As filed with the Securities and Exchange Commission on May 13, 2021April 11, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31 2020, 2023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-14862
BRASKEM S.A.
(Exact Name of Registrant as Specified in its Charter)
N/A | The Federative Republic of BrazilD5 |
(Translation of Registrant’s Name into English) | (Jurisdiction of Incorporation or Organization) |
Rua Lemos Monteiro, 120 – 24° andar
Butantã – São Paulo, SP – CEP 05501-050 – Brazil
(Address of Principal Executive Offices)
Pedro van Langendonck Teixeira de Freitas
Braskem S.A.
Rua Lemos Monteiro, 120 – 24° andar
Butantã – São Paulo, SP – CEP 05501-050 – Brazil
Telephone: + 5511 3576-9000
Fax: + 55 11 3576-9532
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on which Registered |
Preferred Shares, Class A, without par value per share, each represented by American Depositary Shares | BAK | New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
6.450% Notes due 2024, issued by Braskem Finance Limited None
The total number of issued shares of each class of stock of Braskem S.A. as of December 31, 20202023 was:
Common Shares, without par value
345,049,672 Preferred Shares, Class A, without par value
500,230 Preferred Shares, Class B, without par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☒No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐No☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐Item 17 ☐Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
☐
TABLE OF CONTENTS
Page
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
All references herein to “real,” “reais” or “R$” are to the Brazilian real, the official currency of the Federative Republic of Brazil, or Brazil. All references to “U.S. dollars,” “dollars” or “US$” are to U.S. dollars, the official currency of the United States. All references to “CHF” are to Swiss francs, the official currency of Switzerland.
The selling rate was R$4.8413 to US$1.00 as of December 31, 2023, R$5.2177 to US$1.00 as of December 31, 2022, and R$5.5805 to US$1.00 as of December 31, 2021, as reported by the Central Bank. The real/U.S. dollar exchange rate fluctuates widely, and these selling rates may not be indicative of future selling rates.
Solely for the convenience of the reader we have translated, to the extent applicable, real amounts in this annual report into U.S. dollars at the selling rate as reported by the Central Bank as of December 31, 2023, of R$4.8413 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate.
All references herein to (1) “we,” “us,” “the Company” or “our Company” are references to Braskem S.A., its consolidated subsidiaries and jointly controlled entities, and (2) “Braskem” are references solely to Braskem S.A. All references herein to “Braskem Europe” are to Braskem Europe GmbH and its consolidated subsidiaries, including Braskem America, Inc., or Braskem America.
Financial Statements
Braskem Financial Statements
We maintain our books and records in reais. Our consolidated financial statements as of December 31, 20202023, and 20192022 and for the three years ended December 31, 20202023, have been audited, as stated in the report appearing therein, and are included in this annual report. These financial statements and related notes included elsewhere in this annual report are collectively referred to as our audited consolidated financial statements herein and throughout this annual report.
We have prepared our audited consolidated financial statements included in this annual report in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IFRS.IASB.
Change to Reportable Segments
Until December 31, 2019, our five reportable petrochemical segments were: Chemicals, Polyolefins, Vinyls, USA and Europe, and Mexico. As from January 1, 2020, we made changes to our macro structure to seek synergies in allThe date of the regions in which we operate to achieve a more integrated operational performance. As a resultissue of these changes, our management revised the structure of our internal reporting with a focus on our petrochemical operational expansion and internationalization with a view to simplifying and streamlining the work and decision-making processes, which led us to adopt a new structure for petrochemical reporting segments by region. As from January 1, 2020, our three reporting segments are as follows:
Information by segment is generated from accounting records, and is reflected in the consolidated financial statements.
The eliminations statedstatements included in this annual report is different from the operating segment information, when compared withdate of issue of our consolidated financial statements in Brazil and there are differences due to non-adjusting events after the consolidated balances, are represented by transfers of inputs between segments that are measured as arm’s length sales.reporting period, under IAS 10—Events after the Reporting Period.
Market Share and Other Information
We make statements in this annual report about our market share in the petrochemical industry in Brazil and our production capacity relative to that of other petrochemical producers in Brazil, other countries in Latin America, the United States and the world. We have made these statements on the basis of information obtained from third-party sources that we believe are reliable. We have calculated our Brazilian market share with respect to specific products by dividing our domestic net sales volumes of these products by the total Brazilian domestic consumption of these products. We derive information regarding the production capacity of other companies in the Brazilian petrochemical industry and the estimated total Brazilian domestic consumption of petrochemical products principally from reports published by the Brazilian Chemical Industry Association (Associação Brasileira da Indústria Química), or ABIQUIM. We derive information regarding the production capacity of other companies in the global petrochemical industry, international market prices for petrochemicalpetrochemicals products and per capita consumption in certain geographic regions principally from reports published by IHS, Inc., or IHS.Chemical Market Analytics by OPIS, a Dow Jones Company (“CMA”). We derive information relating to Brazilian imports and exports from the ComexStat, (http://comexstat.mdic.gov.br), produced by the Brazilian Ministry of the EconomyDevelopment, Industry, Trade and Services (Ministério do Desenvolvimento, Indústria, Comércio e Serviços, the “MDIC”). We also derive information from reports published by Brazilian Association of the Alkali, Chlorine and Derivatives Industry (Associação Brasileira da EconomiaIndústria de Álcalis, Cloro e Derivados, the “Abiclor”). We also include information and statistics regarding economic growth in emerging economies obtained from the International Monetary Fund or IMF,(“IMF”), and statistics regarding gross domestic product, or GDP, growth in Brazil, the United States, Europe and Mexico obtained from independent public sources, such as the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or; the IBGE;U.S. Bureau of Economic Analysis of the U.S. Department of Commerce; the statistical office of the European Union or Eurostat;(Eurostat); and the Mexican Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía).
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We provide information regarding domestic apparent consumption of some of our products based on information available from ComexStat, produced by the MDIC and reports published by Abiclor. Domestic apparent consumption is equal to domestic production plus imports minus exports. Domestic apparent consumption for any period may differ from actual consumption because this measure does not give effect to variations of inventory levels in the petrochemical supply chain.
We have no reason to believe that theany of this information described above is inaccurate in any material respect. However, we have not independently verified the production capacity, market share, market size or similar data provided by third parties or derived from industry or general publications.
We provide information regarding domestic apparent consumption of some of our products based on information available from the Brazilian government, the Institute of Applied Economic Research (Instituto de Pesquisa Econômica Aplicada) and ABIQUIM. Domestic apparent consumption is equal to domestic production plus imports minus exports. Domestic apparent consumption for any period may differ from actual consumption because this measure does not give effect to variations of inventory levels in the petrochemical supply chain.
Certain Industry Terms
Glossary of Selected Terms in the Petrochemical Industry and in the Context of Our Business
Term | Meaning | Main uses | In the context of our business |
Aliphatics | Aliphatics are open-chain hydrocarbons that contain no stable rings connecting their atoms, in contrast to aromatics. | Used as fuels, solvents and as basic chemicals in the petrochemical industry. | We produce aliphatics, such as ethylene and propylene, in our |
Aromatics | Aromatics are cyclic hydrocarbons with stable bonds connecting their carbon atoms. | Used as fuel additives, solvents, and basic chemicals in the petrochemical industry. | We produce aromatics, such as benzene, toluene and xylenes, as co-products in our |
Benzene | An aromatic hydrocarbon. It is a natural constituent of crude oil. | Used primarily for the manufacture of chemicals with more complex structure, such as ethylbenzene and cumene. | We produce benzene as a by-product in our |
BTX products | A mixture of benzene, toluene and the three xylene isomers (ortho, meta and para), all of which are aromatic hydrocarbons. | Used as fuel additives, solvents, and basic chemicals in the petrochemical industry. | We produce benzene, toluene and xylenes as BTX by-products in our |
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Butadiene | An organic compound and a colorless gas. | Used industrially as a monomer in the production of synthetic rubber. | We produce butadiene as a by-product in our |
Butene | A colorless gas present in crude oil. | Used as a monomer in the production of polymers, as well as a petrochemical intermediate. | We use butene for the production of HDPE and LLDPE in |
Caustic soda | Caustic soda, or sodium hydroxide, is an inorganic compound. A colorless crystalline solid, caustic soda is toxic, corrosive and highly soluble in water. | Used in the manufacture of pulp and paper, textiles, drinking water, soaps and detergents, and as a drain cleaner. | We produce caustic soda in |
Chlor-alkali | Electrolysis process used in the manufacture of chlorine, hydrogen and sodium hydroxide (caustic soda). | Main industrial process for the production of caustic soda. | We operate chlor-alkali plants in Brazil. |
Chlorine | Chlorine is a chemical element (Cl), a toxic, greenish yellow gas at room temperature. It has a pungent suffocating odor. | Used in the production of paper products, antiseptics, plastics, dyes, textiles, medicines, insecticides, solvents and to treat swimming pools. | We use salt to produce chlorine in our |
Condensate | Condensate, or natural gas condensate, is a low-density mixture of hydrocarbon liquids that are present as gaseous components in the raw natural gas. | Condensate is used as an input for petrochemical plants, burned for heat and cooking, and blended into vehicle fuel. | We use condensate as a raw material in our |
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Cumene | An organic compound based on an aromatic hydrocarbon with an aliphatic substitution, cumene is a colorless liquid constituent of crude oil and refined fuels. | Used for the production of phenol and acetone. | We produce cumene as a by-product in our |
Dicyclopentadiene | Dicyclopentadiene, or DCPD, is a yellow liquid with an acrid odor. | Used in polyester resins, inks, adhesives and paint. | We produce DCPD in our |
Ethane | A type of natural gas liquid (NGL), ethane is a colorless, odorless gas in standard temperature and pressure, extracted from natural gas in liquid form. | Used as a feedstock for ethylene production. | Ethane is one of the main raw materials that we use to produce ethylene in our |
Ethanol | A simple alcohol, produced by the fermentation of sugars by yeasts or via petrochemical processes. | Used as a fuel for vehicles, as a disinfectant and as a chemical intermediate. | We use ethanol as a raw material to produce green polyethylene in our |
Ethyl tertiary-butyl ether | Ethyl tertiary-butyl ether, or ETBE, is a colorless liquid manufactured by the acid etherification of isobutylene with ethanol. | Used commonly as an additive in the production of gasoline. | We produce ETBE in our |
Ethylene | A hydrocarbon, colorless gas and the most widely used organic compound in the chemical industry. Produced mainly via steam cracking of raw materials such as naphtha and NGLs. | Used mainly for the production of polyolefins, primarily polyethylene, the most used thermoplastic resin in the world. | We produce ethylene in |
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EVA | Ethylene-vinyl acetate, or EVA, is a co-polymer of ethylene and vinyl acetate. | Used to produce rubber-like materials, with applications in adhesives, packaging, molding, and membranes for electronic devices. | We produce EVA in our |
Gasoline | A flammable liquid obtained by refining crude oil. | Used primarily as a fuel in combustion engines. | We produce gasoline as a by-product in our |
GHG emissions | Emissions of the six gases listed in the Kyoto Protocol: carbon dioxide (CO2); Methane (CH4); Nitrous Oxide (N2O); Hydrofluorocarbons (HFCs); Perfluorocarbons (PFCs); and Sulfur hexafluoride (SF6). | Used as a metric for our management and in accordance with applicable laws to measure GHG emissions. | We use the metric to assess our performance and define a strategy for reducing GHG emissions. |
Green ethylene | A hydrocarbon derived from renewable feedstock | Used mainly for the production of polyolefins, primarily polyethylene. | We produce green ethylene from ethanol made by sugarcane in our Brazil |
HDPE | High-density polyethylene, or HDPE, is a thermoplastic resin produced by the polymerization of ethylene. | Used in a variety of industries, to produce plastic bottles, toys, chemical containers, pipe systems, and other plastic products. | We produce HDPE in our polyolefins operations that are part of our Brazil Segment. |
Hexene | An aliphatic, hexane is a clear, colorless liquid with a petroleum-like odor. | Used as a solvent, paint thinner, and chemical reaction medium. Also used as a co-monomer for the production of HDPE. | We use hexene in our Mexico Segment as a raw material to produce HDPE. |
Hydrocarbon resins | Also called petroleum resins, they are produced from the polymerization of aromatic hydrocarbons. | Generally used together with other kinds of resins, in the paint, ink, adhesive and rubber industry. | We produce hydrocarbon resins in our |
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Hydrogen | A chemical element, hydrogen is a colorless, odorless gas. | Used to make ammonia in the production of fertilizers and as an intermediate chemical in the production of plastics and pharmaceuticals. | We produce hydrogen in our |
Hydrogenated solvents | Odorless, colorless solvents treated with hydrogen. | Used in the manufacture of paints. | We produce hydrogenated solvents in our |
Isoprene | A common organic compound that is a component of natural rubber. Also a by-product of oil refining. | Used to produce synthetic rubber. | We produce isoprene in our |
LDPE | Low-density polyethylene, or LDPE, is a thermoplastic resin made from the polymerization of ethylene. | Used for manufacturing containers, dispensing bottles, wash bottles, tubing, plastic bags and molded laboratory equipment. | We produce LDPE in our |
Liquefied petroleum gas (LPG) | Liquefied petroleum gas, or LPG, is a mixture of propane and butane, which are two natural gas liquids. | Used in fuel heating appliances, cooking equipment, vehicle fuel, aerosol propellant, and as a refrigerant. | We produce LPG in our |
LLDPE | Linear low-density polyethylene, or LLDPE, is a linear polymer made by the copolymerization of ethylene with longer-chain olefins. | Used in plastic bags and sheets, plastic wrap, stretch wrap, pouches, toys, covers, lids, pipes, buckets and containers, covering of cables and flexible tubing, among others. | We produce LLDPE in our |
Methanol | Methanol is the simplest alcohol, a liquid produced industrially by hydrogenation of carbon monoxide. | Used as a precursor to other commodity chemicals, including formaldehyde, acetic acid and MTBE. | We use methanol as a raw material to produce MTBE in our |
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Methyl tertiary-butyl ether (MTBE) | An intermediate hydrocarbon liquid stream derived mainly from the refining of crude oil | Used almost exclusively as a fuel additive in gasoline to raise the oxygen content. | We produce MTBE in our |
Naphtha | An intermediate hydrocarbon liquid stream derived mainly from the refining of crude oil. | Used as a solvent, fuel additive and as a raw material in the petrochemical industry. | We use naphtha as a raw material for the production of petrochemical products in our |
Natural gas | A naturally occurring hydrocarbon gas mixture, consisting primarily of methane. | Used as a source of energy for heating, cooking and electricity generation, as a fuel for vehicles and as a chemical feedstock. | We use natural gas for electricity generation in our production processes. |
Natural gas liquids (NGL) | A mixture of hydrocarbon components of natural gas, primarily ethane, propane and butane, which are separated from the raw natural gas in the form of liquids. | Used as raw materials in the petrochemical industry, as fuel and in applications for heating and cooking. | We use NGLs such as ethane and propane as raw materials at our plants in Rio de Janeiro and Mexico. |
N-hexane | A hydrocarbon, obtained by refining crude oil. | Used mixed with other solvents, to extract vegetable oils from crops, and as a cleaning agent in the printing, textile, furniture, and shoemaking industries. | We use n-hexane in |
Nonene | A hydrocarbon, nonene is a colorless liquid with an odor reminiscent of gasoline. | Used as a plasticizer to make rigid plastics flexible, and to produce chemical intermediates. | We produce nonene in our |
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Olefins | Unsaturated hydrocarbons that contain at least one carbon–carbon double bond, such as ethylene, propylene and butene. Obtained from steam cracking of raw materials. | Used as chemical intermediates for the production of other chemicals and resins. | We produce olefins in our |
Para-xylene | An aromatic hydrocarbon, para-xylene is produced mainly in refineries and during the steam cracking of naphtha. | Used as a chemical feedstock in the production of polymers, especially PET. | We produce para-xylene as a by-product in our |
PDH | Propane dehydrogenation, or PDH, is an on-purpose technology used for conversion of propane into propylene. | Industrial process for the production of propylene. | We use propylene from PDH units as a raw material in our plants in the United States. |
Piperylene | A volatile, flammable hydrocarbon in liquid form, obtained as a by-product of ethylene production. | Used as a monomer in the manufacture of plastics, adhesives and resins. | We produce piperylene in our |
Polyethylene (PE) | PE is the most common type of thermoplastic resin. It is lightweight and durable, and is obtained from the polymerization of ethylene. | PE has a large number of applications, such as: packaging, consumer goods, fibers, textiles, pipes, automotive, wiring, cables, construction, among others. | We produce PE in our |
Polyisobutylene (PIB) | PIB is a gas-permeable synthetic rubber produced by the polymerization of isobutylene with isoprene. | Used as a fuel and lubricant additive, in explosives, as the base for chewing gum, and to improve the environmental stress-cracking resistance of polyethylene. | We produce PIB in our |
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Polyolefins | Macromolecules formed by the polymerization of olefin monomer units. The most common are polypropylene (PP) and polyethylene (PE). | Used in a broad range of consumer and industrial applications. | We produce polyolefins |
Polypropylene (PP) | PP is a thermoplastic resin and the second most widely produced commodity plastic, after PE. Obtained by the polymerization of propylene, PP is generally harder and more heat resistant than PE. | Widely used in the automotive and furniture industry, in consumer goods, for packaging and labeling, and in other industrial applications. | We produce PP in our |
Polyvinyl chloride (PVC) | PVC is the | Used mainly in infrastructure and construction for pipes and profile applications, such as doors and windows, and also in plumbing, electrical cables, flooring, and as a replacement for rubber. | We produce PVC in our |
Propane | A type of natural gas liquid (NGL), propane is a gas in standard temperature and pressure, and is extracted from natural gas in liquid form. | Commonly used together with butane in heating and cooking applications, and also as a raw material in the petrochemical industry. | We use propane together with ethane as a raw materials to produce petrochemical products in our |
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Propylene | A hydrocarbon, propylene is a colorless gas, and the second most widely used olefin in the chemical industry, after ethylene. It can be obtained as a co-product of steam cracking or refining, and from on-purpose production. | Used mainly to produce polypropylene resins and a wide variety of other chemicals, such as propylene oxide and acrylonitrile. | We produce propylene in |
Refinery off gas | Gas that is produced as a by-product of the refining of crude oil. It is a mixture of methane, ethane, hydrogen and other gases. | Used as a feedstock in the petrochemical industry. | We use refinery off gas as a raw material in our |
Salt | Salt is a mineral composed primarily of sodium chloride. | Used in a wide variety of industries, mainly in the chlor-alkali process to produce caustic soda and chlorine, and as a food additive. | We use salt to produce chlorine and caustic soda in our |
Sodium hypochlorite | Sodium hypochlorite is a chlorine compound. | Used as a disinfectant or a bleaching agent and to produce other chemicals. | We produce sodium hypochlorite in our |
Tetramer | Tetramer, or propylene tetramer, is an olefin. | Used as a plasticizer, surfactant, lubricating oil additive and polymerization agent. | We produce propylene tetramer in our |
Thermoplastic resins | Raw, unshaped polymers, such as PE, PP and PVC. | Used in the plastic industry and other industries. | We produce thermoplastic resins in our |
Toluene | An aromatic hydrocarbon. | Used predominantly as an industrial feedstock and a solvent. | We produce toluene in our |
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UHMWPE | Ultra-high molecular weight polyethylene, or UHMWPE, is a special type of thermoplastic polyethylene. | Used in industrial applications that require durability, low friction, and chemical resistance, including wear strips, chain guides, and marine dock fender pads, among others. | We produce UHMWPE in our |
Vinyls | Vinyls, or vinyl polymers, are a group of polymers derived from vinyl monomers. The most common type of vinyl is PVC. | Used in the plastic industry and other industries. | We produce vinyls in our |
Certain Other Selected Terms Used in This Annual Report
As used in this annual report:
· | “first generation products” means basic petrochemical products such as ethylene and propylene produced from naphtha, natural gas, and ethane. The basic petrochemical products are used as feedstocks for the production of second generation products. We also sell certain first generation products to our customers; |
· | “second generation products” means thermoplastics resins, such as PE, PP and PVC; |
· | “third generation” means plastics converters; |
· | “third generation products” means finished plastic products produced by molding thermoplastic resins into end-use applications; |
· | “annual production capacity” means the annual nominal capacity for a particular facility, calculated based on operations during the 24 hours of the day for an entire year; |
· | “production capacity” means the annual projected capacity for a particular facility, calculated based upon operations for 24 hours each day of a year and deducting scheduled downtime for regular maintenance; |
· | “kton” means a kiloton, which is equal to 1,000 tons, or 2,204,622.62 pounds; |
· | “ton” means a metric ton, which is equal to 1,000 kilograms or 2,204.62 pounds. |
Rounding
We have made rounding adjustments to some of the amounts included in this annual report. As a result, numerical figures shown as totals in some tables may not be arithmetic aggregations of the amounts that precede them.
