AlwaysFree: Braskem - Earnings Release 1Q23

• Global industrial activity and better petrochemical spreads in the international scenario boost Braskem's results 
• Braskem posts Recurring EBITDA of US$205 million in the quarter

According to the company’s website press release in 2023, BRASKEM S.A. (B3: BRKM3, BRKM5, and BRKM6; NYSE: BAK; LATIBEX: XBRK), the leading resins producer in the Americas and the world leader in biopolymers, announces the calendar for its 1Q23 disclosures, as follows.

MESSAGE FROM MANAGEMENT 

Braskem recorded Recurring EBITDA of US$205 million (R$1.1 billion) in the quarter and net profit attributable to shareholders of US$35 million (R$184 million). Throughout the quarter, the Company maintained its focus on serving its customers in all regions given the improved demand, continuing to implement its corporate strategy for 2030 and initiatives to maximize its results considering the macroeconomic dynamics. 

Throughout the first quarter of 2023, the demand for most of the products of the Company was higher, mainly due to (i) the improvement in global industrial activity; (ii) the beginning of the inventory consumption process in the transformation chain; and (iii) the end of the COVID-Zero policy in China. In this scenario, spreads in the international market were positive when compared to 4Q22.

Considering the better levels of demand, the Company adapted its production volume, and, in Brazil, the utilization rate increased by 5 p.p., while in the United States and Europe, on average, it increased by 6 p.p., and in Mexico, it increased by 3 p.p. Additionally, these production increase allowed for higher sales volumes of resins and main chemicals in the Brazil segment, PP in Europe, and PE in Mexico. 

Regarding financial performance, the Company maintained its strong cash position of US$ 2.8 billion (R$ 14.2 billion), which guarantees the coverage of debt maturities in the next 76 months1 , and the very long debt profile reflect the financial soundness of the Company. 

Finally, the Company continued to focus on progressing its growth avenues of (i) traditional business projects, with the physical progress of 34% in the construction of the ethane import terminal in Mexico; (ii) bio-based, with the scheduled maintenance shutdown to complete the 30% expansion project of the current green ethylene production capacity in Rio Grande do Sul; and (iii) recycling, with a 50% increase in sales volume of products with recycled content compared to 1Q22.

GLOBAL PETROCHEMICAL INDUSTRY

FINANCIAL OVERVIEW

¹It considers the provision related to the geological event of Alagoas in the amount of R$103 million in 1Q23 and other monetizations

²Does not consider the provisions and other monetizations, as mentioned in note 1 above

³It considers the Recurring EBITDA in relation to net revenue

Net Revenue: in the U.S. dollar and Brazilian real, net revenue remained stable in relation to 4Q22. 

Compared to 1Q22, the decrease in the U.S. dollar (-24%) and Brazilian real (-25%) is explained by: (i) the 26% reduction in the average resin price in the international market; and (ii) the reduction of 121 thousand tons, or 15%, in main chemicals sales volume in the Brazilian market. These combined effects resulted in net revenue lower by R$4.2 billion.

Cost of Goods Sold (COGS): decreased in U.S. dollar (-6%) and Brazilian real (-7%) compared to 4Q22, mainly explained by: (i) the 36% reduction in ethane price considering the moving average in the international market, influenced mainly by lower natural gas prices in the international market; and (ii) the inventory effect from naphtha acquired in prior periods. 

Compared to 1Q22, COGS decreased in U.S. dollar (-15%) and Brazilian real (-16%), explained by: (i) the 21%, 38%, and 37% reductions in naphtha, ethane, and propane prices, respectively, considering the moving average in the international market, influenced mainly by lower oil and natural gas prices in the international market; and (ii) the reduction of 121 thousand tons, or 15%, in sales volume of main chemicals.

In the quarter, COGS was affected by the Reintegra tax credit of approximately US$0.4 million (R$2.2 million). Regarding the REIQ, the Company is awaiting regulation by the Executive Branch to consider the return of the PIS/COFINS credit on the purchase of feedstocks from 2023.

SG&A Expenses: in U.S. dollars, the decrease compared to 4Q22 (-10%) is explained by the efforts to reduce fixed costs carried out in the period. Compared to 1Q22, the increase (+6%) is mainly explained by the increase in expenses with third parties and with maintenance and industrial and building services. 

Recurring EBITDA: represented 49% of the Company’s segment consolidated Recurring EBITDA.

