Braskem S.A. — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. Annual report filed April 24, 2023; this is not a standalone fourth-quarter report. Financial statements are prepared under IFRS as issued by the IASB and reported in Brazilian reais (R$).
Business context
Braskem is a global petrochemical and plastics producer, operating in Brazil, the United States, Europe and Mexico. Its reportable segments are Brazil, USA and Europe, and Mexico. Brazil contributed 70.2% of segment net revenue, USA and Europe 23.8%, and Mexico 6.0%. The year was marked by weaker petrochemical demand and spreads, new capacity additions, higher feedstock and energy costs, inflation and geopolitical disruption.
Key financial metrics
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Net revenue | R$96.52bn | R$105.63bn | Down 8.6% |
| Gross profit | R$11.36bn | R$32.06bn | Down 64.6% |
| Gross margin | 11.8% | 30.3% | Lower spreads and higher costs |
| Operating profit before net financial expenses and taxes | R$4.27bn | R$26.04bn | Down 83.6%; margin fell to 4.4% from 24.7% |
| Net financial expense | R$4.22bn | R$8.08bn | Lower, mainly due to reduced foreign-exchange expense |
| Profit before income tax | R$47m | R$17.96bn | Near break-even before tax |
| Net income (loss) | Loss of R$820m | Profit of R$13.96bn | Turned to a loss |
| Net cash from operating activities | R$8.95bn | R$14.79bn | Down R$5.83bn |
| Net cash used in investing activities | R$4.95bn | R$3.38bn | Higher investment outflows |
| Net cash from (used in) financing activities | R$225m | Used R$16.97bn | 2021 included substantial debt repayment and dividends |
| Cash and cash equivalents plus financial investments | R$14.78bn | — | Includes R$2.18bn held by Braskem Idesa for its exclusive use |
| Consolidated indebtedness | R$47.09bn | — | R$11.37bn relates to Braskem Idesa; 90.1% was foreign-currency-denominated |
Cost of products sold rose 15.8% to R$85.16bn. Net revenue fell in all three segments: USA and Europe declined 27.7%, Mexico 10.3%, while Brazil was broadly stable. The filing attributes the overall earnings decline principally to weaker international resin spreads and higher feedstock costs. The effective tax rate was unusually high at 1,832.8%, which the company attributes to a small pretax-profit base and tax adjustments; the filing reports R$867.7m of income tax expense.
Material changes versus FY2021
- International resin reference prices and segment gross margins fell materially. Brazil resin spread declined 48.6%; USA and Europe PP spread declined 19.5%.
- Brazil naphtha cost references increased 21.3%, and ethane references increased approximately 53%–56%, depending on the comparison cited in the filing. Lower U.S. propylene prices helped reduce USA and Europe cost of sales.
- Cash generated from operations declined as operating results weakened, partly offset by working-capital movements and tax-credit monetization.
- Capacity utilization was lower in several businesses: Brazil ethylene 78% versus 81%; USA and Europe PP 80% versus 87%. Mexico PE utilization improved to 73% from 66%, supported by imported ethane.
- 2021 earnings benefited from a R$1.03bn PIS/COFINS tax credit that did not recur in 2022.
Outlook, risks and unusual items
- Outlook: Management expected weak petrochemical spreads in early 2023, citing new capacity and subdued consumption amid inflation and high interest rates; it noted that a stronger Chinese recovery could improve spreads later. Its stated priorities included cost discipline, asset optimization, selective investment and continued work on the Alagoas event.
- Capital spending: The company budgeted R$4.00bn of 2023 capital expenditures, including maintenance, bio-based products, energy efficiency and decarbonization. It also estimated R$4.3bn of 2023 cash requirements for operations, debt service and other commitments; these figures have different stated scopes.
- Mexico feedstock and project: The Mexico complex operated below full capacity amid ethane supply constraints. The ethane import terminal, planned to reach full capacity by the end of 2024, had estimated investment of about R$2.33bn (US$446m); execution, permitting, financing and timing remain risks. Braskem Idesa received a covenant waiver through June 30, 2023, but reclassified R$649.6m of debt as current because the waiver did not cover at least 12 months.
- Alagoas geological event: The consolidated financial statements record a R$6.63bn provision at year-end for the geological event and related commitments. The filing separately describes R$1.4bn provisioned for well closure, monitoring and related technical/environmental actions; these are different scopes and should not be treated as contradictory or interchangeable. The provision is subject to significant estimation uncertainty and possible additional claims.
- Subsequent Alagoas matters: Authorities filed additional claims in 2023, including a R$1.7bn action concerning the Flexais area. A lower court ordered a precautionary block of approximately R$1.1bn of company funds in a separate State of Alagoas action; an appellate court suspended the block after Braskem presented a performance bond. The CBTU lawsuit, valued at R$1.43bn at year-end 2022, was suspended during negotiations.
- Other contingencies: Possible-loss tax claims totaled R$18.27bn at year-end; this is a claimed exposure, not a recorded provision. The company also had R$903m remaining under its leniency agreements, payable in installments through January 2025.
- Control and financing: Novonor and Petrobras together held substantial voting interests. Potential share sales, a possible move to B3 Novo Mercado and a possible change of control were unresolved. Certain debt instruments contain change-of-control and ratings provisions that could trigger repayment or repurchase obligations.
- Climate targets: Braskem reported 10.7 million tonnes of carbon emissions in 2022 and stated goals including a 15% reduction in Scope 1 and 2 emissions by 2030 and carbon neutrality by 2050. The filing describes execution, technology, regulatory and cost uncertainty.
- Audit and controls: The auditor issued an unqualified opinion on the IFRS financial statements and concluded internal control over financial reporting was effective. The Alagoas provision was identified as a critical audit matter. A material weakness reported for 2021 relating to hedge accounting at Braskem Idesa was reported as remediated in 2022.
Important facts for investors to verify
- Reconcile the R$6.63bn Alagoas provision to its components, expected payment timing, updated estimates and any exposure beyond amounts already provided.
- Track the status and financial consequences of the Alagoas claims, including the R$1.1bn bond-backed court order, Flexais litigation and CBTU negotiations.
- Monitor Braskem Idesa’s covenant position after the June 2023 waiver expiry, ethane supply, terminal progress, total project cost and expected start-up.
- Review debt maturities, foreign-currency exposure, liquidity available outside Braskem Idesa, and any refinancing or change-of-control triggers.
- Compare realized 2023 spreads, utilization, operating cash flow and capital spending with management’s cautious outlook and budget.