
- Compared to 3Q21, the Company’s Recurring EBITDA in U.S. dollar decreased 75%, due to (i) the normalization of international spreads for PE, PP and PVC in Brazil, for PP in the United States and Europe and for PE in Mexico; and (ii) the lower sales volume of main chemicals and resins in the Brazil segment and PP in the United States and Europe. In Brazilian Real, Recurring EBITDA was R$2.0 billion, 50% and 74% lower than in 2Q22 and 3Q21.
- In the quarter, the Company posted a net loss2 of R$1.1 billion. In the year to date, the Company registered net income attributable to shareholders of R$1.4 billion, representing R$1.73 per common share and class “A” preferred share3 .
- Braskem's recurring cash generation was of R$1.6 billion and return4 on cash flow was 45% in 3Q22. Considering the payments related to the geological event in Alagoas made in 3Q22, the Company registered cash generation of R$0.9 billion and return³ on cash flow of 31%.
- Corporate leverage, measured by the ratio of adjusted net debt to Recurring EBITDA5 in U.S. dollar, ended the quarter at 1.55x.
- The cash position was US$2.2 billion, a level that guarantees coverage of debt maturities for the next 63 months. Note that this position does not include the international stand-by credit facility in the amount of US$1.0 billion, with maturity in 2026.
- In October, Braskem Idesa obtained licenses for the creation of the Joint Venture with Advario by the Mexican government institution COFECE (Comisión Federal de Competencia Económica) and concluded the purchase of land for the construction of the ethane terminal in the port of Coatzacoalcos.
- ESG
Environmental
- ESG Day 2022: in October, Braskem held its second ESG Day, in which it reinforced its commitments to sustainable development and the carbon-neutral circular economy. The presentation and recording of the event are available on the Company's Investor Relations website.
- In August, the Company entered into an agreement for the acquisition of shares and subscription of new shares issued by Wise Plásticos S.A., a company engaged in mechanical recycling, still subject to approval by the competent authorities. Braskem's offer was for 61.1% of Wise's capital, with an estimated outlay of R$121 million, of which a significant part will be invested in doubling Wise's current production capacity to around 50,000 tons of recycled products by 2026.
- In September, Braskem announced to the market the launch of Voqen Energia Ltda., Braskem's wholly owned subsidiary. An electricity and natural gas trader, the Company leverages business opportunities by working collaboratively to create competitive solutions that accelerate the sustainable energy transition of Braskem and the industry.
- The Company announced in September the launch of Oxygea, a company that will foster the creation and development of new corporate initiatives in sustainability and digital transformation by interacting with startups in the market. The hub will receive US$150 million in investment to develop new businesses within the next five years.
- Braskem in the United States signed a 10-year renewable energy purchase agreement for the Neal plants in West Virginia, starting its supply at the end of 2024 and ensuring the reduction of GHG emissions – Greenhouse Gases in scope 2.
Social
- People Safety and Processes: the consolidated reported and lost time injury-frequency rate in the year to date was 0.87 event per million hours worked, down (-5%) from the same period of 2021 and 73% below the industry average6 . The TIER 1 rate7 in the year to date was 0.07 event per million hours worked, down 13% from the same period of 2021. The TIER 2 rate8 was 0.47 event per million hours worked.
VALUE CREATION STRATEGY
During the third quarter, Braskem continued to focus on developing the various projects in its main growth avenues, which are concentrated in (i) renewables, (ii) recycling and (iii) existing businesses focused on productivity and competitiveness.
Growth in Renewables
The Company is committed to achieve 1.0 million tons of bio-products production by 2030 and is working to reach this goal through potential strategic and financial partnerships.
Key projects on this front include: Expanding green ethylene production capacity in the Triunfo Petrochemical Complex in Rio Grande do Sul
Expansion of current green ethylene production capacity from 200 kta to 260 kta using feedstock made from sugarcane ethanol. Year to date, US$ 37 million were disbursed and, since the project was launched, the Company has disbursed US$50 million, reaching 67% physical completion.
Building a new green ethylene plant in Thailand (MOU with SCG Chemicals)
Execution of a memorandum of understanding with SCG Chemicals to conduct feasibility studies for a joint investment in a new green ethylene plant in Thailand.
Joint licensing of green ethylene technology (partnership with Lummus Technology)
Partnership to develop and license Braskem's technology to produce green ethylene. The partnership will bring complementary expertise to accelerate Braskem's commitment to reach 1.0 million tons of green PE production capacity by 2030, extend the geographic reach of green ethylene production technology globally, and accelerate the use of bioethanol for chemicals and plastics.