Currency Conversion
Solely for the convenience of the reader, we have translated certain amounts included in “Item 3. Key Information— Selected Financial and Other Information” and elsewhere in this annual report from reais into U.S. dollars using the selling rate as reported by the Brazilian Central Bank as of December 31, 2020 of R$5.1967 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate.
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CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements. Some of the matters discussed concerning our business operations and financial performance include forward-looking statements within the meaning of the U.S. Securities Act of 1933, as amended or the Securities Act,(the “Securities Act”), or the U.S. Securities Exchange Act of 1934, as amended or the Exchange Act.(the “Exchange Act”).
Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “aim,” “anticipate,” “believe,” “can,” “continue,” “estimate,” “expect,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “project,” “seek,” “should,” “target,” “would,” or the opposite of these terms or other“expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates” and similar expressions are forward-looking statements. We caution you that these statements are not guarantees of future performance. Although we believe that these forward-looking statements are based upon reasonable assumptions, these statements are subject to several risks and uncertainties and are made in light of information currently available to us. Our actual outcomes and results of operations may differ materially from what we have expressed or forecast in the forward-looking statements.
Our forward-looking statements may be influenced by numerous factors, including, without limitation, the following:
· | the cyclical and volatile nature of the global petrochemical industry and its adverse effects, which may have negative impacts on us and in the petrochemical sector; |
· | global macroeconomic conditions (including a United States recession) and their adverse effects on the margins of our products; |
· | the adverse effect of war and other armed conflicts, such as the conflict involving Russia and Ukraine and/or Israel and Hammas, on our sales and operations in Brazil and internationally, and on the Brazilian and international petrochemical industry; |
· | a deterioration in the world economy and its potential adverse effect on demand for petrochemicals and thermoplastic products; |
· | any adverse effect of China’s economy deceleration on global demand and on our Brazilian and international business; |
· | the adverse effect of global health crises |
· | the adverse effect of inflation globally on our Brazilian and international business; |
· | the adverse effect of a more contractionary monetary policy globally on our Brazilian and international business; |
· | demand for our petrochemical products, our manufacturing facilities, price of raw materials and other inputs of our production, global logistics for our products, |
· | general economic, political and business conditions in the markets or jurisdictions in which we operate or sell to, including governmental and electoral changes, and demand and supply for, and prices |
· | interest rate fluctuations, inflation and exchange rate movements of the real in relation to the U.S. dollar and other currencies; |
· |
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· | competition in the global petrochemical and biopolymer industry; |
· | our ability to successfully develop our innovation projects, in particular in renewable and recycling initiatives; |
· | prices of naphtha, ethane, ethanol, propane, propylene and other raw materials and the terms and conditions of the supply agreements related thereto; |
· | international prices of petrochemical and biopolymer products; |
· | actions taken by our |
· | inherent risks related to any change of our corporate control; |
· | our ability to implement our financing strategy and to obtain financing on satisfactory terms; |
· | our progress in integrating the operations of companies or assets that we may acquire in the future, so as to achieve the anticipated benefits of these acquisitions; |
· | changes in laws and regulations, including, among others, laws and regulations affecting tax and environmental matters and import tariffs in other markets or jurisdictions in which we operate or to which we export our products; |
· | political conditions in the countries where we operate, particularly in Brazil and Mexico; |
· | future changes in |
· |
unfavorable decisions rendered in major pending or future tax, labor, environmental and other legal proceedings; and |
· | other factors identified or discussed under “Item 3. Key Information—Risk Factors.” |
Our forward-looking statements are not a guarantee of future performance, and our actual results of operations or other developments may differ materially from the expectations expressed in theour forward-looking statements. As for forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainty of estimates, forecasts and projections. Because of these uncertainties, potential investorsreaders should not rely on these forward-looking statements.
All forward-looking statements attributed to us or a person acting on our behalf are qualified in their entirety by this cautionary statement, and you should not place undue reliance on any forward-looking statement included in this annual report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in lightas a result of new information or future developments ordevelopments.
For additional information on factors that could cause our actual results of operations to release publicly any revisions to thesediffer from expectations reflected in forward-looking statements, in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
please see “Item 3. Key Information—Risk Factors.”
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
Exchange Rates
The current laws and regulations governing the Brazilian foreign exchange system allow the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures. Since 1999, the Central Bank has allowed the U.S. dollar-real exchange rate to float freely, and, since then, the U.S. dollar-real exchange rate has fluctuated considerably.
In the past, the Central Bank has intervened occasionally to control unstable movements in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian government will continue to permit the real to float freely or will intervene in the exchange rate market through the return of a currency band system or otherwise. The real may depreciate or appreciate against the U.S. dollar substantially. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that such measures will not be taken by the Brazilian government in the future. See “—Risk Factors—Risks Relating to Brazil—Brazilian government exchange control policies could increase the cost of servicing our foreign currency-denominated debt, adversely affect our ability to make payments under our foreign currency-denominated debt obligations and impair our liquidity” and “—Risk Factors—Risks Relating to Our Equity and Debt Securities—If holders of the ADSs exchange them for class A preferred shares, they may risk temporarily losing, or being limited in, the ability to remit foreign currency abroad and certain Brazilian tax advantages.”
ITEM 3.A (Reserved)
Risk FactorsITEM 3.B CAPITALIZATION AND INDEBTEDNESS
Not applicable.
ITEM 3.C REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
ITEM 3.D RISK FACTORS
Summary of Risk Factors
Below is a summary of certain factors that make an investment in our securities speculative or risky. Importantly, this summary does not address all of the risks and uncertainties that we face. This summary is qualified in its entirety by a more complete discussion of such risks and uncertainties. In evaluating an investment in our securities, investors should carefully read the risks described below, as well as other risks and uncertainties that we face, which can be found under “—Risk Factors” in this section of this annual report. If any of the following events occur, our business, financial condition, and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. Such risks include, but are not limited to:
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Risks Relating to UsOur Business and the Petrochemical Industry
Global or regional health pandemics or epidemics, including that related to the novel coronavirus (COVID-19), may adversely affect our business, financial condition and results of operations.
Our business, financial condition and results of operations may be adversely affected by the COVID-19 pandemic, which was reported to have surfaced in China in December 2019 and spread to the rest of the world, or by other pandemics or epidemics of similar nature. In 2020, the COVID-19 pandemic significantly impacted economic activity and markets around the world, and its severity, magnitude and duration are highly uncertain, rapidly changing and difficult to predict. At this time, our management cannot fully predict with certainty the final effects that the COVID-19 pandemic will have on our business, financial condition and results of operations and whether these effects will be material to us. The spread of COVID-19 has caused us to modify certain of our business practices, and we may take further actions as required by government authorities or that we determine are in the best interests of our employees, customers, partners and suppliers. Based on operating data for the year 2020 and the publicly reported expected impact on certain industries that are customers to our products (such as automotive and construction), we believe that COVID-19 has affected our business in numerous ways, including, but not limited to, reduction of our production, sales volume and net revenue, increase of some of our costs, and decrease of our gross margin.
· | The cyclical and volatile nature of the petrochemical industry may reduce our net revenue and gross margin. |
· | Adverse conditions in the petrochemical industry may adversely affect demand for our products. |
· | Global macroeconomic factors have had, and may continue to have, adverse effects on the margins that we realize on our products. |
· | Higher costs for the acquisition of raw materials may increase the cost of the products we sell, and may reduce our gross margin and negatively affect our overall financial performance. |
· | We may be affected by instability in the global economy and by financial turmoil, including as a result of military conflicts such as the Russia and Ukraine and/or Israel and Hammas conflicts. |
· | We face competition from suppliers of polyethylene, polypropylene, PVC, and other products. |
· | We may face competition from producers of substitutes for our products as a result of evolving technology, consumer and industry trends and preferences, and regulatory changes. |
· | We depend on Petrobras to supply us with a substantial portion of our naphtha, ethane, propane, light refinery hydrocarbon, and propylene needs, and also on logistics services. |
· | We depend on ethane supplied by Pemex TRI in Mexico. |
· | Global or regional health pandemics or epidemics, may adversely affect our business, financial condition and results of operations. |
· | We rely on limited or sole-source suppliers for our raw materials, inputs, and energy, including transportation thereof. |
· | We may be materially adversely affected if there is an imbalance in global logistics, which may cause disruptions to our transport, storage, and distribution operations, negatively impacting the costs related thereto. |
· | We rely on access to third-party licensed technology and related intellectual property, and if such rights cease to be available to us on commercially reasonable terms, or at all, or if any such third party ceases to provide us with technical support under license or technical services agreements, certain of our production facilities, our operating results and financial condition could be adversely affected. |
· | Some of our shareholders may have the ability to determine the outcome of corporate actions or decisions, which could affect the holders of our class A preferred shares and the ADSs. |
· | We may be subject to attempts to acquire our control, which may lead to significant changes in management, the strategies that we are currently pursuing, or in our current corporate governance practices. |
· | We may face conflicts of interest in transactions with related parties. |
· | Under our growth strategy, we may pursue strategic acquisitions, investments, and investments in new businesses. The failure of an acquisition, investment, or investments in new businesses to produce the anticipated results, or the inability to integrate an acquired company, could adversely affect our business's financial condition and results of operations. |
· | Adjustments in tariffs on imports that compete with our products could cause us to lower our prices. |
· | Changes in U.S. and global trade policies and other factors beyond our control may adversely impact our business, financial condition, and results of operations. |
· | A failure to comply with export control or economic sanctions laws and regulations could have a material adverse impact on our results of operations, financial condition, and reputation. |
· | Our business and operations are inherently subject to environmental, health, and safety risks. As a result, our business is also subject to several stringent regulations, including environmental regulations. |
· | Unfavorable outcomes in pending or future litigation may reduce our liquidity and negatively affect our financial performance and financial condition, including potential new claims related to the geological event in Alagoas. |
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· | We could be materially affected by violations of the FCPA, the Brazilian Anti-Corruption Law, and similar anti-corruption laws. |
· | Climate change may negatively affect our business, financial condition, results of operations, and cash flow. |
· | If we are unable to comply with the restrictions and covenants in the agreements governing our indebtedness, there could be a default under the terms of these agreements, which could result in an acceleration of payment of funds that we have borrowed and could affect our ability to make principal and interest payments on our debt obligations. |
· | Unauthorized disclosure or loss of intellectual property, trade secrets, other sensitive business or personal information, or disruption in information technology by cyberattacks or other security breaches, as well as our failure to comply with data protection laws and information security requirements, can subject us to significant penalties or liability and can adversely impact our operations, reputation, and financial results. |
· | There can be no assurance that Novonor will remain our controlling shareholder. Novonor and Petrobras may enter into transactions or other arrangements that may result in us not having a controlling shareholder. If no single shareholder or group of shareholders holds more than 50% of our voting stock or exercises a controlling interest, there may be increased opportunities for alliances between shareholders and conflicts between them. |
· | Novonor and Petrobras have requested us to conduct studies for a potential migration of Braskem to the Novo Mercado listing segment of the B3, which, if completed, would lead to the conversion of all of our class A and class B preferred shares into common shares and the revision of our corporate governance practices to conform to the Novo Mercado rules. |
· | The intended corporate reorganization communicated by Novonor and Petrobras to us may not be approved or implemented, and the migration to the Novo Mercado listing segment of the B3 may not occur. |
· | We expect to lose the right of preference set forth in the current shareholders’ agreement with respect to new business opportunities in the petrochemical sector, and as result, Petrobras, which is our largest supplier of raw materials in Brazil, will be able to invest in the petrochemical sector independently from us and without first giving us a preference to do so. |
· | Changes in tax laws may result in increases in certain direct and indirect taxes, which could reduce our gross margin and negatively affect our overall financial performance. |
We have closely monitored the effects of the COVID-19 pandemic on our business and the communities located in the regions in which we operate. On March 20, 2020, we formed a crisis committeeRisks Relating to establish procedures focusing on the health and safety of our employees and the continuity of our operations. To that end, we have adopted the following measures: (i) ordered all of our employees and contractors who were most vulnerableBrazil
· | Brazilian political, economic, and business conditions, as well as the Brazilian government’s economic and other policies, may negatively affect demand for our products as well as our net revenue and overall financial performance. |
· | Fluctuations in the real/U.S. dollar exchange rate could increase inflation in Brazil, raise the cost of servicing our foreign currency-denominated debt, and negatively affect our overall financial performance. |
· | Fluctuations or changes in, or the replacement of, interest rates could impact the cost of servicing our debt or reduce our financial revenue, affecting our financial performance. |
Risks Relating to COVID-19 to work remotely until criteria for a safe return to their worksite were met; (ii) ordered all of our employees and contractors who were not directly related to the safe continuity of our operations to work remotely until criteria for a safe return to their worksite were met; (iii) reduced the number of employees and contractors working at our industrial plants and prioritized operations with fewer people, while ensuring that all rules relating to ensuring personal safety and operational reliability were followed; (iv) restricted visits by non-routine third parties and suppliers to our facilities; (v) created agendas jointly with our customers and local communities to assess whether products on our portfolio could be used to help fight the COVID-19 pandemic; and (vi) created, implemented and monitored the indicators of the Plan for Safe Return to Braskem plants and offices.Mexico
During the second quarter of 2020, the capacity utilization rates of our plants in Brazil and the United States were temporarily reduced to 70% and 90%, respectively, to adjust to the weaker demand for our products and to the destocking trend in the petrochemical and plastics production chains. The capacity utilization rates followed market demand and export opportunities that arose in other regions, especially with the restart of economies in Asia, which occurred before other regions of the world.
During the third quarter of 2020, there was strong recovery in demand for resins in Brazil and in the United States that led the capacity utilization rates of the petrochemical plants to return to normal levels. In the fourth quarter of 2020, the demand for resins remained strong and the capacity utilization rates in Brazil and the United States remained at levels similar to those of the previous quarter.
In Europe and Mexico, the capacity utilization rates returned to their normal levels in the second quarter of 2020, following the gradual recovery in demand, resulting in capacity utilization rates of 83% and 80%, respectively. With regard to the fourth quarter of 2020, despite the recovery in demand that began in the previous quarter, the capacity utilization rate in Europe was 64% due to the scheduled shutdown of our European plant.
During 2020, we adopted cash-preservation measures to ensure the financial stability and resilience of our business, which included: (i) drawing down a revolving credit facility in the amount of US$1.0 billion in April 2020, which comes due in 2023; at the end of July 2020, we Company prepaid the facility in full, in an amount corresponding to R$5.5 billion; (ii) issuing bonds in the international market by our subsidiary Braskem Netherlands Finance B.V., in July 2020, in the amount of US$600.0 million (R$3.2 billion); (iii) reducing fixed costs by 9% compared to the same period of 2019; (iv) reducing investments planned for 2020, from US$721.0 million (R$3.9 billion) to US$555.0 million (R$2.8 billion); and (v) optimizing our working capital.
We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it may impact our customers, team members, suppliers, business partners and distribution channels. We are at this time unable to fully predict the impact that the COVID-19 pandemic will have on our financial position and results of operations due to numerous uncertainties that we are unable to predict or control, such as the severity of the virus, the duration of the outbreak, governmental, business or other actions, which could include additional limitations on our operations or mandates to provide products or services, impacts on our supply chains, the effect on customer demand, plant closures or changes to our operations. We cannot predict the impact that the COVID-19 pandemic will have on our customers, suppliers and other business partners, and any material effect on these parties could also adversely impact us. The effects on the health of our workforce, and our ability to meet staffing needs in our plants, distribution facilities, sale operations and other critical functions cannot be predicted. Further, the impacts of the expected worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer and corporate spending as well as other unanticipated consequences remain unknown. The pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which may reduce our ability to access capital or our customers’ ability to pay us for past or future purchases, which could negatively affect our liquidity.
