Business context and reporting period
Braskem S.A. is a global petrochemical producer, with operations in Brazil, the United States, Europe and Mexico. This Form 20-F, filed June 15, 2020, reports the fiscal year ended December 31, 2019 and presents audited consolidated financial statements under IFRS. It is not a standalone fourth-quarter report; the filing text does not provide clear Q4-only financial results.
The filing was delayed from its original April 30, 2020 due date because COVID-19-related staff and resource constraints delayed completion of audit procedures and internal-control analyses.
Key financial metrics
Unless otherwise stated, amounts below are in Brazilian reais (R$) and millions.
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Net revenue | 52,323.5 | 57,999.9 | Down 9.8% |
| Gross profit / margin | 6,444.4 / 12.3% | 11,423.2 / 19.7% | Profit down 43.6%; margin down 7.4 percentage points |
| Operating profit | 153.7 | 8,280.2 | Down 98.1% |
| Net income (loss) | (2,640.4) | 2,868.2 | Turned to loss |
| Net cash from operating activities | 2,265.3 | 9,250.4 | Down 75.5% |
| Net cash used in investing activities | (2,666.4) | (2,488.3) | Cash use increased |
| Capital expenditures on property, plant and equipment | 2,682.5 | 2,706.3 | Down 0.9% |
Net financial expense was R$4,756.8 million, slightly higher than R$4,675.5 million in 2018. The company reported an income-tax and social-contribution benefit of R$1,962.7 million, compared with an expense of R$736.6 million in 2018.
At year-end, cash, cash equivalents and financial investments totaled R$8,491.4 million. Consolidated debt, net of transaction costs, was R$39,273.3 million, including R$9,981.7 million related to the Mexico complex. 96.0% of debt was long-term and 95.8% was foreign-currency-denominated, principally U.S. dollars. Net working capital was reported as positive R$7,242.2 million.
Material changes versus 2018
- Revenue declined across all five business units, chiefly reflecting lower international petrochemical and resin prices. The company cited weaker global demand and new capacity, particularly U.S. shale-gas-based polyethylene production.
- Operating utilization weakened: ethylene capacity utilization fell to 85% from 91%, PVC to 65% from 76%, and Mexico polyethylene to 76% from 77%. Factors included Alagoas plant shutdowns, scheduled maintenance and logistics issues.
- The Vinyls Unit recorded a gross loss of R$376.5 million and an operating loss of R$4,486.8 million, versus operating profit of R$90.1 million in 2018. The operating loss included substantial Alagoas-related provisions, as well as higher costs from importing caustic soda and ethylene dichloride after salt-mining operations stopped.
- Other expenses rose to R$4,446.9 million from R$554.7 million. The principal item was a R$3,383.1 million provision related to the Alagoas geological event, relocation and compensation measures, and well closure. Other notable provisions included R$409.9 million for the CGU/AGU leniency agreement and R$172.9 million to close a Bahia chlor-alkali facility.
- Operating cash flow fell sharply, reflecting lower sales and prices, R$3,680.5 million placed in judicial deposits during 2019, and payments under leniency agreements, partly offset by lower inventories and other working-capital effects.
Outlook, risks and unusual items
- COVID-19: Management said the pandemic was affecting production, sales volumes, revenue, costs and gross margin; it could not quantify the full impact. As of the filing, production had been reduced to about 65% of capacity for Brazilian ethylene and 85% for U.S. polypropylene. Management reduced planned 2020 investment from US$721 million to US$600 million, targeted a roughly 10% reduction in administrative costs and drew US$1 billion on its revolving credit facility in April 2020.
- Alagoas: Salt mining ceased in May 2019 following a geological report linking instability to mining activity. A January 2020 agreement provides for relocation and compensation support affecting an estimated 4,500 buildings and 17,000 people. The provision may change as studies, action plans and legal proceedings develop. The company also agreed to a separate R$40 million program for community and worker support.
- Feedstock and supply: Braskem depends on Petrobras for key Brazilian feedstocks and infrastructure. Existing naphtha and ethane/propane agreements approached expiry; in June 2020, after year-end, Braskem entered new five-year naphtha agreements for Bahia and Rio Grande do Sul. In Mexico, Pemex TRI continued to deliver below contracted ethane volumes and had not timely provided certain claimed liquidated-damages credits; alternative ethane imports were being pursued.
- Corruption settlement: The company reported approximately R$1.5 billion of remaining payments under the Global Settlement and CGU/AGU agreement, subject to scheduled installments and adjustments. The external compliance monitorship concluded in 2020, but third-party claims or further authority action remain possible.
- Controls and audit: The auditor gave an unqualified opinion on the IFRS financial statements but an adverse opinion on internal control over financial reporting. Material weaknesses included IT access and change controls, financial reporting and journal-entry review, legal contingencies, legal-service payments and controls over shipped product quantities. Management said remediation was underway. IFRS 16 was adopted in 2019 using the modified retrospective method, adding lease assets and liabilities.
- Guidance: The filing provides no clear formal earnings or revenue guidance. It discusses 2020 operating and investment actions, which were subject to market conditions and pandemic uncertainty.
Most important facts for investors to verify
- Whether subsequent filings show further changes to the R$3,383.1 million Alagoas provision, the relocation program’s scope, or related litigation and guarantees.
- Actual COVID-19 effects on volumes, margins, cash generation and liquidity, and how the US$1 billion revolving facility was used and repaid.
- Progress on Petrobras naphtha agreements and Pemex ethane supply, including payment of contractual damages and the cost and reliability of alternative supply.
- Debt maturities, foreign-exchange exposure, refinancing needs and compliance with covenants, particularly at Braskem Idesa.
- Whether management remediated the disclosed material weaknesses and whether later auditor reports conclude internal controls are effective.
- Remaining settlement installments and any additional claims or obligations related to the corruption matters.