Growth in Recycling:
One of the Company’s goals is to increase its sales volume of recycled products. By 2025, Braskem’s goal is to expand its portfolio to reach 300,000 tons of thermoplastic resins and chemical products with recycled content and 1.0 million tons of thermoplastic resin and chemical products with recycled content by 2030.
The Company is also working to prevent 1.5 million tons of plastic waste from being sent to incineration, landfills or deposited in the environment by 2030. Below are the main projects on this front, which are mainly related to working through partnerships with other companies in our value chain to strengthen mechanical and advanced recycling globally:
Construction of the first advanced recycling unit in Brazil
In partnership with Valoren, construction of the first advanced recycling unit in Brazil, with the objective of chemically transforming, using pyrolysis, plastic waste into circular feedstock, enabling the production of 6 kton of circular products per year.
Growth within Existing Businesses with Productivity and Competitiveness:
The Company will continue to invest in existing businesses to maintain productivity and competitiveness, focusing on operational efficiency and excellence, optimizing sales and logistics, leadership in costs and competitive advantages through client relations. The highlights on this front are the following projects, besides the Transform For Value Program:
Building an Ethane Import Terminal in Mexico Construction of an ethane import terminal in Mexico, which will diversify the feedstock profile and support operation at full capacity, while also enabling expansion by around 15% of Braskem Idesa's PE (ethane-based) production capacity.
Transform For Value Program
The Transform for Value (TFV) Program ended 2021 on pace to capture approximately US$277 million/year9 in initiatives that reached more advanced stages of maturity. The cumulative capture in 2021 of these initiatives totaled approximately US$154 million.
The program reached the end of the third quarter (3Q22) with an estimated mark of US$272 million/year9 , highlighting the continuous improvement pipeline, which is involved in initiatives that total amount US$181 million/year.
The program cumulative capture estimated until the third quarter came to around US$199 million. The pace of capture represents mostly a direct impact on the Company's EBITDA, which can occur in four ways: increase in net revenue, reduction in variable costs, reduction in fixed cost or reduction in SG&A expenses. The table below shows the breakdown of the capture rate of US$272 million/year9 achieved in the third quarter of 2022.
It is also important to mentioned that about one-third of the capture rate value of US$272 million/year9 is associated with Digital Transformation initiatives, which make relevant use of digital technologies in their scopes, such as: automation and instrumentation, new software and systems, advanced analytics, machine learning, cloud services, etc.
In addition, other initiatives in more preliminary stages, such as planning or execution, under the management of areas10 that make up the scope of the program, added approximately US$421 million/year to the pipeline's potential to be captured in the coming years, of which US$52 million is involved with continuous improvement.
By the end of 2022, the Company's goal is to advance the program's activities to reach the capture of recurring gains of approximately US$302 million/year11 in initiatives in more advanced stages.
FINANCIAL OVERVIEW
A) NET REVENUE: decreased in U.S. dollar (-10%) and in Brazilian Real (-3%) compared to 2Q22 explained by the reduction in exports volume of resins and the lower prices for resins and main chemicals in the international market.
Compared to 3Q21, net revenue in U.S. dollar and Brazilian Real remained stable, reflecting the lower sales volume of resins and main chemicals, which was partially offset by the higher price for main chemicals in the international market in the period.
B) COST OF GOODS SOLD (COGS): decreased in U.S. dollar (-7%) and Brazilian Real (-1%) in relation to 2Q22, explained by lower exports volume of resins and lower prices for key petrochemical feedstocks (naphtha, ethane and propane) in the international market, influenced mainly by lower oil and natural gas prices in the international market. In the quarter, COGS was impacted in the net amount of US$54 million (R$281 million) related to the accounting effect of realization of inventories due to higher production costs, mainly of naphtha acquired in previous periods.
In relation to 3Q21, increased in U.S. dollar (+23%) and Brazilian Real (+24%), explained by higher prices for key petrochemical feedstocks (naphtha and ethane) in the international market, influenced mainly by higher oil and natural gas prices in the international market.
In the quarter, COGS was affected by the PIS/COFINS tax credit on feedstock purchases (REIQ) in the amount of approximately US$3.4 million (R$18.6 million) related to acquisitions in June and by the Reintegra tax credit in the amount of approximately US$0.6 million (R$3.0 million).
C) SG&A EXPENSES: in U.S. dollar, the decrease in relation to 2Q22 (-4%) is explained by lower expenses with third parties. Compared to 3Q21, the increase (+4%) is mainly explained by higher expenses with industrial maintenance services.
D) RECURRING EBITDA: represented 80% of the Company’s consolidated Recurring EBITDA.