While we are actively managing our response to potential impacts that are identified, we may not be able to respond to all impacts on a timely basis to prevent adverse effects on our business, financial condition and results of operations.
· | A renegotiation of commercial treaties or changes in foreign policy among Mexico, Canada, and the United States may negatively affect our business, financial condition, results of operations, and prospects. |
· | Political events in Mexico could affect the Mexican economic policy and our business, financial condition and results of operations. |
· | We source part of our ethane feedstock from Pemex TRI in Mexico, which we expect to be our primary main source of ethane until the Ethane Import Terminal is operational. |
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Risks Relating to Our Equity and Debt Securities
· | All of the shares issued by Braskem and owned by NSP Inv. are secured for the benefit of certain secured creditors of the Novonor Group. |
· | Holders of our class A preferred shares or the ADSs may not receive any dividends or interest on shareholders’ equity. |
· | If holders of the ADSs exchange them for class A preferred shares, they may risk temporarily losing, or being limited in, the ability to remit foreign currency abroad and certain Brazilian tax advantages. |
· | The relative volatility and liquidity of the Brazilian securities markets may adversely affect holders of our class A preferred shares and ADSs. |
· | Brazilian insolvency laws may be less favorable to holders of our shares, ADSs, and outstanding debt securities than bankruptcy and insolvency laws in other jurisdictions. |
Risk Factors
Risks Relating To Our Business And The Petrochemical Industry
The cyclical and volatile nature of the petrochemical industry may reduce our net revenue and gross margin.
The petrochemical industry, including the global markets in which we compete, is cyclical and sensitive to changes in global supply and demand. This cyclicality may reduce our net revenue, increase our costs, and decrease our gross margin, including as follows:
· | downturns in general business and global economic activity may cause demand for our products to decline; |
· | when global demand falls, we may face competitive pressures to lower our prices; |
· | increases in prices of the main raw materials we use, |
· | if we decide to expand our plants or construct new plants, we may do so based on an estimate of future demand that may never materialize or |
Historically, the international petrochemical markets have experienced alternating periods of limited supply, which have caused prices and profit margins to increase, followed by expansion of production capacity worldwide, which has resulted in oversupply and reduced prices and profit margins. Prices in the petrochemical industry follow the global petrochemical industry, and we establish the prices for the products we sell in Brazil, other countries in Latin America, the United States, Europe, and the world with reference to international market prices. Therefore, our net revenue, feedstock costs, and gross margin are increasingly linked to global industry conditions that we cannot control, and which may adversely affect our results of operations and financial position. Additionally, to the global supply and demand, changes in energy prices in the region in which we operate could impact the result of our operations.
Moreover, relevant events or changes in the cycle and in the petrochemical industry, including technological innovations, and regulatory changes including related to climate change, may materially affect the future profitability of our business and consequently reduce the recoverable value of our assets, which is reviewed by the annual impairment test, which may adversely affect the profit attributable to our shareholders.
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Adverse conditions in the petrochemical industry may adversely affect demand for our products.
Sales of our petrochemical and chemical products are tied to global production levels and demand, which can be affected by macro-economic factors such as interest rates, international oil prices, energy prices, shifts to alternative products, consumer confidence, employment trends, regulatory and legislative oversight requirements, trade agreements, regulatory developments including related to climate change, as well as regional disruptions, armed conflicts, natural disasters, epidemics, pandemics, or other global events. Therefore, our net revenue, feedstock costs, and gross margin are increasingly linked to global conditions that we cannot control, and which may adversely affect our results of operations and financial position. For example, the persistence of the COVID-19 pandemicgeopolitical conflicts, such as the war involving Russia and Ukraine and Hammas and Israel in the Gaza Strip (including economic sanctions and other regulations imposed by the United States and other international countries as a result thereof) could negatively impact supply chains worldwide and demand for our products. Theproducts and the raw materials we use. Should the conflict in Ukraine or other international locations further escalate, it is difficult to anticipate the extent to which the COVID-19 pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including the severity of the COVID-19 pandemic, actions to contain it or treat its impact, among others.
Our revenue from certain of our customers is significant, and the credit risks associated with these customers could adversely affect our results of operations.
We engage in a number of transactions where counterparty credit risk is a relevant factor, including transactions with certain of our customers and those businesses we work with to provide services, among others. These risks are dependent upon market conditions and also the real and perceived viability of the counterparty. The failure or perceived weakness of any of our counterparties has the potential to expose us to risk of loss in certain situations. Our revenue from certain of our customers is significant, and the credit risks associated with these customers could adversely affect our results of operations. Certain contracts and arrangements that we enter into with counterparties may provide us with indemnification clauses to protect us from financial loss. To the extent the credit quality of these customers deteriorates or these customers seek bankruptcy protection, our ability to collect our receivables, and ultimately our results of operations, may be adversely affected. In addition, delays in payment cycles by significant customers may adversely affect our liquidity and working capital.
In addition, we are dependent on certain of our customers and their economic or competitive weaknesses. If the viability of the business of certain of our customers deteriorates, it could have a material adverse effect on our cash flows and results of operations.
Our results may be adversely affected by increases in expected credit losses.
We have a large balance of accounts receivable and have established a reserve for the portionconsequences of such accounts receivable that we estimate will not be collected because of our customers’ non-payment.
If the viability of the business of certain of our customers deteriorates or our credit policies are ineffective in reducing our exposure to credit risk relating to such customers, additional increases in expected credit losses accounts may be necessary, which could have a material adverse effect on our cash flows and results of operations. We record expected credit losses in an amount we consider sufficient to cover estimated losses on the realization of our trade accounts receivable, taking into account our loss experience and the aging of our accounts receivable, but we cannot assure you that these amounts will be sufficient to cover eventual losses. In addition, delays in payment cycles by significant customers may adversely affect our liquidity and working capital.
As of December 31, 2020, our total trade accounts receivable, net of expected credit losses (R$173.0 million) was R$4,755.2 million.
Global macroeconomic factors have had, and may continue to have, adverseconflict, including without limitation effects on the margins that we realize onprice of oil and current or future sanctions, could increase our products.
Our results of operations may be materially affected by adverse conditions in the financial markets and depressed economic conditions generally. Economic downturns in geographic areascosts, disrupt our supplies, reduce our sales, or jurisdictions in which we sell our products may substantially reduce demand for our products and result in decreased sales volumes. Recessionary environments adverselyotherwise affect our business because demand for our products is reduced.
According to the IMF, the world’s GDP contracted by 3.5% in 2020, a decrease of 6.8 percentage points as compared to the world’s GDP growth during 2019. In 2020, Brazil’s GDP contracted by 4.1%, compared to growth of 1.1% in 2019, 1.3% in 2018 and 1.0% in 2017.
According to the IMF, the U.S. GDP contracted by 3.4% in 2020 as compared to growth of 2.3%, 2.9% and 2.3% in 2019, 2018 and 2017, respectively. In addition, according to the IMF, European GDP contracted by 7.2% in 2020 and the Mexican GDP contracted by 8.5% in 2020.
Our ability to export to other countries depends on the level of economic growth in those countries and other economic conditions, including prevailing inflation and interest rates. In addition, disruptions in the global balance between supply and demand may impair our ability to export our products in response to a decline in domestic demand for these products. Prolonged volatility in economic activity in our key export markets, such as South America, Europe and Asia, could continue to reduce demand for some of our products and lead to increased margin pressure by importers into Brazil, which would adversely affect our results of operations.
We face competition from producerssuppliers of polyethylene, polypropylene, PVC, and other products.
We face strong competition across all of our products. Our U.S. operations face competition in the United States from other U.S. producers of polypropylene and the other foreign producers of polypropylene that serve the United States. Our German operations face competition in Europe and the other export markets that it serves from European and other foreign producers of polypropylene. Our Mexico operations face competition from Mexican and U.S. producers of polyethylene producers. Competitors from South America are able to export to Brazil with reduced or no import duties. In addition, producers of almost all continents have regular or spot sales to trading companies and direct customers in Brazil for our products, including resins.
We generally set the prices for our second generation products sold in Brazil with reference to the prices charged for these products by foreign producers in international markets. We generally set the prices for our second generation products exported from Brazil based on international spot market prices. We set the prices for polypropylene sold in the United States and Europe based on regional market pricing. The price for polyethylene in Mexico is based on prices for the polymer in the U.S. Gulf Coast region.
As a result of the recently commissioned gas-based ethylene capacity and of the expected new capacity for production of resins and petrochemicals, coupled with the competitive pricing of the ethane as feedstock for petrochemicals production, we anticipate that we may experience increased competition from producers of thermoplastic resins, especially from North American, Middle East and Chinese producers, in the markets in which we sell these products.
In addition, the appreciation of the real against the U.S. dollar may increase the competitiveness of prices of imported products in reais, which may increase the competition in Brazil from other producers of second generation products. Some of our foreign competitors are substantially larger and have greater financial, manufacturing, technological, and/or marketing resources than us. Our U.S. operations face competition in the United States from other North American suppliers that serve the North American market. Our European operations face competition in Europe and the other export markets that it serves from European and other foreign suppliers of polypropylene. Our Mexico operations face competition from Mexican and U.S. producers of polyethylene. Competitors from South America may export to Brazil with reduced or no import duties, including through the Manaus Free Trade Zone (“Zona Franca de Manaus”). In addition, suppliers of almost all continents have regular or specific sales to trading companies and direct customers in Brazil for our products, including resins.
We generally follow the international markets with respect to the prices for our products sold in Brazil. The domestic price is determined by the import parity, which is based on converters’ imports into Brazil and typically represents spot market price including exchange rate fluctuations, plus import tariffs that the Brazilian government uses to implement economic policies. Adjustments of tariffs could lead to increased competition from imports, causing us to lower our domestic prices and impact the demand for our products, which would likely result in lower net revenue and could negatively affect our overall financial performance. This effect combined would have a negative impact on our gross margins and overall financial performance. We have no control over the import tax rate policy in Brazil or Mercosur (the Southern Common Market, or Mercosur in Spanish), a common market that serves as a regional integration process and was initially established by Argentina, Brazil, Paraguay, and Uruguay, and subsequently joined by Venezuela and Bolivia. Petrochemical import taxes that are currently in place have changed in the past and may change in the future, including as a result of decisions of the Brazil government or Mercosur. We generally set the prices for our products exported from Brazil based on international market prices. We set the prices for products sold in the United States and Europe based on market pricing in such regions. The price for polyethylene in Mexico is based on prices in the U.S. Gulf Coast region.
As a result of the commissioned fractioned gas-based ethylene and new polyethylene capacities and of the expected new capacities for the production of resins and petrochemicals, coupled with the competitive pricing of feedstock for petrochemicals production such as ethane, we anticipate that we may experience increased competition from producers of thermoplastic resins, especially from North American, Middle Eastern, and Chinese producers, in the markets in which we sell our products. In addition, the Chinese government has exercised, and continues to exercise, significant influence over the Chinese economy, including governmental actions to incentivize and achieve self-sufficiency production in some specific chains, such as PE and PP. Those new capacities could lead to a rebalancing of global export flows and an increase in global competition from our competitors, which are larger and have greater competitive advantages than us.
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In addition, exchange rate variations may affect the competitiveness dynamics in different regions in which we operate. For instance, the appreciation of the real against the U.S. dollar may increase the competitiveness of imported products, which may increase the competition from resins producers in Brazil. Also, (i) the appreciation of the Euro against the U.SU.S. dollar may increase the competitiveness of prices of imported products denominated in Euro and, as a consequence, increase competition from imports, and (ii) the appreciation of the Mexican peso against the U.SU.S. dollar may increase the competition in Mexico from other resins producers of second generation products.
in Mexico.
We may face competition from producers of substitutes for our products as a result of evolving technology, consumer and industry trends and preferences, and regulatory changes.
We compete in a market that relies on technological innovation and the ability to adapt to evolving consumer and global industry trends and preferences. Petrochemical products and other products produced with our petrochemical products, such as consumer plastic items, are subject to changing consumer and industry trends, demands, and preferences, as well as stringent and constantly evolving regulatory and environmental requirements. Therefore, products once favored may, over time, become disfavored by consumers or industries or no longer be perceived as the best option, which may, therefore, adversely affect our results of operations and financial position.
Plastic waste and climate change are global environmental concerns that receive growing attention from the population,society in general, national and local governments, private companies, trendsetters, and consumers worldwide. There has been a growing trend to attempt to move away from the use of plastic products, which has been backed by governmental and lawmaking initiatives.
In 2019, the European Union parliament approved regulations banning as of 2021 single-use plastic items such as plates, cutlery, straws, and cotton buds sticks from 2021 and adopting a strategy for the disposal of plastic products in a circular economy that aims to significantly increase recycling significantly and targets the plastic products most often found on beaches and in seas. The European Union is now currently revising such rules to increase recycling and recycled content targets, as well as to establish new regulations on the design and labeling of plastic products. In addition, state and local governments in other countries, for example in China and in Brazil, have also proposed or implemented bans on single-use plastic products. Regarding regulatory issues related to plastic for single use in Brazil, proposed regulations are being discussed at the federal, state, and municipal levels.
Additionally, legislative proposals on carbon border adjustment mechanisms aiming at preventing carbon leakage have been under discussion in several countries. So far, none of the proposals have yet affected chemicals and plastic resins, but this might change in the future. Recently, UNEP has started conversations to negotiate an international legally binding instrument aiming at eliminating plastics pollution. These rounds of negotiations are expected to take at least two years, but some of the proposals include reducing and even prohibiting the production of certain plastic products considered “problematic.” The expansion of regulation or the prohibition of the use and sale of plastic products use could increase the costs incurred by our customers or otherwise limit the application of these products and could lead to a decrease in demand for PE, PPresins and other products we make. Such a decrease in demand could adversely affect our business, results of operations, and financial condition.
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In responseWe have as a core part of our strategy to these developments, wegrow our biobased and recycling business. We are supporting several initiatives to foster a “circular economy”low-carbon circular economy (reusing and repurposing resources within the economy), including:including, but not limited to (i) partnerships to develop new products and applications to improve efficiency and promote recycling and reuse (circular design); (ii) investing in the development of new renewablea portfolio of innovative products to supportwith recycled and biobased contents; (iii) development of recycling technology, supporting the advancement of studies and tests, for both chemical and mechanical recycling; (iv) environmental education and consumer engagement initiatives focused on educational actions, aimed at conscious consumption and proper disposal, with a positive impact on the recovery of plastic waste; and (v) circular economy at the beginningdesign, which consists of the value chain; (iii) supportingco-creation of new packaging solutions and developing new technologies, business models and systems for recycling and improving recycling chains and recoverybusinesses focused on circular solutions. We cannot predict the outcome of materials; (iv) engaging consumers in recycling and recovery programs, especially through educational programs in connection with responsible consumerism to further knowledge on the value of plastic waste to the economy; (v) supporting and using life cycle assessment tools to select the most sustainable option, considering the economic, social and environmental impacts of plastic; (vi) supporting the measurement and communication of recycling and recovery indicators for plastic packaging materials; (vii) engaging in partnerships to understand, prevent and solve issues associated with mismanagement of plastic residues, especially debris in oceans; and (viii) supporting public policies to improve solid waste management and recycling chains, especially of plastic waste and othersuch initiatives carried out within our industry. Theresince there still are still many goals to be accomplished to reduce plastic waste and marine litter, which may lead to decreased interest in our products by our customers and consumers, and impactimpacting our results of operations and financial condition. Our continued success depends onMoreover, we may not be able to successfully implement our abilitystrategy to continuegrow our renewables and recycling business, which could adversely affect our financial condition and results of operations.
Also, new competitors could develop new technologies to differentiate ourselvesoffer less carbon-intensive products, which could result in a loss of our competitiveness and a reduction of our products, and to react to changes in these trends.revenues.
Factors that may affect consumer perception of our products or of consumer goods produced with our products may include health trends and attention to substitute products perceived as more environmentally friendly. For example, in recent years, we have witnessed a shift in consumer preference moving away from plastic straws and in favor of straws made from other materials, such as paper or other compounds. A failure to react to similar trends in the future could enable our competitors to grow or secure their market share before we have a chance to respond.
In addition, regulations may be amended or enacted in the future that would make it more difficult to appeal to our customers, end consumers, or to leveragemarketing the products that we produce. For example, failure to comply with applicable policies, which could lead to lower demand for our products, banning of plastic products without allowing the search for alternatives employing efficient solutions, including resins produced by Braskem,us, could have a material adverse effect on our business, results of operations and financial condition. Also, even if we are able to continue to distinguishpromote our products, there can be no assurance that our competitors (including producers of substitutes) will not be successful in persuading consumers of our products to switch to their products. Some of our competitors may have greater access to financial or other resources than we do, which may better position them to react and adapt to evolving trends, preferences, and regulatory changes. Any loss of interest in our products or consumer products produced with our products may have a material adverse effect on our business, results of operations, and financial condition.
Our revenue from certain of our customers may be significant, and the credit risks associated with these customers could adversely affect the results of our operations and increase expected credit losses.
We engage in several transactions where counterparty credit risk is a relevant factor, including transactions with certain of our customers and those businesses we work with to provide services, among others. These risks are dependent upon market conditions and also the real and perceived viability of the counterparty. The failure or perceived weakness of any of our counterparties has the potential to expose us to risk of loss in certain situations. Our revenue from certain of our customers may be significant, and the credit risks associated with these customers could adversely affect our results of operations. Certain contracts and arrangements that we enter into with counterparties may provide us with indemnification clauses to protect us from financial loss. In addition, delays in payment cycles by significant customers may adversely affect our liquidity and working capital.