CONSOLIDATED FINANCIAL OVERVIEW

CONSOLIDATED FINANCIAL RESULT

Financial expenses: decreased in relation to 4Q22 (-1%), mainly due to: (i) the reduction of interest and fines on tax liabilities; and (ii) the reduction in the present value adjustment due to the lower balance of suppliers abroad, which was impacted by the drop in the exchange rate in the period. Compared to 1Q22, financial expenses increased (17%), mainly due to: (i) higher interest expenses due to the increase of gross debt; and (ii) higher interest expenses in the Brazilian market due to the increase in the CDI rate in the period. 

Financial revenue: decreased in relation to 4Q22 (-24%) due to the accounting of derivatives designated for hedge accounting, which positively impacted financial income in 4Q22. Compared to 1Q22, financial income increased (37%) due to the higher profitability of financial investments in the Brazilian and international markets due to the increase in basic interest rates in the period. 

Net exchange variation: positive variation in 4Q22 (+29%) mainly explained by: (i) the appreciation of the Brazilian real at the end of the period against the U.S. dollar on the average net exposure to this currency in the amount of US$3.3 billion; and (ii) the appreciation of the Mexican peso at the end of the period against the U.S. dollar on the average net exposure to the U.S. dollar at Braskem Idesa in the amount of US$2.4 million. Compared to 1Q22, the reduction (-67%) is mainly explained by: (i) the 15% appreciation of the Brazilian real at the end of the period against the U.S. dollar; and (ii) the 13% appreciation of the Mexican peso at the end of the period against the U.S. dollar on the average net exposure to the dollar of Braskem Idesa. 

Transactions in financial instruments under hedge accounting 

The Company recorded US$168 million (R$333 million) in exports from a 2019 discontinued flow in the quarter. The initial designation rate was R$1/US$2.0017, defined in March 2013, while the realization rate was R$1/US$3.9786, defined in November 2019. The balance of financial instruments designated for hedge accounting ended 1Q23 at US$4.9 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. dollars. Since 2016, Braskem contracted derivative instruments to mitigate part of the exposure of its cash flow denominated in Brazilian real. The program’s main purpose is to mitigate U.S. dollar calls and put option agreements, protecting estimated flows for 18 months. 

On March 31, 2023, Braskem had a notional value of outstanding put options of US$1.7 billion at an average exercise price of R$/US$4.71. At the same time, the Company also had a notional value of outstanding call options of US$1.2 billion, at an average exercise price of R$/US$7.12. The contracted operations have a maximum term of 18 months. The mark-to-market (fair value) of these Zero Cost Collar (“ZCC”) operations was positive R$68 million at the end of the quarter. 

As a result of the lower volatility of the dollar in the period, no option was exercised. The total effect on cash flow for 1Q23 was zero.

FORWARD-LOOKING STATEMENTS 

This Earnings Release may contain forward-looking statements. These statements are not historical facts, but are based on the current view and estimates of the Company's management regarding future economic and other circumstances, industry conditions, financial performance and results, including any potential or projected impact from the geological event in Alagoas and related legal procedures and from COVID on the Company's business, financial condition and operating results. The words “project,” “believe,” “estimate,” “expect,” “plan” and other similar expressions, when referring to the Company, are used to identify forward-looking statements. Statements related to the possible outcome of legal and administrative proceedings, implementation of operational and financing strategies and investment plans, guidance on future operations, as well as factors or trends that affect the financial condition, liquidity or operating results of the Company are examples of forward-looking statements. Such statements reflect the current views of the Company's management and are subject to various risks and uncertainties, many of which are beyond the Company’s control. There is no guarantee that the events, trends or expected results will actually occur. The statements are based on various assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any change in these assumptions or factors, including the projected impact from the from the geological event in Alagoas and related legal procedures and the unprecedented impact from COVID on businesses, employees, service providers, shareholders, investors and other stakeholders of the Company could cause actual results to differ significantly from current expectations. For a comprehensive description of the risks and other factors that could impact any forward-looking statements in this document, especially the factors discussed in the sections, see the reports filed with the Brazilian Securities and Exchange Commission (CVM). This Earnings Release is not an offer of securities for sale in Brazil. No securities may be offered or sold in Brazil without being registered or exempted from registration, and any public offering of securities carried out in Brazil will be made by means of a prospectus that may be obtained from Braskem and that will contain detailed information on Braskem and management, as well as its financial statements.

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