FINANCIAL INCOME (EXPENSE)
Financial expenses: decreased in relation to 2Q22 (-13%), due to (i) lower amortization transaction costs associated with prepayments, which were higher in the prior period; and (ii) lower financial expenses with derivatives. In relation to 3Q21, the increase (+4%) is mainly explained by the increase in basic interest rates.
Financial income: increased in relation to 2Q22 (+28%), mainly explained by (i) the higher profitability of financial investments due to the increase in the basic interest rate; and (ii) the recognition of interest on tax assets related to PIS/COFINS tax credits on gasoline sales in fiscal year 2015, arising from the favorable final and unappealable court judgment. Compared to 3Q21, the increase (+132%) is mainly explained by (i) the higher profitability of financial investments due to the increase in the basic interest rate; and (ii) the higher income from derivatives in the period.
Net exchange variation: negative variation in 3Q22, mainly explained by the depreciation of the Brazilian Real at the end of the period against the U.S. dollar on the net exposure to the dollar in the amount of US$2.7 billion.
Transactions in financial instruments under hedge accounting In the quarter, the Company recorded US$186 million (R$368 million) in exports associated with a discontinued hedge accounting transaction. The initial designation rate was US$1/R$2.0017, while the average realization rate was US$1/R$3.9786. The balance of financial instruments designated for hedge accounting ended 3Q22 at US$5.2 billion.
Long-term Currency Hedge Program: Braskem’s feedstock and products have prices denominated or strongly influenced by international commodity prices, which are usually denominated in U.S. dollar. Starting in 2016, Braskem contracted derivative instruments to mitigate part of the exposure of its cash flow denominated in Brazilian real. The main purpose of the program is to mitigate U.S. dollar call and put option agreements, protecting estimated flows for a 24- month period.
On September 30, 2022, Braskem had a notional value of outstanding put options of US$2.3 billion, at an average exercise price of R$/US$4.71.
At the same time, the Company also had a notional value of outstanding call options of US$1.6 billion, at an average exercise price of R$/US$6.95. The contracted operations have a maximum term of 24 months. The mark-to-market (fair value) of these Zero Cost Collar (“ZCC”) operations was negative R$8 million at the end of the quarter. As a result of the appreciation in the Brazilian Real in relation to the U.S. dollar during the program, the Company exercised part of the put options of the ZCC program. The total effect on cash flow for 3Q22 was positive R$0.08 million.
NET INCOME
In the quarter, the Company reported a net loss26 of R$1.1 billion, which mainly reflects the lower operating result and the effects from exchange variation on the financial result given the depreciation in the Brazilian Real and Mexican peso against the U.S. dollar at end of period. In the year to date, the Company registered net income attributable to shareholders of R$1.4 billion, representing R$1.73 per common share and class “A” preferred share.
CASH FLOW
Recurring cash generation in 3Q22 was of R$0.5 billion, mainly explained by (i) the Recurring EBITDA in the quarter; and (ii) the positive variation in working capital. These positive impacts were offset mainly by (i) the payment of interest in the quarter related to semiannual interest from corporate bonds; (ii) the payment of IR/CSLL due to the Recurring EBITDA; and (iii) the realization of Company's operating and strategic investments related, mainly, to the disbursements with the post-scheduled maintenance shutdown conducted in 2Q22, and to the construction of the ethane import terminal in Mexico and the expansion of biopolymer production capacity in Rio Grande do Sul, respectively. Adding the payments related to the geological event in Alagoas, the Company registered in the quarter cash generation of R$0.1 billion.
DEBT MATURITY PROFILE AND RATING 5.9.1 BRASKEM (ex-BRASKEM IDESA)
On September 30, 2022, the average debt term was around 13.4 years, with approximately 53% of maturities concentrated after 2030. The weighted average cost of the Company's debt was exchange variation +5.7%.
In September, Braskem concluded the 17th issue of debentures, for public distribution with restricted placement efforts, in accordance with CVM Instruction 476, totaling R$750 million, in a single series, with maturity in 7 years and interest of CDI +1.75%.
The liquidity position of US$2.2 billion is sufficient to cover the payment of all liabilities coming due in the next 63 months, not considering the international stand-by credit facility of US$1.0 billion available through 2026.
In line with Braskem's sustainable development strategy, Braskem contracted in June/22 two corporate credit lines, in the total amount of US$150 million, which were added in July/22 to include targets linked to the growth in sales volume of Green PE I'm GreenTM bio-based, with incentive or penalty mechanisms depending on compliance with established metrics (Sustainability-Linked loan).