Additionally, If the viability of the business of certain of our customers deteriorates, these customers seek bankruptcy protection, or our credit policies are ineffective in reducing our exposure to credit risk relating to such customers, our ability to collect our receivables may be adversely affected, and additional increases in expected credit losses accounts may be necessary, which could have a material adverse effect on our cash flows and results of operations. We record expected credit losses in an amount we consider sufficient to cover estimated losses on the realization of our trade accounts receivable, considering our loss experience and the average aging of our accounts receivable, but we cannot assure you that these amounts will be sufficient to cover eventual losses. In addition, delays in payment cycles by significant customers may adversely affect our liquidity and ability to obtain financing for working capital, such as sales of receivables.
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Higher raw materials costs would increase our cost of products sold and may reduce our gross margin and negatively affect our overall financial performance.
Naphtha, a crude oil derivative, is the principal raw material used by our Brazil Segment (formerly our Chemicals Unit).Segment. For the year ended December 31, 2023, Naphtha accounted directly and indirectly, for 35.1%30.2% of our consolidated cost of products soldsold. Comparatively, it represented 35.5% in 2020 and 40.7% in 2019, respectively.
2022. In addition, Ethane and propane are the principal raw materials that we use to produce our basic petrochemical products in our petrochemical complex located in Duque de Caxias, in the State of Rio de Janeiro, or the Rio de Janeiro Complex, and represent the principal production and operating cost of such Complex. EthaneIn connection with our Brazil Segment, ethane and propane accounted directlyfor 1.1% and indirectly, for 0.8% and 0.9%1.1%, respectively, of our consolidated cost of products sold in 2020during the year ended December 31, 2023. Comparatively, they accounted for 1.3% and for 0.5% and 1.0%1.4%, respectively, of our consolidated cost of products sold in 2019.2022.
Propylene is the principal raw material that we use to produce polypropylene in the United States and Europe and represents the principal production and operating cost of our USAUnited States and Europe Segment. We also purchase propylene in the Brazilian market for certain of our Brazilian polypropylene plants. Propylene accounted directlyfor 18.9% and indirectly, for 20.9% and 20.1%21.2% of our consolidated costs of products sold in 2020during the year ended December 31, 2023, and 2019,2022, respectively.
Ethane is the principal raw material that we use to produce ethylene in the Braskem Idesa’s industrial site (“Mexico ComplexComplex") and represents its principal production and operating costs. In connection with our Mexico Segment, ethane accounted for 2.4% and 2,6% of our consolidated costs of products sold during the principalyear ended December 31, 2023, and in 2022, respectively. The price of ethane is highly correlated with that of natural gas, and in 2023, due to the higher supply of ethane in the region combined with operational and logistical restrictions impacting exports, the average price of ethane (reference Mont Belvieu) decreased 48.8% from 2022, affecting the ethane price and the production and operating cost of the Mexico Complex. Ethane accounted, directly and indirectly, for 1.7% and 1.3% of our consolidated costs of products sold in 2020 and 2019, respectively.
In Brazil, we purchase the naphtha used by our chemicals operations that are part of our Brazil Segment at prices based on the Amsterdam-Rotterdam-Antwerp naphtha price, or the ARA price, and the ethane and propane at Mont Belvieubased on United States market prices.references. We purchase ethane used by our Mexico Segment at prices based on international reference prices.Mont Belvieu ethane. We purchase the propylene used in Brazil and USAUnited States plants at prices based on the U.S. Gulf (“USG”) reference price, or the USG price. We purchase the propylene used in our EuropeEuropean plants as reported by ICIS-LORinternational references based on the monthly contract price for propylene for Europe. We purchase light refinery off gashydrocarbon used in the São Paulo petrochemical complex at a price related to imported natural gas price.
The ARA price of naphtha fluctuates primarily based on changes in the U.S. dollar-based price of Brent crude oil onbut also follows the Intercontinental Exchange based in London. In 2020,markets of fuels and petrochemicals. During the ARAyear ended December 31, 2023, the average price of naphtha decreased 29.7% from16.4% when compared to 2022, reaching US$505.3643.0 per ton in 2019 to US$355 per ton in 2020, which was theas a result of the lower oil prices, due to the lower oil demand that was impacted by lower global demand.
For the COVID-19 pandemic.
In 2020,year ended December 31, 2023, the Mont Belvieu pricesaverage price of ethane averaged(Mont Belvieu market reference) was US$0.19 0.25 per gallon, or US$140.7 187.7 per ton, decreasing 12.3%a decrease of 48.8% per ton from 2019, driven by higher supply associated with the:2022.
During the year ended December 31, 2023, the average price of the USG reference propylene was US$954.4 per ton, representing a decrease of 14.8% compared to 2022, which is explained by: (i) startup of new gas fractionators and pipelines for transportation;the lower PP demand in the region; and (ii) delays in the startup of new petrochemical crackers.
In 2020, the USG price for propylene averaged US$734 per ton, 10.5% lower than 2019, mainly due to lower oil price in the international market.
The European price reference for propylene averaged US$827 per ton in 2020, or 19.3% lower than in 2019, mainlymarket, due to lower global demand.
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For the year ended December 31, 2023, the average price of propylene in Europe was US$1,176.0 per ton, representing a decrease of 19.3% compared to 2022, which is explained by (i) lower demand, influenced by macroeconomic factors and higher production costs; and (ii) the lower oil price of in the international market. market, due to lower global demand.
The price of naphtha, ethane, propane, and propylene in U.S. dollars has been, and may continue to be, volatile. In addition, fluctuations ofin the U.S. dollar in the future may effectively increase our naphtha, ethane, propane, and propylene costs in reais. Any increase in naphtha, ethane, propane, or propylene costs would reduce our gross margin and negatively affect our overall financial performance to the extent we are unable to pass on these increased costs to our customers and could result in reduced sales volumes of our products.
We do not hedge against price changes in our raw materials and, as a result, we are exposed to such fluctuations.
Currently, we do not hedge our exposure to feedstock price changes beyond transit periods when buying cargoes from foreign sources. We believe there is a natural hedge in the petrochemical industry operations,dynamic, mainly due to the historical correlation observed between naphtha, the principal feedstock of a marginal producer and with higher production costs, and its final products (PE, PP, PVC, and others). Historically, naphtha price fluctuations show a high correlation with changes in the first- and second-generation petrochemical products. Therefore, any hedge solely with respect to naphtha’s price would break this natural protection, most likely making our results more volatile. However, in light of our ongoing feedstock diversification, with ethane and propane representing a more significant portion of our variable costs, the natural hedge described above has weakened. Compared to naphtha and propylene, ethane and propane prices show a lower correlation to our final products. As a result, final consumer prices may not reflect feedstock cost fluctuations.
We depend on Petrobras to supply us with a substantial portion of our naphtha, ethane, propane, light refinery hydrocarbon and propylene needs.needs, and also on logistics services.
Petróleo Brasileiro S.A. – Petrobras, or Petrobras is the onlya relevant Brazilian supplier of naphtha for us and has historically supplied up to 70% of the naphtha consumed by our chemicals operations that are part of our Brazil Segment. In 2020, Petrobras supplied 54% of the naphtha consumed by our chemicals operations that are part of our Brazil Segment. Currently, Petrobras is also our primary supplier of ethane, propane, propylene, and light refinery off gashydrocarbon and has historically supplied the ethane, propane, and light refinery off gashydrocarbon consumed at our petrochemical complex located in the Rio de Janeiro Complex and our chemical complex located in Capuava, in the State of São Paulo, or the São Paulo Complex.Complex, respectively.
We are a party to several propylene contracts with Petrobras refineries, which have historically supplied 40% of our propylene needneeds to produce polypropylene in Brazil.Brazil at prices based on international references. As a result of the limited infrastructure in Brazil to allow the importation of propylene in large quantities and substantial costs associated with the storage and transportation of the product.product, we depend on propylene supplied by Petrobras to operate our PP plants at optimal operational levels.
One of ourWe have five propylene supply agreements with Petrobras will expire in 2021 and othersthat will expire between 2026 and 2029. As of the date of this annual report, we2029 and one contract for light refinery hydrocarbon that will expire in 2028. We cannot assure you that these agreements will be renewed and, if renewed, whether we will be able to keep the same terms and conditions currently in force, including with respect to pricing, volume, pipeline and other infrastructure access. We also have the possibility to make spot propylene purchases from Petrobras in order to seize opportunities in the PP market, in case there are positive margins.
In June 2020, we entered into new agreements with Petrobras for the supply of petrochemical naphtha to our industrial units in Bahia and Rio Grande do Sul. The agreements, with a term of five years following the expiration of the prior agreement with Petrobras, establish the supply of a minimum annual volume of 650,000 tons and, at the option of Petrobras, an additional volume of up to 2.82.85 million tons per year, at the price of 100% offormula linked to the international reference ARA. In addition, to guarantee access to the naphtha logistics system in Rio Grande do Sul, we also renewed the storage agreement with Petrobras until 2025 at REFAP located in the city of Canoas and until June 2024 for the transport and storage agreement with Petrobras Transporte S.A.at TEDUT located in the city of Osório.
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In December 2020, we concluded the renewal of our feedstock supply agreements in Brazil with Petrobras for the supply of petrochemical naphtha to our industrial unit in São Paulo and ethane and propane to our industrial unit in Rio de Janeiro. The agreements, with a term of five years following the expiration of the prior agreements, establish the supply of up to 2.0 million tons per year of petrochemical naphtha to our industrial unit in São Paulo and up to 580,000 tons of ethylene equivalent (volume of ethylene per ton of ethane and propane) per year to our industrial unit in Rio de Janeiro, with prices based on international reference pricesreference.
In December 2021, Petrobras concluded the sale of its refinery in Bahia (RLAM) to Acelen. With the conclusion of the sale, our agreement for the supply of 450,000 tons of naphtha with Petrobras to supply to our industrial unit in Bahia was transferred to Acelen, which became our supplier for the same volume.
Petrobras controls a substantial portion of the pipeline infrastructure used to transport naphtha across Brazil and is our primary supplier of naphtha, ethane, propane, propylene, and propylene.light refinery hydrocarbon. A failure to renew or extend our existing agreements for the supply of raw materials or pipeline infrastructure use or a termination of such agreements with Petrobras could lead to difficulties in accessing Petrobras’ pipeline infrastructure. The alternative would be to access pipeline infrastructure throughby negotiating with Transpetro and, if necessary, the National Petroleum Agency, or the ANP, which would grant access to the pipeline infrastructure at a cost defined by the ANP.
Therefore, our production volumes and net revenue would likely decrease, while our costs would likely increase, and adversely affect our overall financial performance in the event of the occurrence of one or more of the following:
· | significant damage to Petrobras’ supply infrastructure through which Petrobras and Braskem import naphtha, or to any of the pipelines connecting our plants to Petrobras’ facilities, whether as a result of an accident, natural disaster, fire, or otherwise; |
· | termination by Petrobras of the naphtha, ethane, propane, |
· | considering that Petrobras (and/or its subsidiaries) controls a substantial portion of the logistics infrastructure of our raw material across Brazil and our existing agreements for using its assets and their operation over certain Braskem’s assets, we could also assume that we would face difficulties to import and ensure access of raw material to our crackers in a scenario that these agreements are terminated by Petrobras (and/or its subsidiaries) and therefore with a substantial impact on the infrastructure that we currently access; or |
· | failure to renew or extend our existing agreements for the supply of raw materials or pipeline infrastructure use, considering that Petrobras is conducting a divestment plan of its assets that also includes certain refineries that supply naphtha and propylene to us and some logistic infrastructure assets. |
If the supply agreements are terminated or not renewed, our production volumes and net revenue would likely decrease, while our costs would likely increase, and adversely affect our overall financial performance.
In addition, although regulatory changes have ended Petrobras’ monopoly in the Brazilian naphtha market and have allowed us to import naphtha, any restrictions imposed on the importation of naphtha into Brazil could increase our production costs, which would reduce our gross margin and negatively affect our overall financial performance. For a discussion of additional risks related to sole-source suppliers, see “—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof.”
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We depend on propylene and ethylene supplied by third parties in the United States and Europe.
Our reliance on third partythird-party suppliers poses significant risks to our results of operations, business, and prospects. We rely upon third parties to supply our plants with propylene.propylene and ethylene. We acquire propylene and ethylene for our polypropylene plants in the United States under several long-term supply agreements and through the spot market. As of December 31, 2020,2023, we had fourteen long-term19 propylene supply agreements and two ethylene supply agreements with multipleseveral suppliers. The pricing formulas for propylene and ethylene under these supply agreements are generally based on market prices. As of the date of this annual report, weWe cannot assure you that these agreements will be renewed and, if renewed, whether we will be able to keep the same terms and conditions currently in force, including with respect to pricing, volume, pipeline, and other infrastructure access.
We acquire propylene for our polypropylene plants in Germany under long-term supply agreements that provide for the supply of 91%around 90% of the propylene requirements of these plants. We have two main supply agreements in Germany. One will expire in September 2021 and will be replaced by a newThe first has an initial five-year agreementterm effective as of October 1, 2021 withand the second has a current validity term until September 30, 2026, and thereafter will automatically be renewable for consecutive one-year terms, unless terminated by one of the parties.3 years. The other agreement expires in December 2024, and thereafter will also be automatically renewable for consecutive one-year terms, unless terminated by one of the parties. We have entered into a third contract that will expire at the end of 2022 increasing the supply of our plants to 94% of the propylene required. The pricing formulaprice quotation for propylene under these long-term supply agreements is based on market prices. As ofare related to the date of this annual report, wemonthly contract price for propylene for Europe (as reported by ICIS-LOR), varying their discounts and/or formula rational according to each supplier.
We cannot assure you that these agreements will be renewed and, if renewed, whether we will be able to keep the same terms and conditions currently in force, including with respect to pricing, volume, pipeline, and other infrastructure access.
Delays in the availability of propylene of acceptable quality propylene or our inability to obtain such acceptable propylene in the quantities we need over what has been contracted or at all may adversely affect our revenue and results of operations.
We depend on ethane supplied by Pemex TRI in Mexico.
We currently source mosta significant portion of our supply of ethane, which is the primary feedstock used in our polyethylene production process, from Pemex Transformación Industrial or (“Pemex TRI,TRI”), a state-owned Mexican entity, which is a subsidiary of Petróleos Mexicanos, or Pemex, the state-owned Mexican oil and gas company, pursuant to an ethane supply agreement or the ethane(the “ethane supply agreement,agreement”), entered into by Braskem Idesa S.A.P.I., or (“Braskem Idesa,Idesa”), which is our joint venture with Grupo Idesa, S.A. de C.V.(“Idesa”), or Idesa, with Pemex TRI under competitive commercial conditions at prices that reference: (i)reference the Mont Belvieu purity ethane price; and (ii) the Henry Hub price, which are botha U.S. dollar-based international reference prices.price. As a result, our production volumes, net revenue, and profit margins would likely decrease and materially adversely affect our overall financial performance in case one or more of the following events occur:
· | significant damage to Pemex TRI’s gas processing centers or to any of the pipelines connecting our complex to Pemex |
· | any further decrease in the amount of ethane currently being delivered by Pemex TRI to our petrochemical complex; |
· | any dispute with Pemex TRI and Pemex Exploración y Producción, or Pemex PEP, related to the ethane supply agreement, including the non-recognition or non-payment of shortfall penalties and the decrease or failure to supply the contracted volume of ethane; |
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· | any material default by us or by Pemex TRI to |
· | any |
· | delays in the availability of ethane of acceptable quality, or our inability to obtain acceptable ethane in the quantities and quality that we need, or at all, or at reasonable prices. |
Under the ethane supply agreement with Pemex, anyif Pemex TRI fails to deliver the contracted minimum daily volume rejectedduring a given quarter, it may offset this shortfall by delivering additional quantities of ethane during the two immediately subsequent quarters. If it does not do so, Pemex TRI will be required to pay Braskem Idesa must be purchaseda penalty equivalent to the average price of the ethane that was not delivered in installmentsthe period in subsequent deliveries untilquestion. On the deficit has been resolved and,other hand, if Pemex delivers to Braskem Idesa less thanfails to purchase the volumescontracted minimum daily volume, we may be able to offset this deficit by purchasing additional amounts of ethane during the two immediately subsequent quarters. If it does not do so, Braskem Idesa will be required under the ethane supply agreement, it needs to pay shortfall penaltiesa penalty to Braskem Idesa.
Regarding shortfall penalties due under the ethane supply agreement, the accumulated amount related to credit notes that Pemex should have delivered for the shortfall penalties for failing to supply ethane at the volume established in the ethane supply agreement was approximately US$119.1 million as of December 31, 2020. As of the date of this annual report, Pemex has yet to provide such credit notes or otherwise pay the shortfall penalties owed for its failure to deliver ethane and has therefore not fulfilled its contractual obligation on a timely basis.
At Pemex’s request, we are currently engaged in ongoing discussions with Pemex, Pemex TRI and Pemex PEP to try and address the issues described above relatedequivalent to the average price of ethane supply agreement. We can give no assurances as tothat was not purchased during the outcome of such discussions.period in question.
Furthermore, the ethane supply agreement could also be impacted by changes in laws and regulations, terminated or repudiatedmodified by Pemex TRI as a result of political pressure or be subject to expropriation or other adverse measures by the Mexican government or government entities. WeBraskem Idesa may also renegotiate the terms of the ethane supply agreement, voluntarily or as a result of changes in laws and regulations, or otherwise.
The provisions for early termination by Pemex TRI under the Ethane Supply Agreement include: (i) our failure by Braskem Idesa to pay that continues for more than six months after notice;notice or (ii) an emergency stoppage in operations or force majeure event due to which ourBraskem Idesa’s insurers consider the complex to be a total loss, or after which weBraskem Idesa cannot or dodoes not resume operations for 48 months.
If Pemex TRI (i) delivers less than an average of 70%75% of the 66,000 barrels of ethane per dayagreed volume over a six-month period, (ii) reaches the annual limit in respect of shortfall penalties owed by Pemex TRI to usBraskem Idesa and such limit is not waived by Pemex TRI,Braskem Idesa, or (iii) materially breaches any of its obligations related to the supply of ethane thereunder; Braskem Idesa has the right to notify Pemex TRI troughthrough a notice of breach. If such breach continues for more than six months after notice, or an extended period if the parties agree, Braskem Idesa has the right to terminate the ethane supply agreement and require Pemex TRI and Pemex PEP to repay certain outstanding debt and compensate Braskem and Idesa according to an agreed valuation formula including the repayment of certain of our debt in the form of a put option right under the ethane supply agreement.
On September 27, 2021, Braskem Idesa entered into (i) an amendment to the ethane supply agreement (the “amendment to the ethane supply agreement”) with Pemex Tri and Pemex Exploración y Producción to settle certain prior contractual outstanding issues and (ii) an agreement with Pemex, Pemex Logística and other Mexican government entities, establishing certain support measures to the project to build an ethane import terminal with the capacity to meet all of Braskem Idesa’s feedstock requirements (the “Ethane Import Terminal Agreement”).
The amendment to the ethane supply agreement changed the minimum volume commitment to 30,000 barrels per day until the earliest of (i) the operational startup of the ethane import terminal or (ii) February 2025 (which could be extended if there are delays in obtaining licenses). The amendment to the ethane supply agreement also gave Braskem Idesa the preemptive right to acquire all of the ethane that Pemex has available and has not consumed in its own production process until 2045 at international benchmark prices. The terminal project is designed to complement the ethane supply in Mexico and enables Braskem Idesa to operate at full capacity by accessing new feedstock sources.
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Braskem Idesa and its operations in Mexico, including agreements entered into with state-owned or state-controlledstate-controlled entities, are subject to political interference by the Mexican government, which may lead to the termination or repudiation of certain contractual relationships and interference on Braskem Idesa’ sIdesa’s operations that may materially and adversely affect us.
In addition, legal measures have been initiated by Braskem Idesa, pursuant to the ethane supply agreement entered into between Braskem Idesa and PEMEX based on applicable international rules, to enforce legal and contractual rights of Braskem Idesa. Such measures include a remediation period during which Braskem Idesa will seek a resolution between the parties. Any termination, cancelation or modification of the ethane supply agreement or reduction in the amount of shortfall penalties owed to us by Pemex TRI for any other reason, could have an adverse effect on our results of operations and financial condition. See “Item 4. Information on the Company—Mexico Segment—Supply Contracts of the Mexico Segment—Ethane” and “Item 5. Operating and Financial Review and Prospects—Capital Expenditures—Joint Venture—Mexico Complex.”
In the first quarter of 2021, Braskem Idesa entered into the following agreements under a strict reservation of all rights: (i) a memorandum of understanding with Pemex TRI setting out certain understandings regarding potential amendments to the ethane supply agreement and the development of an ethane import terminal, subject to further negotiation, a definitive agreement and approval by Braskem Idesa’s shareholders and creditors; and (ii) a natural gas transport service agreement with Cenagas for a term of 15 years, which is conditioned upon the execution of the definitive agreement referenced in item (i) above. Following the execution of these agreements by Braskem Idesa, it resumed receiving natural gas transportation services from Cenagas, which had unilaterally terminated gas supply to Braskem Idesa in December 2020. The existing ethane supply agreement between Braskem Idesa and Pemex TRI has not been modified and remains in full force and effect. At this time, Braskem Idesa is unable to predict the outcome of ongoing discussions with Pemex TRI, its shareholders and creditors.
Any termination, cancelation or modification of the ethane supply agreement or reduction in the amount of shortfall penalties owed to us by Pemex TRI for any other reason, could have an adverse effect on our results of operations and financial position. See “Item 4. Information on the Company—Mexico Segment—Supply Contracts of the Mexico Segment—Ethane” and “Item 5. Operating and Financial Review and Prospects—Capital Expenditures—Joint Venture—Mexico Complex.”
We depend on services and products supplied by a Mexican state-owned companycompany.
Braskem Idesa has entered into agreements with Mexican state-owned companies for the transportation of natural gas and water supply, among others. Any termination, cancelation, modification or modification offailure to renew such agreements could have an adverse effect on our business, results of operations and financial condition.
Furthermore, such agreements could also be impacted as a result of changes in laws and regulations, terminated or modified as a result of political pressure, or be subject to expropriation or other adverse measures by the Mexican government or government entities. We may also renegotiate the terms of such agreements voluntarily or as a result of changes in laws and regulations or otherwise.
In early December 2020, Braskem Idesa received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency responsible for all natural gas pipelines and transportation in Mexico, related to the unilateral termination of the service of natural gas transportation, an essential energy input for the production of PE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities. Later in January 2021, Braskem Idesa partially resumed its operations based on an experimental business model to produce PE. Braskem Idesa has taken legal measures pursuant to the ethane supply agreement entered into with Pemex. Braskem Netherlands B.V, which is Braskem Idesa’s direct shareholder, has also taken legal measures under applicable international investment protection standards to protect the interests of Braskem Idesa and its parent company with regard to their investment in Mexico. Such measures include a negotiation period to attempt to resolve the dispute between the parties.
In the first quarter of 2021, Braskem Idesa entered into the following agreements under a strict reservation of all rights: (i) a memorandum of understanding with Pemex TRI setting out certain understandings regarding potential amendments to the ethane supply agreement and the development of an ethane import terminal, subject to further negotiation, a definitive agreement and approval by Braskem Idesa’s shareholders and creditors; and (ii) a natural gas transport service agreement with Cenagas for a term of 15 years, which is conditioned upon the execution of the definitive agreement referenced in item (i) above. Following the execution of these agreements by Braskem Idesa, it resumed receiving natural gas transportation services from Cenagas, which had unilaterally terminated gas supply to Braskem Idesa in December 2020. The existing ethane supply agreement between Braskem Idesa and Pemex TRI has not been modified and remains in full force and effect. At this time, Braskem Idesa is unable to predict the outcome of ongoing discussions with Pemex TRI, its shareholders and creditors.
Failure by Cenagas to renew the agreement for transportation of natural gas or any other agreement with a Mexican state-owned company could have a material adverse effect on our business, results of operations and financial condition. For a discussion of additional risks related to sole-source suppliers, see “—We depend on ethane supplied by Pemex TRI in Mexico,” “—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof” and “We depend on ethane supplied by Pemex TRI in Mexico.”
For a discussion of additional risks related to sole-source suppliers, see “—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof.”
We have no control over the corporate actions or decisions of Pemex TRI and Cenagas, which are, respectively, our main supplier of ethane and provider of natural gas transportation services and Mexican state-owned enterprises subject to political interference and related risks.
The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Accordingly, Mexican governmental actions concerning the Mexican economy and state-owned enterprises could have a significant impact on Mexican private sector entities in general and on our operations in particular. We cannot predict the impact that political conditions will have on the Mexican economy. We can give no assurances that changes in Mexican federal government policies will not adversely affect our business, financial condition, results of operations and prospects. We currently do not have and do not intend to obtain political risk insurance, but the investment is subject to the protections provided under the bilateral investment treaty between the Netherlands and Mexico. For additional information, see “—Political events in Mexico could affect the Mexican economic policy and our business, financial condition and results of operations.”
Our main supplier of ethane, Pemex TRI, is a subsidiary of Pemex, a state-owned entity of the Mexican government, and, therefore, the Mexican government controls Pemex, as well as its annual budget, which is approved by the Mexican Congress. The Mexican government may cut spending in the future. These cuts could adversely affect Pemex’s annual budget and its ability to provide us with our contracted supply of ethane. In addition, Cenagas, which is a Mexican state-owned agency, has the monopoly of the transportation of natural gas in the region in which Braskem Idesa operates. As a result, the failure by Cenagas to renew the agreement for transportation of natural gas to our Ethylene XXI Project could have a material adverse effect on our business, results of operations and financial condition.
Pemex’s production, over which we have no control, nor over any other corporate action or decision, have decreased over the last years according to public disclosure by Pemex. As a result, it has led to a significant decrease in oil production and associated production of natural gas, which, in turn, is the feedstock used by Pemex in the production of ethane. Any further decrease in the amount of ethane currently being delivered by Pemex TRI to our petrochemical facility under the ethane supply agreement or any reduction in, or outright failure by, Pemex TRI to pay us the shortfall penalties owed under the ethane supply agreement, could have an adverse effect on our financial condition and results of operation.
We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, U.S. domestic bribery laws, and other anti-corruption and anti-money laundering laws in the countries in which we conduct activities, including Mexico. We may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities in Mexico, such as Pemex TRI. We have been improving our compliance processes and controls to prevent the occurrence of any wrongdoing in such interactions. However, we could be held liable for the breach of such processes and controls and actions by our employees, representatives, contractors, partners and agents, even if we do not explicitly authorize such activities. Detecting, investigating, and resolving actual or alleged violations of anti-corruption laws can require a significant diversion of time, resources, and attention from senior management. In addition, noncompliance with anti-corruption, anti-bribery, or anti-money laundering laws could subject us to whistleblower complaints, investigations, prosecution, enforcement actions, sanctions, settlements, fines, damages, other civil or criminal penalties or injunctions, suspension or prohibition from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any civil or criminal proceeding that may be filed against us, our business, financial condition and results of operations could be harmed.
In light of the allegations of undue payments related to the Ethylene XXI project, which were originally published in the media in Mexico and were included in the testimony by the former CEO of Pemex to the Office of the Attorney General of Mexico, we, together with Braskem Idesa, in compliance with the standards established by Braskem’s Global Compliance System Policy and Braskem Idesa’s governance guidelines, approved the engagement of a U.S. law firm with proven experience in similar cases to conduct an independent internal investigation of the allegations. The investigation is ongoing, and we are unable to estimate a date for its conclusion or its outcome. If the investigation concludes that there is evidence supporting any of the allegations, such findings could materially and adversely affect our business, reputation, financial condition, controls, and results of operations, as well as the liquidity and price of the securities issued by us.
We rely on limited or sole-source suppliers for our raw materials, inputs, and energy, including transportation thereof.
We rely on Petrobras for most or all of our supply of ethane, propane, light refinery off gashydrocarbon, and propylene in Brazil, a few companies for a large portion of our supply of propylene in our USAUnited States and Europe Segment, and Pemex TRI for most of our supply of ethane in Mexico. In Mexico, Cenagas (Centro Nacional de Control del Gas Natural), which is a state-owned agency, is the sole provider of gas transportation services. We rely on Cenagas for the transportation of natural gas to our Ethylene XXI Project. Mexico Complex. For ethane supply to Mexico, we rely on several international suppliers for most of the purchases for the cracker located in Mexico.
For naphtha supply to Brazil, we rely on several international suppliers for most of the purchases tofor the crackers in the states of Bahia and Rio Grande do Sul, and we rely on Petrobras for the mostall of the supply only tofor the cracker located in the state of São Paulo, and we rely on Petrobras for thea major part of our supply of ethane and propane in the state of Rio de Janeiro. Also, we are subject to substantial risks because of our reliance on these and other limited or sole-source suppliers of raw materials, additives, catalyzers, other inputs, energy, and energy,other utilities, including the following risks:
· | if a supplier does not provide naphtha, ethane, propane, light refinery |
· | if our relationship with a key supplier changes or is adversely affected, for example, due to competitive pressures (or conflicting interests), we may be unable to obtain naphtha, ethane, propane or propylene, natural gas, or other inputs, as the case may be, on satisfactory financial terms; |
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· | if an interruption of supply of naphtha, ethane, propane, light refinery |
· | some of our key suppliers are small companies with limited financial and other resources, and as a result, they may be more likely to experience financial and operational difficulties than larger, well-established companies, which increases the risk that they will be unable to deliver products as needed; |
· | some of our suppliers are state-owned enterprises subject to political interference, including in |
· | if a key supplier is acquired or |
Delays in the availability of naphtha, ethane, propane, light refinery off gas,hydrocarbon, propylene, sea salt, other inputs (including natural gas), or energy of acceptable quality, or our inability to obtain such acceptable naphtha, ethane, propane, light refinery hydrocarbon, propylene, sea salt, other inputs (including natural gas) or energy in the quantities we need or at all, may adversely affect our revenue and results of operations.
Risks Relating To Global Macroeconomics Factors
Global macroeconomic factors have had, and may continue to have, adverse effects on the margins that we realize on our products.
Our results of operations may be materially affected by adverse conditions in the financial markets and generally depressed economic conditions. Economic downturns in geographic areas or jurisdictions in which we sell our products may substantially reduce demand for our products and result in decreased sales volumes. Recessionary environments, including global inflation, adversely affect our business because demand for our products is reduced and our costs increase.
In addition, raw materials and other costs in our business are subject to wide fluctuations depending on market conditions and government policies. These costs are influenced by several factors over which we have little or no control, including, but not limited to, international and national economic conditions, including higher natural gas costs in Europe, regulations, government policies (including those applicable to the pricing policies of Petrobras, which is one of our main suppliers in Brazil), tariff adjustments and global effects of supply and demand, particularly on commodity prices. We cannot assure that the prices of our products may be increased in a timely manner or be sufficient to keep pace with or offset increases in inflation, operation costs and expenses, amortization of investments, and taxes. As a result, we might not be able to pass on the increased costs to our customers, which could decrease our profit margin and result in a material adverse effect on our business, financial condition, and results of operations.
Our ability to export to other countries depends on the level of economic growth in those countries and other economic conditions, including prevailing inflation and interest rates. In addition, disruptions in the global balance between supply and demand and logistics constraints may impair our ability to export our products. Prolonged volatility in economic activity in our key export markets, including the United States, South America, Europe, and Asia, could continue to reduce demand for some of our products, which would adversely affect our results of operations.
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We may be affected by instability in the global economy and by financial turmoil, including as a result of military conflict.
Instability in the global markets and in the geopolitical environment in many parts of the world, as well as other disruptions, may continue to put pressure on global economic conditions. Concerns over the recession, inflation, higher interest rates, geopolitical issues, the global financial markets, unstable global credit markets and financial conditions, and the COVID-19 pandemic have led to periods of significant economic instability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth in the future, and increased unemployment rates. In addition, we face several risks associated with international business and are subject to global events beyond our control, including war, public health crises, such as pandemics and epidemics, trade disputes, economic sanctions, trade wars and their collateral impacts, and other international events. Any of these changes could have a material adverse effect on our reputation, business, financial condition, or results of operations.
There may be changes to our business if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest; and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease.
Additionally, the military conflict between Russia and Ukraine has led to sanctions and other penalties being imposed, proposed and threatened by the United States, European Union and other countries on Russia. Such sanctions are rapidly evolving, and the United States and other countries could impose wider sanctions and take other actions should the conflict further escalate. Russian military actions counter measures, or retaliatory actions (including cyberattacks and espionage) could adversely affect the global economy and financial markets and lead to further instability and lack of liquidity in capital markets, potentially leading, for example, to difficulties in obtaining additional funds and sources of financing for our operations. Already the conflict has caused market volatility, a sharp increase in certain commodity prices, such as oil and natural gas, and an increasing number and frequency of cybersecurity threats. Actual and threatened responses to such military action, as well as a rapid peaceful resolution to the conflict, may also impact the markets for certain Russian products, such as oil, natural gas, and other commodities, and may likely have collateral impacts and disruptions on such sectors globally. It is not possible to predict the length and impact of the ongoing military conflict or its broader consequences, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, currency exchange rates and financial markets. Any such event may increase our costs, decrease our revenues or limit our production and sales volume and adversely affect our business, results of operations and financial condition.
Geopolitical and economic risks have also increased over the past few years as a result of trade tensions between the United States and China, Brexit, the conflicts involving Russia and Ukraine and/or Israel and Hammas, and the rise of populism. Growing tensions may lead, among others, to a deglobalization of the world economy, an increase in protectionism or barriers to immigration, a general reduction of international trade in goods and services and a reduction in the integration of financial markets, any of which could materially and adversely affect our business, financial condition and results of operations.
Risks Relating To Our Operations
Our polyolefins and vinyls units in Brazil Segment dependsdepend on our chemicals operations to supply them with their ethylene and propylene requirements. In addition, our Brazil Segment depends on certain providers of utilities including environmental services for the treatment of effluents, industrial waste and water supply for industrial use.
Our chemicals operationscrackers are the only supplier of ethylene to our vinyls operations, the only supplier of ethylene to the polyethylene plants and the principal supplier of propylene to the polypropylene plants of our polyolefins operations. Becauseoperations in Brazil. Additionally, as the cost of storing and transporting ethylene and its derivatives, including butadiene and other chemical products, is substantialsignificant and there is inadequateno adequate infrastructure in Brazil to permitthat allows for the importingstorage of large quantitiesvolumes, a relevant reduction in sales of ethylenethese products may impact the operating rate of our chemical operations, impacting product availability for the polyolefins and propylene, our polyolefinsvinyls operations in BrazilBrazil.
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Our polyolefins and our vinyls operations in Brazil are highly dependent on the supply of these products by our chemicals operations. Consequently, our production volumes of, and net revenue from, polyolefins and vinyls operations would decrease, and our overall financial performance would be negatively affected in the event of the following:
· | any significant damage to the facilities of our chemicals operations through which ethylene or propylene is produced, or to the pipeline or other facilities that connect our polyolefins plants or vinyls plants to our chemicals operations, whether as a consequence of an accident, natural disaster, fire or otherwise; |
· | any significant reduction in the supply of feedstocks, including naphtha to our chemicals operations, as naphtha is the principal raw material used by our chemicals operations in the production of ethylene and propylene; |
· | any significant reduction in the supply of ethane or propane to our basic petrochemical plant in Rio de Janeiro, as ethane and propane are the principal raw materials used in the production of ethylene and |
· | any significant reduction in the supply of light refinery hydrocarbon to our basic petrochemical plant in São Paulo, as light refinery hydrocarbon is one of the most important raw materials used in the production of ethylene and propylene by our petrochemical complex located in the São Paulo Complex. |
Also, our production volumes of, and net revenue from, our chemicals operations products could decrease, and our overall financial performance would be negatively affected in the event of any significant damage to the facilities of our vinyls and polyolefins operations that are part of ourin Brazil Segment through which ethylene and propylene is consumed.
Our Brazil Segment depends on Cetrel S.A. (“Cetrel”), Água de Camaçari (“DAC”), both of which are our subsidiaries, Distribuidora de Água Triunfo (“DAT”), Companhia Riograndense de Saneamento (“CORSAN”), Aquapolo Ambiental S.A (“Aquapolo”), Refinaria de Paulínia (“REPLAN”) and, Refinaria Duque de Caixas (“REDUC”) and Veolia Brasil for the services such as:as (i) treatment of effluents and industrial waste; (ii) supply of reuse water; (iii) supply of demineralized, clarified and potable water; and (iv) management of water reservoirs.reservoirs; and (v) supply of steam. An interruption in the operations of Cetrel, DAC, DAT, CORSAN, Aquapolo, REPLAN, or REDUC may result in the shutdown of all of our plants at the Northeastern Complex, Southern Complex, São Paulo Complex, Paulinia plants, and Rio de Janeiro Complex, in addition to increased environmental risks, which could lead to the shutdown of our entire petrochemical complex.risks. If such a shutdown were to happen, our production volumes and net revenue from sales from our plants at the Camaçari Complex and the Rio Grande do Sul Complexreferred to above would decrease, and our financial performance and results of operations would be adversely affected.
We may be materially adversely affected if there is an imbalance in global logistics, which may cause disruptions to our transportation,transport, storage and distribution operations, are interrupted or are more costly than anticipated.negatively impacting the costs related thereto.
Our operations are dependent upon uninterrupted transportation, storage, and distribution of our products.products and raw materials. Transportation, storage, or distribution of our products and raw materials could be partially or completely, temporarily, or permanently shut down as the result of any number of circumstances that are not within our control, such as:
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· | catastrophic events; |
· | strikes or other labor difficulties; |
· | disruption in the global supply chain, including container shortages; |
· | war and other armed conflicts, such as the conflict involving Russia and Ukraine and/or Israel and Hammas; and |
· | other disruptions in means of transportation. |
For example, in May 2018, Brazil experienced a national truck drivers’ strike that severely impacted the logistics operations of many companies throughout Brazil, including the delivery of our raw materials, our products, and other goods. In response to such strike, we gradually reduced the utilization rate of our petrochemical complexes in Brazil, which operated at 50% of their nominal capacity in May 2018. We cannot assure, however, that we will be able to act in the same way in potential new strikes that may arise in the future. Following the strike, Brazil introduced a national freight cost schedule that set forth minimum prices for freight services provided by truck drivers and freight companies countrywide, which may have a lasting impact on freight prices in Brazil and lead to sustained increased transportation costs in the future in connection with our operations.
In addition, due to shipowners’ and market uncertainties with respect to the future propulsion technology adopted by the world’s merchant fleets, we are currently witnessing a lack of investment in the renewal of the world’s merchant fleet. This might lead to a shortage of ships available to us, which could drive our logistic costs higher.
Any significant interruption at our distribution facilities, an inability to transport our products to or from these facilities, or to or from our domestic or foreign customers or suppliers, or an increase in transportation costs, for any reason, would materially adversely affect us.
In addition, as from January 2020, the International Maritime Organization (IMO) set a limit for sulphur in fuel oil used onboard ships of 0.50% m/m (mass by mass), aimed at significantly reducing the amount of sulphur oxide emissions by ships, down from the previous 3.50% m/m (mass by mass), which could increase our shipping costs and, as a consequence, decrease our gross margin.
We rely on access to third-party licensed technology and related intellectual property, particularly in the context of the manufacturing process of certain of our products. If the licensed third-party technology and intellectual property that we useif such rights cease to be available to us on commercially reasonable terms, or at all, or if any such third party ceases to provide us with technical support under license or technical services agreements, that we have entered into with them to allow us to satisfactorily operate, certain of our production facilities, our operating results and financial condition could be adversely affected.
We use technology and intellectual property licensed from third parties in the regular operation of our business, particularly in the operation of certain machinery and equipment required for the production ofto produce certain of our products such as our firstfirst- and second generationsecond-generation products, and we may continue to rely on access to third-party technology and intellectual property in the future.
There can be no assurance that we will be able to continue to obtain or renew any such necessary technology and licenses on acceptable terms, or at all. Failure to obtain or renew the right to use third-party technology or intellectual property on commercially reasonable terms, or to maintain access to satisfactory technical support, could ultimately lead to stoppages in our production processes and preclude us from selling certain products, which could have a material adverse impact on our operating results and financing condition.
Additionally, our inability to maintain existing access to third-party technology, licenses, and technical support on commercially reasonable terms, or at all, or to obtain additional technology, licenses or technical support necessary to manufacture current products or develop new ones, could require us to obtain substitute technology or licenses at a greater cost or of lower quality or performance standards, or require us to carry out unscheduled interruptions of our production facilities. Any of these circumstances could harm our business, financial condition and results of operations. There can be no assurance that we will be able to replace any such third-partythird-party technology, intellectual property or technical support service for any adequate substitute technology, intellectual property, or technical support in a timely manner to avoid any unscheduled interruption of our production processes or facilities, or in a cost-efficient manner. Any of these circumstances could harm our business, financial condition, and results of operations.
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Capital projects can take many years to complete, and market conditions could deteriorate significantly between the project approval date and the project startup date, negatively impacting project returns. If we are unable to complete capital projects and investments at their expected cost and in a timely manner, or if the market conditions assumed as a basis for our project economics deteriorate, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Delays or cost increases related to capital spendinginvestment programs involving engineering, procurement and construction of facilities could materially adversely affect our ability to achieve forecasted internal rates of return and results of operations.operations and financial position. Delays in makingdue to required changes or upgrades to our facilities could subject us to fines or penalties as well as affect our ability to contract with our customers and supply certain products we produce.
Such delays or cost increases may arise as a result of unpredictable factors, many of which are beyond our control, including, but not limited to:
· | denial of or delay in receiving requisite regulatory approvals or permits; |
· | unplanned increases in the cost of construction materials or labor; |
· | disruptions in transportation of |
· | change in the market and regulatory conditions assumed as a basis for our project economics; |
· | adverse weather conditions, natural disasters, epidemics, pandemics or other events (such as equipment malfunctions, explosions, fires or spills) affecting our facilities, or those of vendors or |
suppliers, shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages; and |
· | non-performance by, or disputes with, vendors, suppliers (including those responsible for transportation of supplies), contractors or subcontractors. Any one or more of these factors could have a significant impact on our ongoing |
For example, in September 2021, Braskem Idesa announced a project to construct an ethane import terminal with the capacity of 80,000 barrels per day of ethane, providing conditions for Braskem Idesa to import all its feedstock needs. If we are unable to complete that project at their expected cost and in a timely manner, or if the market conditions or financing assumed as a basis for our project economics deteriorate, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
If we are unable to make up the delays associated with such factors or to recover the related costs, or if market conditions change, it could materially and adversely affect our business, financial condition, results of operations and cash flows.
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Our insurance coverage may be ineffective, either due to the lack of coverage for any claim, or due to insufficient coverage limits in the event of damage.
We maintain property, business interruption, general liability, environmental, construction, marine, credit, and other types of insurance that we believe are appropriate for our business and operations as well as in line with industry practices. However, we are not fully insured against all potential hazards and incidents inherent in our business, including losses resulting from natural disasters, wars or terrorist acts in Brazil.business. Changes in insurance market conditions have caused, and may in the future cause, premiums, and deductibles for certain insurance policies to increase substantially and, in some instances, for certain insurance to become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, we might not be able to finance the amount of the uninsured liability on terms acceptable to us or at all and might be obligated to divert a significant portion of our cash flow from normal business operations.
Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit the ability to react to changes Also, in the economy or our industry and prevent us from meeting our obligations under our financing agreements.
Our levelevent of indebtedness and our leverage, together with changes to our ratings and those of our debt securities by the main credit rating agencies, could have certain material consequences to us, including the following:
As a result of the factors listed above, our financial condition and results of operations may be adversely affected.
Any downgrade in the ratings of Brazil, our Company or our debt securities would likely result in increased interest and other financial expenses related to our borrowings and debt securities and could reduce our liquidity.
Currently, Standard & Poor’s Ratings Group, a division of McGraw Hill, Inc., or Standard & Poor’s, and Fitch Ratings Ltd., or Fitch, maintain our ratings on a global and national basis. Moody’s Investors Service, Inc., or Moody’s, only maintains our ratings on a global basis. On a global basis, we maintain ratings at: (i) Standard & Poor’s of BB+ with a stable outlook and (ii) Fitch Ratings of BB+ with a stable outlook. At Moody’s, our rating is Ba1 with a negative outlook. Our ratings are higher than the Brazilian sovereign rating by all these three main rating agencies. On a national basis, we maintain investment grade rating at: (i) Standard & Poor’s of brAAA with a stable outlook and (ii) Fitch Ratings of AAA with a stable outlook.
Our credit rating is sensitive to any change in the Brazilian sovereign credit rating. The credit rating of the Brazilian federal government was downgraded in January 2018 and has not been investment grade by all the main rating agencies for several years. Any decision by these agencies to downgrade the ratings of the Brazilian federal government, our ratings or those of our debt securities in the future would likely result in increased interest and other financial expenses relating to our borrowings and debt securities and the inclusion of financial covenants in the instruments governing new indebtedness, and could significantly reduce our ability to obtain such financing, on satisfactory terms or in amounts required by us, and our liquidity and would require us to post cash collateral pursuant to our obligations or to contract letters of credit to backstop guarantees provided by us in the context of the Mexican Complex.
In 2020, the COVID-19 pandemic significantly impacted economic activity and markets around the world, and its severity, magnitude and duration are highly uncertain, rapidly changing and difficult to predict. Actual and potential impacts of the COVID-19 pandemic on the global economy, the economies of certain countries and certain companies has led ratings agencies to review and downgrade the credit ratings of sovereigns and issuers of securities around the world. In May 2020, Fitch Ratings revised the outlook of the Brazilian sovereign credit rating to negative from stable. In November 2020, Fitch Rating affirmed the negative outlook. A potential further downgrade of the ratings of Brazil, our ratings, or those of our debt securities could result in increased interest and other financial expenses related to our borrowings and debt securities and could reduce our liquidity and ability to obtain additional financing under desired terms and conditions.
We may be subject to attempts to acquire our control, which may lead to significant changes in management, the strategies thatan accident, we are currently pursuing, or in our current corporate governance practices.
We mayrequired to undergo a regulatory assessment through which the insurance coverage needs to be subjectconfirmed. If coverage is not confirmed, there will be no indemnity to attempts to acquire our control. In the event there is a change in our corporate control, there might be significant changes in management, the strategies that we are currently pursuing, or in our current corporate governance practices.
For example, in June 2018, we were informed by Novonor S.A., or Novonor, formerly called Odebrecht S.A., about discussions that were being held between Novonor and LyondellBasell Industries N.V., or, LyondellBasell, regarding a potential transaction involving the transfer to LyondellBasell of all of Novonor’s interest in us. In June 2019, we were informed by Novonor that such discussions for a change-of-control transaction with LyondellBasell had been terminated. We cannot assure you that such negotiations will not be resumed, or that Novonor will not initiate discussions with other parties regarding a change-of-control transaction in the future.
On August 7, 2020, we received a correspondence from our controlling shareholder, Novonor S.A., then named Odebrecht S.A., informing that, in order to fulfill certain commitments assumed with bankruptcy and non-bankruptcy creditors, it had taken preliminary measures to structure a process for the private sale of up to its total equity ownership in the Company, which, if implemented, will result in the change of our corporate control, adopting the necessary measures to organize such process, with the support of legal and financial advisors.paid.
In addition, although we are not currently a party to any pending bankruptcy or other judicial restructuring proceedings in Brazil or elsewhere, we are exposed to certain risksadaptation actions, including those related to the Novonor Judicial Restructuring Proceedings (as defined below), including risks relatedclimate change, could be considered insufficient by insurance companies, and may make it difficult for us to the change ofobtain insurance for our corporate control resulting from decisions takenbusiness. Also, premiums and deductibles for certain insurance policies could increase substantially and, in some instances, certain insurance coverage could become unavailable or agreed under such proceedings and the consequences derived therefrom. We have no control over the Novonor Judicial Restructuring Proceedings, and no assurance can be given on the outcome of the Novonor Judicial Restructuring Proceedings or their effect on us.available only in reduced coverage amounts.
Some ofUnder our shareholders may have the ability to determine the outcome of corporate actions or decisions, which could affect the holders of our class A preferred shares and the ADSs.
Novonor, directly or through its wholly-owned subsidiary OSP Investimentos S.A., or OSP Inv., owns 38.32 % of our total share capital, including 50.11% of our voting share capital, and Petrobras holds 36.14% of our total share capital, including 47.03% of our voting share capital. Nominees of Novonor constitute a majority of the members of our board of directors. Under a shareholders’ agreement to which Novonor and Petrobras are parties, whichgrowth strategy, we refer to as the Braskem S.A. Shareholders’ Agreement, we may only undertake certain actions after Novonor and Petrobras have reached a consensus with respect to those actions. However, Novonor will have the sole power to approve our business plan, through the board of directors, as described under “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Agreements.” As a result, Novonor has the ability to determine the outcome of most corporate actions or decisions requiring the approval of our shareholders or our board of directors—in certain instances, with the consent of Petrobras—which could affect the holders of our class A preferred shares and of our American Depositary Shares, or ADSs.
Furthermore, on June 17, 2019, Novonor, together with certain of its controlling and controlled entities, filed a petition for judicial restructuring before the First Judicial Bankruptcy Court of the State of São Paulo, Brazil, seeking a voluntary judicial restructuring and emergency relief staying certain foreclosure actions by their creditors (the “Novonor Judicial Restructuring Proceedings”). The Novonor Judicial Restructuring Proceedings does not include us.
Although we are not currently a party to any pending bankruptcy or other judicial restructuring proceedings in Brazil or elsewhere, we are exposed to certain risks related to the Novonor Judicial Restructuring Proceedings, such as risks related to the change of our corporate control resulting from decisions taken and/or agreed under such proceedings and the consequences derived thereto, including but not limited to significant changes in our management and our strategy that may be undertaken by any new controlling shareholders that may arise from the conclusion of these proceedings. We have no control over the Novonor Judicial Restructuring Proceedings, and no assurance can be given on the outcome of the Novonor Judicial Restructuring Proceedings or their effect on us.
We may face conflicts of interest in transactions with related parties.
We maintain trade accounts receivable and current and long-term payables with some of our affiliates and other related parties, including Petrobras, which is our Brazilian supplier of naphtha and other raw materials such as propylene, ethane, propane and refinery off gas. These trade accounts receivable and trade accounts payable balances result mainly from purchases and sales of goods, which are at prices and on terms equivalent to the average terms and prices of transactions that we enter into with third parties. These and other transactions between us and our affiliates could result in conflicting interests between us and our shareholders.
We may pursue strategic acquisitions, or investments.investments and investments in new businesses. The failure of an acquisition, investment or investmentinvestments in new businesses to produce the anticipated results, or the inability to integrate an acquired company, fully, could adversely affect our business.business financial condition and results of operations.
We have a adopted a growth strategy that is based on organic and inorganic growth, including investments and capital expenditures focused on existing and traditional business, biobased and recycling businesses, in order to mitigate impacts of climate change, reinforce green initiatives and strengthening the circular economy. Pursuant to such growth strategy, we may from time to time acquire or invest in complementary companies or businesses. businesses with a similar or equal focus. Such acquisitions or investments may include businesses that operate in modern, innovative, and ground-breaking fields, all of which may have an increased level of uncertainty and risk, as they often develop or adopt new technologies and initiatives that may not yet have been proven to work as expected and may not have been sufficiently settled or consolidated. Certain of these businesses may also involve greenfield or brownfield operations, which may take longer periods of time to mature, if they ever mature, and also pose increased uncertainties, challenges and risks.
For example, in 2022, we acquired a minority equity interest in Nexus Circular LLC, a company that operates in advanced recycling that converts landfill-bound plastics into circular feedstocks used in the production of sustainable virgin plastic. We also established a joint venture, based in the Netherlands, with Terra Circular, whose majority partner has developed and implemented innovative technology with the capacity to convert low-quality plastic waste into consumer products.
In February 2023, we completed the process of acquiring shares and subscribing to new shares issued by Wise Plásticos S.A. (“Wise”), a Brazilian company in the mechanical recycling sector, holding a 61.1% equity interest in Wise.
The success of anany acquisition or investment pursuant to our growth strategy will also depend on our ability to make accurate assumptions regarding the valuation, operations, growth potential, integration and synergies, technology, international market, and other factors related to that business. We cannot assure you that our acquisitions or investments will produce the results that we expect at the time we enter into, or complete a given transaction. Furthermore, acquisitions may result in difficulties integrating the acquired companies, and may result in the diversion of our capital and our management’s attention from other business issues and opportunities. We may not be able to successfully integrate successfully the operations that we acquire, including, but not limited to, their personnel, financial systems, distribution, or operating procedures. If we fail to integrate acquisitions successfully, our business, financial condition and results of operations could suffer. In addition, the expense of integrating any acquired business and their results of operations may adversely affect our operating results.results of operations.
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Certain acquisitions, partnerships, and joint ventures we make may prevent us from competing for certain clients or in certain lines of business and may lead to a loss of clients. We may spend time and money on projects that do not increase our revenue.revenue in the foreseeable future or at all, including those investments related to industrial decarbonization and recycling, renewable products, and the circular economy. To the extent we pay the purchase price of any acquisition in cash, it would reduce our cash reserves, and to the extent the purchase price is paid with any of our shares, it could be dilutive to our shareholders. To the extent,If we pay the purchase price with proceeds from the incurrence of debt, it would increase our level of indebtedness and could negatively affect our liquidity and restrict our operations. Our competitors may be willing or able to pay more than us for acquisitions, which may cause us to lose certain acquisitions that we would otherwise desire to complete. We cannot ensure that any acquisition, partnership or joint venture we make will not have a material adverse effect on our business, financial condition and results of operations.
We may face unforeseen challenges in the operation of our Mexico Complex, which could result in this business unit failing to provide expected benefits to us.
During the first half of 2016, we concluded the construction phase of an olefins complex, or the Mexico Complex, located in the Mexican state of Veracruz. For more information about this, which we refer to as the Mexico Complex, see “Item 5. Operating and Financial Review and Prospects—Capital Expenditures—Joint Venture—Mexico Complex.”
To develop our Mexico Complex, Braskem Idesa requireddisbursed significant capital expenditure and incurred significant debt. Our ability to achieve the strategic objectives of this business unit will depend largely on its successful operation. Factors that could affect the operation of this business unit include:
· | general economic, political and business conditions in |
· | global demand for, and supply balance of, PE; |
· | the occurrence of unforeseen technical and mechanical difficulties that may interrupt production or lead to unexpected downtime of the Mexico Complex’s plants; |
· | any material default by Pemex TRI under the ethane supply |
· | any termination, cancelation or modification of the ethane supply agreement |
· | the failure |
· | the ability of Braskem Idesa to service |
· |
· | an unstable and non-continuous supply (including the transportation of supplies) of ethane,natural gas and other inputs, including energy and |
· | increased competition from domestic or foreign competitors and/or the emergence of new domestic or foreign competitors. |
In early December 2020, Braskem Idesa received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency responsible for all natural gas pipelines and transportation in Mexico, related to the unilateral termination of the service of natural gas transportation, an essential energy input for the production of PE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities. Later in January 2021, Braskem Idesa partially resumed its operations based on an experimental business model to produce PE. Braskem Idesa has taken legal measures pursuant to the ethane supply agreement entered into with Pemex. Braskem Netherlands B.V, which is Braskem Idesa’s direct shareholder, has also taken legal measures under applicable international investment protection standards to protect the interests of Braskem Idesa and its parent company with regard to their investment in Mexico. Such measures include a negotiation period to attempt to resolve the dispute between the parties. Braskem Idesa also initiated legal measures to enforce its legal and contractual rights as established in the ethane supply agreement. For additional information, see “—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof” and “We depend on ethane supplied by Pemex TRI in Mexico.”
In the first quarter of 2021, Braskem Idesa entered into the following agreements under a strict reservation of all rights: (i) a memorandum of understanding with Pemex TRI setting out certain understandings regarding potential amendments to the ethane supply agreement and the development of an ethane import terminal, subject to further negotiation, a definitive agreement and approval by Braskem Idesa’s shareholders and creditors; and (ii) a natural gas transport service agreement with Cenagas for a term of 15 years, which is conditioned upon the execution of the definitive agreement referenced in item (i) above.years. Following the execution of these agreementsthis agreement by Braskem Idesa, it resumed receiving natural gas transportation services from Cenagas, which had been unilaterally terminated gas supply to Braskem Idesaby Cenagas in December 2020. The existing
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On September 27, 2021, Braskem Idesa signed the following documents: (i) an amendment to the ethane supply agreement betweenwith Pemex revising certain of its terms (“Amendment”); and (ii) an agreement with Pemex and other government entities that establishes support measures for the project to build an ethane import terminal, with the capacity to meet all of Braskem Idesa’s ethane needs.
The Amendment changes the minimum volume commitment to 30,000 barrels per day until the earliest of: (i) the operational startup of the ethane import terminal, scheduled for the second semester of 2024, or (ii) February 2025 (which could be extended if there are delays in obtaining licenses). The Amendment also gives Braskem Idesa the preemptive right to acquire all the ethane that PEMEX has available and has not consumed in its own production process until 2045, at international benchmark prices.
In September 2021, Braskem Idesa started the Ethane Import Terminal project in Mexico. In October 2021, Braskem Idesa constituted the Terminal Química Puerto México (“TQPM”), a company created to be responsible for the construction and operation of the terminal. In June 2022, Braskem Idesa announced the sale of 50% of TQPM’s stake to Advario B.V. (“Advario”), a global storage company, in TQPM, which was consummated on March 1, 2023. The TQPM ethane import terminal was designed to have a capacity of 80,000 daily barrels, providing conditions for Braskem Idesa to import all its need for raw material.
In October 2023, with the support of its shareholders, Braskem Idesa and Pemex TRI has not been modified and remainsAdvario, TQPM entered into a syndicated project finance loan agreement in full force and effect. Atthe principal amount of R$1,975 million (US$ 408 million) with a five-year mini-perm deal with standard guarantees for a transaction of this time, Braskem Idesa is unable to predict the outcome of ongoing discussions with Pemex TRI, its shareholders and creditors.type.
We cannot assure you that the Mexico Complex will provide the expected benefits to us, even after having completed four fullseven calendar yearyears of operations. Any significant interruption in its operation could hinder or prevent the implementation of our business plan as originally conceived, and result in revenue and net income below what is expected.our original expectations. Further, any material adverse effect on the financial condition or results of operations of the Mexican complex may adversely impact our own financial condition and results of operations. See
Labor strikes may materially and adversely affect our operations.
Labor strikes in our plants and facilities, operated by us or third parties, and in our main suppliers and customers plants and facilities may have a material adverse effect on our financial condition or results of operations. Future labor actions, including strikes, could have a material adverse effect on our financial performance.
Risks Related to Health, Safety and Environmental Aspects
Global or regional health pandemics or epidemics may adversely affect our business, financial condition and results of operations.
Our business, financial condition and results of operations may be adversely affected by pandemics or epidemics. For example, in 2020, the COVID-19 pandemic significantly impacted economic activity and markets worldwide, and its severity, magnitude and duration were extraordinary and difficult to predict.
While we are actively managing our response to potential impacts that are identified, we may not be able to respond to all impacts on a timely basis to prevent adverse effects on our business, financial condition and results of operations.
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Our business and operations are inherently subject to environmental, health and safety risks. As a result, our business is also “—subject to several stringent regulations, including environmental regulations.
As a company operating in the petrochemical industry, our operations, operated by us or third parties, including the companies and businesses that we have acquired, involve the generation, use, handling, storage, transportation (mainly by pipeline, road, train, fluvial and maritime), treatment, discharge and disposal of hazardous substances and waste into the environment. Notwithstanding our environmental, health and safety standards, policies and controls, our operations remain subject to incidents or accidents that could adversely affect our business or reputation. Our industry is generally subject to significant risks and hazards, including fire, explosions, toxic gas leaks, contamination of soil and water, spilling of polluting substances or other hazardous materials, smoke or odor emission, failure of operational structures and incidents involving mobile equipment, vehicles or machinery, associated or not with the manufacture of petrochemicals and the storage and transportation of feedstock and petrochemical products. These events may occur due to technical failures, human errors or natural events, among other factors, and could result in significant environmental and social impacts, damage to or destruction of production facilities and communities, personal injury, illness or death of employees, contractors or community members close to our operations or close to our logistic routes, terminals and pipelines, environmental damage, delays in production, and, in certain circumstances, liability in civil, labor, criminal and administrative lawsuits, difficulties in obtaining or maintaining operating permits and environmental licenses, and impacts on our reputation, among other consequences.
In addition, our operations, operated by us or third parties, could generate impacts to the communities, from our regular operations, as well as in the management of the existing environmental liabilities, which may result in environmental, material and human damages, fines and sanctions, including loss of operating license, in addition to damage to our image and reputation, which could have a material adverse effect on our results of operations and financial condition.
For example, over 30 years ago, a leak of chemical products occurred from a tank installed on a property owned by the company Companhia Carbonos Coloidais (“CCC”), located in Madre de Deus, in the State of Bahia. These products were the property of the company Tecnor Tecnolumen Química do Nordeste Ltda. (“Tecnor”) and may have been acquired by domestic producers at the time, including by Companhia Petroquímica de Camaçari, a company that subsequently was merged into Braskem. Both CCC and Tecnor are companies that have never had any corporate relations with Braskem and no longer have any operating activities.
Given our experience in the chemical and petrochemical industry and related products, the authorities requested our collaboration on the analysis, studies and environmental remediation, with monitoring by local authorities, which has been occurring since 2003. Following the agreement between the City of Madre de Deus, the Public Ministry of the State of Bahia and CCC in 2015, by means of an Amendment to this Term of Commitment, we supported the implementation of a vacancy program of an area near CCC’s property, declared as public utility by the City Hall in February of 2021. About 200 properties were necessary for the safe continuity of the remediation efforts.
Our business could be adversely affected by safety or product liability issues. Failure to appropriately manage occupational safety, process safety, product safety, human health, product liability and environmental risks inherent to the chemical and petrochemical businesses and associated with our products, product life cycles and production processes could result in unexpected incidents, including releases, fires, or explosions resulting in personal injury, loss of life, environmental damage, loss of revenue, legal liability, and/or operational disruptions. Public perception of the risks associated with our products and production processes could impact product acceptance and influence the regulatory environment in which we operate.
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Changes to current applicable laws may impose changes on standards we have already implemented, which can take time to review and update and could require significant capital expenditures. For example, we have concluded or are currently concluding studies related to dams located at certain of our industrial sites as a result of a change in Brazilian law that now requires that all water and waste dams have a safety plan for these structures. Environmental studies that we have commissioned have indicated instances of environmental contamination of the soil and underground water at certain of our plants. If the laws and regulations applicable to risks and safety plans change, we may be required to revise the studies that we have carried out or take further action to rectify potential issues that would not need to be addressed under current laws and regulations.
In addition, we and certain of our executive officers have received certain notices related to environmental violations and are or have been subject to investigations or legal proceedings with respect to certain alleged environmental violations. These environmental issues, and any future environmental issues that may arise, could subject us to fines or other civil or criminal penalties imposed by Brazilian authorities.
Also, under environmental laws and regulations in the countries in which we operate, we are required to obtain operating licenses and permits for our manufacturing facilities. For example, under Brazilian federal and state environmental laws and regulations, if any of our environmental licenses or permits lapse or are not renewed or if we fail to obtain any required environmental licenses or permits or does not to meet the conditions established in the licenses or environmental permits, we may be subject to fines ranging from R$500 to R$50 million, and the Brazilian government may reverse mentioned licenses or permits, partially or totally suspend our activities and impose other civil and criminal sanctions on us, including our managers.
Pursuant to Brazilian environmental legislation and regulations, our corporate veil may be pierced to ensure that sufficient financial resources are available to parties seeking compensation for damage caused to the environment. In this sense, officers, shareholders and/or business partners or affiliates may, together with the polluting company, be held liable for damage to the environment.
In addition, our production and logistics processes are subject to inherent safety risks, which may lead to injuries, disability or death of our employees or individuals participating in such processes and communities, as well negatively impact the environment. Such risks cannot be entirely eliminated or fully mitigated even with full compliance with all safety measures applicable to us or required by laws or regulations. We dependmay face a negative impact on our image and reputation, and on our business, financial condition and results of operations.
Until May 2019, we operated rock salt extraction wells located in Maceió, in the state of Alagoas. The operation was permanently interrupted due to the indication that it would have contributed to the occurrence of relevant subsidence in the region of four districts, with the occurrence of damage to properties and public roads located in the region. Several individual and collective lawsuits were filed in the state of Alagoas in relation to this geological event.
We have been taking the necessary actions for closing and monitoring the salt cavities, environmental actions and other technical matters. Based on the findings of sonar and technical studies, stabilization and monitoring actions were defined for all 35 existing mining areas. On December 10, 2023, after an atypical microseismic activity, cavity 18 collapsed. Considering the best technical information available as of the reporting date, there is an indication that direct impacts of this occurrence are limited to the cavity's location, within the protective area, which has been vacated since April 2020. The event in cavity 18 led to preventive stoppage of activities in the protective and surrounding area, which were resumed in February 2024 after the release of access to the area by the Civil Defense of Maceió.
Based on preliminary results from the analysis of event in cavity 18, the indication is that filling with sand will not be necessary for this cavity. To find a definitive solution for the six cavities, previously expected to be monitored by sonar (monitoring group), the Company decided that they should be filled with sand.
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Considering the progress made in the last half of 2023 and the cavity 18 event, the new configuration of the closing plan for the 35 mining areas considers that:
(i) 13 cavities are recommended to be filled with sand. Of these, filling for 5 has been completed, filling for 2 is in progress. For the 6 cavities recently included in the filling with sand group, the activities are under planning phase;
(ii) 6 cavities do not have indication of additional measures, whereas natural filling was confirmed for 5 cavities and 1 cavity, the cavity 18, has its evaluation in progress, with an indication that filling with sand will not be required;
(iii) 16 cavities should be buffered, which is a technique that consists of pressurizing the cavity. Of these, buffering was completed for 9.
Our actions are based on technical studies prepared by outsourced specialists, whose recommendations are submitted to competent authorities and respect the periods of time agreed under the closing plan, which is public and regularly reevaluated jointly with the National Mining Agency in Brazil (“ANM”). After the events in this period, the plan to close mining areas is under revision. The subsidence is a dynamic process that is present in the risk area and must continue to be monitored during and after the actions foreseen in the closing plan for the mining areas. The results of these monitoring activities will be important for assessing the need for potential future actions.
Regarding environmental initiatives, in June 2022, in compliance with the Agreement for Socio-Environmental Reparation, we submitted to the Brazilian Federal Prosecution Office (“MPF”) an environmental diagnosis containing the assessment of the potential environmental impacts and damages arising from salt mining activities and the environmental plan with proposals of the measures required. As established in the agreement, the parties jointly defined the specialized company that will evaluate and monitor the environmental plan. In December 2022, the second opinion report on the environmental plan was filed with the MPF. In February 2023, the MPF expressed its agreement with this environmental plan, incorporating the suggestions provided in the second opinion report. Braskem initiated the actions set forth in the plan. We have been implementing the commitments established in the agreement and sharing the results of our actions with the local authorities. It was also agreed that the environmental diagnosis is expected to be updated in December 2025. As one of the developments of the cavity 18 event, although alteration in lagoon's water quality has not been identified, according to the Agreement for Social-Environmental Reparation, the specialized company will prepare an amendment to the current environmental diagnosis report.
The provision related to this matter, considering the actions for closing and monitoring the salt cavities, environmental actions and other technical matters for which the amount of R$1.6 billion, net of the adjustment to present value, has been provisioned as of December 31, 2023. The provision amount may change based on new information, such as: the results of the monitoring of the cavities, the progress of implementing the plans to close mining areas, possible changes that may be required in the environmental plan, the monitoring of the ongoing measures, and other possible natural alterations, and it may be materially altered based on a variety of other factors, including, but not limited to, the result of the monitoring and backfilling actions of the cavities, potential future determinations by ANM, unforeseen technical difficulties or costs, or other factors.
Also due to the geological event, we have entered into agreements to terminate three public-interest civil actions or civil public actions filed by the competent authorities:
· | ACP Labor settlement: we committed to disbursing R$40 million to fund a Business Recovery and Promotion of Educational Activities Program for residents and workers in the districts of Mutange, Bom Parto, Pinheiro and Bebedouro in Maceió, in the state of Alagoas. This agreement has been fulfilled in its entirety. |
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· | ACP of Residents settlement: we committed to supporting the relocation and to compensate residents, business owners and owners of vacated properties located in the risk areas defined in the Civil Defense Map through the Financial Compensation and Support for Relocation Program (Programa de Compensação Financeira e Apoio à Realocação – PCF), by offering proposals for financial compensation and entering into individual agreements ratified by court (the risk area encompasses approximately 15,000 properties); and |
· | ACP Socio-environmental settlement: we committed to (i) adopting the necessary measures to stabilize the cavities and monitor the soil, implementing the measures of the mine closure planning presented to ANM and subject to its approval; (ii) repairing, mitigating or compensating potential environmental impacts and damages resulting from the mining activities (salt extraction) in the city of Maceió, to be defined by an Environmental Diagnosis developed by an expert and independent company approved by the Prosecutor’s Office; (iii) allocating R$1.58 billion to implement measures in the vacated area, actions related to urban mobility and to compensate potential socio-urbanistic impacts and damages, and for social collective moral damages. |
For more information, see note 24 to our audited consolidated financial statements included elsewhere in this annual report.
Below, we list the main events related to the geological phenomenon in Alagoas:
On February 2, 2021, we were notified of the filing of a lawsuit by Companhia Brasileira de Trens Urbanos (“CBTU”), initially requesting only a preliminary injunction for maintaining the terms of the cooperation agreement previously signed by the parties. The request was denied in the lower and appellate courts, given the fulfillment of the obligations undertaken by us. On February 24, 2021, CBTU filed an amendment to the initial request claiming the payment of compensation for losses and damages in the amount of R$222 million and for moral damages in the amount of R$500 thousand, as well as the imposition of obligations, including the construction of a new rail line to replace the stretch that passed through the risk area. On December 31, 2023, the updated value of this lawsuit was R$1.5 billion. We entered into a memorandum of understanding with CBTU to seek a consensual solution and suspend the lawsuit during the negotiation period. We have made progress in the technical understanding about the topic. As a result of a joint petition filed by the parties, the lawsuit was suspended until June 2024.
In March 2023, we were informed of the claim filed by the State of Alagoas, requesting compensation for alleged damages resulting, among others claims, from the loss of properties within the risk area defined by the Civil Defense of Maceió, alleged investments initiated by the State of Alagoas and that would have become void unusable due to the evacuation of the risk area and alleged loss of tax revenue, with a request that such damages to be determined by a court appraiser. On October 10, 2023, the trial court issued a summary judgment ordering Braskem to reimburse the amounts invested, public equipment and losses in tax collection as required by the State of Alagoas. The indemnity amounts must be set in the award calculation phase. The Company filed an appeal against the decision. As of December 31, 2023, the amount of this action is R$1.4 billion. There is a performance bond pledged by the Company for this lawsuit in the amount of R$1.4 billion.
In March 2023, we also became aware of the Public Civil Action (“ACP”) filed by the Public Defender’s Office of the State of Alagoas (“DPE-AL”) against us, the Federal Government, the State of Alagoas and the Municipality of Maceió, which pleads for measures related to the Flexais region, including (i) the registration of residents of this region so that they can opt for relocation through the Company’s Relocation and Financial Compensation Program (“PCF”); and (ii) the claim for compensation in the amount of R$1.7 billion for moral and material damages allegedly owed to residents of this region, with a subsidiary claim for judicial blocking of said amount. The injunction relief requests were rejected by the trial and appellate courts. On January 19, 2024, a decision was rendered judging partially valid the requests made by the DPE. The judge determined, among other things, set the amount of moral damages until the completion of the requalification and to determine the material damages for the devaluation of properties in the area. It was also determined the development of the case to adjudicate the request for relocation of residents, among others. On December 31, 2023, the amount of this action is R$1.9 billion. Our management, supported by the opinion of the external legal advisor, classifies the probability of loss in this lawsuit as possible.
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In August 2023, we were informed of the Public-Interest Civil Action filed by FEPEAL and CNPA (jointly the “Associations”) against the Company, seeking compensation for material damages (damages and loss of profit) and homogeneous individual and collective morals damages for the Associations and each of the alleged 8,493 affected fishermen represented by the Associations. As a preliminary measure, the Associations requested, among other claims, that the Company provisions sufficient funds to guarantee the compensation of fishermen included in the public-interest civil action, while publishing a material fact notice to the shareholders, a request that was denied by the Court. Among other requests, the Associations claim the payment by us of: (i) compensation for (a) individual and homogeneous moral damages suffered; (b) material damages in the form of individual and homogeneous loss of profits; (ii) compensation for collective moral damages for the Associations; (iii) compensation for collective material damages to the Associations; and (iv) attorney fees in the amount of 20% on the value of the award. On December 31, 2023, the plaintiffs’ claimed the amount to R$1.9 billion. The management, based on the opinion of its external legal advisors, classified the likelihood of loss in connection with this proceeding in the amount of R$1.6 billion as possible and the amount of R$321 million as remote.
On November 30, 2023, we were informed of the Public-Interest Civil Action filed by the MPF, DPU and MPE against the Municipality of Maceió and Braskem, with a request for a injunctive relief based on evidence, against the Municipality of Maceió: (i) the disclosure of the new Map of Priority Action Lines, Version 5, and (ii) preparation of the Action Plan to address issues related to the identification of the roads and public equipment located in the region. Against Braskem, they request through a preliminary injunction: (i) inclusion in the PCF the new criticality area 00 (area defined by the Civil Defense of Maceió with recommendation of allocation) of Version 5 of the Civil Defense Map and making feasible the optional inclusion of all residents affected whose properties are located in the criticality area 01 (area defined by the Civil Defense of Maceió with recommendation of monitoring) of Version 5 of the Map, with inflation adjustment corresponding to the amounts adopted by the PCF; (ii) establishment, with the permission of the affected party of the criticality area 01, of a Program for Reparation of Damage to Properties resulting from the alleged depreciation of the property, as well as the alleged pain and suffering resulting from the inclusion of the property in the Map; (iii) engagement of independent and specialized firm to identify the alleged damage to properties if the affected party decides to remain in the area of criticality 01 of Version 5 of the Civil Defense Map; and (iv) engagement of independent and specialized technical advisory to provide support to the affected parties in the analysis of the scenarios and decision-making of their relocation or staying in the area. On the merits, they request confirmation of the preliminary injunctions. The amount assigned to the case by the plaintiffs in the lawsuit is R$1 billion.
On December 18, 2023, we were informed of the action claiming the violation of a constitutional fundamental right (ADPF) filed by the Alagoas State Governor before the Brazilian Federal Supreme Court due to some clauses of the agreements entered into out-of-court and ratified in the records of the cases ACP Reparation for Residents, ACP Social-Environmental Reparation and Flexais Agreement, which deal with the settlement to the Company, as well as the acquisition and exploration of vacant properties. We presented a statement applying for the denial of the ADPF continuance. On January 10, 2024, the judge rapporteur determined the testimony of Braskem, Municipality of Maceió, State of Alagoas Prosecution Office, Alagoas State Defender’s Office and Federal Public Defender’s Office and the statement of the Office of the Attorney General and Office for the General Counsel for the Federal Government.
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In March 2024, we were informed of the Public-interest Civil Action filed by DPE against Braskem, seeking, among other requests, the challenge of clause 69 of the Agreement for Socio-environmental Reparation (payment of R$150 million for collective moral damages) alleging that there were facts subsequent to the date of the agreement that would give rise to additional damages. The DPE sustains that: (i) the waiver set forth in the Agreement for Socio-environmental Reparation would not cover future damages; (ii) the transfer of the property of the PCF to Braskem would violate constitutional principles; (iii) the damage caused should be fairly compensated; (iv) collective existential damages should be compensated; and (v) Braskem should be condemned for illicit profit, yet to be liquidated. Based on such allegations, it requests, as a preliminary measure: (i) the suspension of clause 58, second paragraph, of the Agreement for Socio-environmental Reparation, in order to rule out the possibility of reversion of the area to the benefit of Braskem; (ii) the imposition of inalienability of the PCF area until the final and unappealable decision on the merits of the claim, considering the need for the assets acquired by the Financial Compensation Program not to be subject to any disposal, nor subject to seizure. On the merits, it requests, among others: (i) the loss of all properties subject to the PCF, with the possibility of reverting the area to the victims or to public domain, in addition to the conviction of Braskem to the payment, as collective and social moral damages, to the same amount spent by Braskem for material damages; (ii) the conviction of Braskem, as existential damages, for the loss of all properties subject to the PCF; (iii) the conviction of Braskem for illicit profit, with the loss of the PCF properties, in addition to the payment of the amounts the Company obtained due to its alleged illicit conduct (to be determined in a liquidation proceeding); (iv) subpoena to the Investor Relations Officer, for the purposes of regulatory obligations, with publication of a relevant fact. The value of the case attributed by the DPE is R$150 million. Our management, supported by the opinion of the external legal advisor, classifies the probability of loss in this lawsuit as possible.
Additionally, we have entered into other two main agreements with competent authorities:
• Term of Agreement for Implementation of Socioeconomic Measures for the Requalification of the Flexal Area that establishes the adoption of requalification actions in the Flexais region, compensation to the Municipality of Maceió and indemnities to the residents of this location.
• Instrument of Global Agreement with the Municipality of Maceió, which establishes, among other things: (a) payment of R$1.7 billion as indemnity, compensation and full reimbursement for any property and non-property damages caused to the Municipality of Maceió; (b) adhesion of the Municipality of Maceió to the terms of the Socio-environmental Agreement, including the Social Actions Plan (PAS).
The current provisions made by us related to the geological event in Alagoas are based on current estimates and assumptions and may be updated in the future due to new facts and circumstances, including, but not limited to: changes in the execution time, scope and method and the success of action plans; new repercussions or developments arising from the geological event, including possible revision of the Civil Defense Map; and possible studies that indicate recommendations from specialists, including the Technical Monitoring Committee, according to Agreement for Compensation of Residents, and other new developments in the matter.
The measures related to the mine closure plan are also subject to the analysis and approval by ANM, the monitoring of results of the measures under implementation as well as changes related to the dynamic nature of the geological event.
Continuous monitoring is essential for confirming the result of the current recommendations. Accordingly, the plan to close the mining areas may be updated based on the need to adopt technical alternatives to stabilize the subsidence phenomena arising from the extraction of salt, including, but not limited to, all other points mentioned above. In addition, the assessment of the future behavior of cavities monitored mainly using sonar and piezometers could indicate the need for certain additional measures to stabilize them.
The actions to repair, mitigate or offset potential environmental impacts and damages, as provided for in the Socio-Environmental Reparation Agreement, were defined considering the environmental diagnosis already prepared by a specialized and independent company. After the conclusion of all discussions with authorities and regulatory agencies, as per the process established in the agreement, an action plan was agreed to be part of the measures for a Plan to Recover Degraded Areas (“PRAD”).
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We have been making progress with public entities about other indemnification requests to understand them better. Although future disbursements may occur as a result of progress in the negotiations, as of the date of this annual report, we are unable to predict the results and timeframe for concluding these negotiations or their possible scope, and the total associated costs in addition to those already provisioned for.
It is not possible to anticipate all of the new claims related to damages or other nature that may be brought by individuals or groups, including public or private entities, that understand they suffered impacts or damages somehow related to the geological phenomenon and the relocation of people from risk areas, as well as new notices of infraction or administrative penalties of diverse nature. Braskem continues to face and could still face administrative procedures and various lawsuits filed by individuals or legal entities not included in the PCF or that disagree with the financial compensation offer for individual settlement, as well as new collective actions and new lawsuits filed by public utilities concessionaires, entities of the direct or indirect administration of the State of Alagoas, the Municipality of Maceió or the Brazilian federal government. Therefore, the number of such actions or lawsuits, their nature or the amounts involved cannot be estimated.
Consequently, we cannot eliminate the possibility of future developments related to every aspect of the geological event in Alagoas, so the expenses to be incurred to resolve related disputes may differ from its estimates and provisions.
For additional information related Alagoas mining activities, see “Item 8. Financial Information—Legal Proceedings—Alagoas—Mining Activities.”
In addition, we and other petrochemical producers are subject to stringent federal, state and local environmental laws and regulations concerning human health, the handling, storage, transportation, treatment, discharge and disposal of hazardous substances and waste into the environment. Our operations in Brazil, including those of our subsidiaries Cetrel and DAC, which are responsible for providing environmental services, waste water treatment and water supply to the Camaçari Complex in the state of Bahia, for example, are subject to extensive federal, state and local laws, regulations, rules and ordinances relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment and disposal of hazardous substances and waste materials. The Brazilian government enacted the Environmental Crimes Law in 1998 that imposes criminal penalties on corporations and individuals that cause environmental damage. Corporations found to be guilty of polluting the environment may be fined up to R$50.0 million, have their operations suspended, be prohibited from contracting with the government, be required to repair damage that they caused and lose certain tax benefits and incentives. Executive officers, directors and other individuals may also be imprisoned for up to five years if environmental violations activities are found to have taken place.
Our operations in the United States, Germany and Mexico are subject to extensive U.S., German, European and Mexican federal, state and local laws, regulations, rules and ordinances relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. U.S. environmental laws and regulations may impose liability on us for the conduct of third parties, or for actions that complied with applicable requirements when taken, regardless of negligence or fault. Of particular significance to us are (1) regulatory programs to be established to implement air quality standards under the National Ambient Air Quality Standards for ozone and fine particles promulgated by the U.S. Environmental Protection Agency, or the EPA, and (2) various legislative and regulatory measures in the United States that are under review, discussion or implementation to address GHG emissions. In Mexico, we adhere to the comprehensive responsibility program promoted by the Mexican National Chemical Industry Association (Asociación Nacional de la Industria Química de Mexico—ANIQ), which is based on the responsible care standard adopted in the United States and Canada. We are also signatories of the Responsible Care program in the United States and Brazil that was launched by certain entities of the chemical industry sector worldwide.
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Existing stringent environmental and related regulations in the countries where we operate require significant capital expenditures, including investments, waste and wastewater treatment, emissions management, environment licenses, environmental liabilities and other environmental expenditures. In addition, evolving regulatory requirements could require significant additional capital expenditures depending on the timing of the adoption and enforcement of specific standards imposing such requirements. In addition, changes in environmental regulations could inhibit or interrupt our operations or require modifications to our facilities. Accordingly, environmental, health or safety regulatory matters may result in significant unanticipated costs or liabilities.
We may also, from time to time, be involved in certain claims, disputes or litigation proceedings concerning environmental risks and liabilities, health and safety hazards, among others.
Natural disasters, severe weather and climate conditions, or health epidemics could have a material adverse effect on our overall business.
We are subject to increasing climate-related risks and uncertainties, many of which are outside of our control. Climate change may result in more frequent severe weather events, potential changes in precipitation patterns and extreme variability in weather patterns which can disrupt our operations as well as those of its customers, partners and suppliers. Some of our facilities are in places that could be affected by natural disasters, such as floods, earthquakes, hurricanes, tornados and other natural disasters, which could disrupt our operations, operated by us or third parties, or the operations of our customers or suppliers and could damage or destroy infrastructure necessary to transport our products as part of the supply chain. Additionally, other unanticipated problems such as health epidemics or pandemics, could also cause operational disruptions of varied duration. Such events could require maintenance shutdowns, delay shipments of products or supplies or result in costly repairs, replacements or other costs, which could have a material adverse effect on our financial performance.
Brazilian power generation capacity is mainly based on hydroelectric facilities. If the amount of water available to energy producers becomes scarce due to drought or diversion for other uses, the cost of energy may increase due to burdens and additional costs to guarantee the operation of the system, which could lead to price increases in long-term price contracts. The reliability of energy production can also be impacted, leading to an increase of the risk of interruptions and shutdowns at our facilities. In addition, if the amount of water available to industrial facilities becomes scarce, there may be a need to reduce production at the affected sites. Such conditions could have a material adverse effect on our sales and margins.
Climate change may negatively affect our business, financial condition, results of operations and cash flow.
A considerable number of experts, international organizations, regulators and other analysts argue that global climate change has contributed, and will continue to contribute, to the increase in the unpredictability, frequency and severity of natural disasters (among but not limited to hurricanes, droughts, tornadoes, freezes, other storms and fires) in some parts of the world. As a result, several legal and regulatory measures, in addition to social measures, have been and will be established in several countries to reduce carbon and other GHG emissions and combat climate change globally. Such reductions in GHG emissions are expected to lead to an increase in energy, transport and input costs, in addition to requiring us to make additional investments in facilities and equipment. It is not possible to predict the impact of global climate change, if any, or legal, regulatory and social measures in response to climate change concerns, and whether such factors could negatively affect the business, financial condition, results of operations and operating cash flows.
Also, several countries are evaluating and seeking to implement carbon pricing policies for carbon emitting companies that are producers in these countries or that export products to these countries. If this occurs, our costs may be negatively impacted as we, as a petrochemical company, have a material carbon footprint. International market restrictions or taxation on products imported from countries with insufficient climate policies could lead to a loss of our global competitiveness and reduce our revenues.
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Since 2008, we account for the emissions of our operations and publish the results in a GHG inventory, which currently follows the operational control approach, contemplating our global emissions of scopes 1, 2, and 3, and which is annually verified by an independent third party. In 2023, Braskem recorded 9.9 million tons in carbon emissions and any carbon tax mechanism could negatively affect our business, financial condition, results of operations and operating cash flows.
For example, The European Commission has published in 2021 its “Fit for 55 Package” climate package, which includes extensive policy towards tougher emissions targets including the carbon border adjustment mechanism (CBAM) as holding wide ranging implications for the export industry into Europe.
Laws and regulations that seek to reduce GHG are being defined in some regions and may be defined globally in the future, which could have a material adverse impact on our operating results, cash flows and financial condition. One of the possible effects of the increase in requirements related to the reduction of GHG emissions is the increase in costs, mainly due to the demand for the reduction of fossil fuel consumption and the implementation of new technologies in the production chain. Removing subsidies or levying taxes on fossil energy sources could increase fuel prices for large consumers and thus production costs. Levying taxes on carbon-intensive suppliers could increase associated production costs. Taxation on carbon intensive suppliers could increase production costs that could negatively affect our business, financial condition, results of operations and operating cash flows. Additionally, the difficulty of adapting to climate change and reducing the emission of GHG in production processes and the value chain could negatively affect our business, financial condition, results of operations and cash flows.
Climate change-related risks and uncertainties, legal or regulatory responses to climate change and failure to meet our sustainable development goals could negatively impact our results of operations, financial condition or reputation.
In 2020, we announced long term sustainable development goals, including (i) to reach in 2030 an absolute 15% reduction in greenhouse gas emissions (GHG) in scopes 1 and 2 – in relation to the average of the years 2018, 2019, and 2020 – and to achieve carbon neutrality by 2050 and (ii) to expand our green biopolymer production capacity to 1 million tons and (iii) to expand the commercialization of resins with recycled content to 300,000 tons in 2025 and 1 million tons by 2030, as well as recovering 1.5 million tons of plastic waste by this same year.
Execution and achievement of these goal within the projected costs and expected timeframes are also subject to risks and uncertainties which include, but are not limited to: advancement, availability, development and affordability of technology necessary to achieve these commitments; unforeseen design, operational and technological difficulties; availability of necessary materials and components; adapting products to customer preferences and customer acceptance of sustainable supply chain solutions; changes in public sentiment and political leadership; our ability to comply with changing regulations, taxes, mandates or requirements related to greenhouse gas emissions or other climate-related matters.
The transition to lower greenhouse gas emissions technology, the effects of carbon pricing and changes in public sentiment, regulations, taxes, public mandates or requirements and increases in climate-related lawsuits, insurance premiums and implementation of relevant disaster recovery and business continuity plans could increase costs to maintain or resume our operations or achieve our sustainability goals in the expected timeframes, negatively affect our business, financial condition, results of operations and operating cash flows.
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Risks Relating To Our Shareholders
Some of our shareholders may have the ability to determine the outcome of corporate actions or decisions, which could affect the holders of our class A preferred shares and the ADSs.
Novonor S.A. – Em Recuperação Judicial (“Novonor”), directly or through its wholly-owned subsidiary NSP Investimentos S.A., or NSP Inv., owns 38.3% of our total share capital, including 50.1% of our voting share capital, and Petrobras holds 36.1% of our total share capital, including 47.0% of our voting share capital. Nominees of Novonor constitute a majority of the members of our board of directors. Under a shareholders’ agreement to which Novonor and Petrobras are parties, which we refer to as the Braskem S.A. Shareholders’ Agreement, all matters that may be resolved at a shareholder’s meeting or by our board of directors shall be decided by consensus among Novonor and Petrobras (except for our business plan, which is approved separately by the directors appointed by Novonor, as described under “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Agreements”), taking into account our best interest. Furthermore, the shareholders’ agreement provides for the possibility (and not the obligation), if deemed necessary, to hold prior meetings, as a legitimate mechanism for alignment between Novonor and Petrobras, with a view to ensuring consistency and uniformity in their decisions, which could affect holders of class A Preferred Shares and American Depositary Shares, or ADSs.
Furthermore, on June 17, 2019, Novonor, together with certain of its controlling and controlled entities, filed a petition for judicial restructuring before the First Judicial Bankruptcy Court of the State of São Paulo, Brazil, seeking a judicial restructuring and emergency relief staying certain foreclosure actions by their secured creditors, or the Novonor Judicial Restructuring Proceedings. The Novonor Judicial Restructuring Proceedings does not include us.
We are exposed to certain risks related to the Novonor Judicial Restructuring Proceedings, such as risks related to the change of our corporate control resulting from decisions taken and/or agreed in the context of such proceedings and the consequences derived thereto, including but not limited to significant changes in our management and our strategy that may be undertaken by any new controlling shareholders that may arise from the conclusion of these proceedings. We have no control over the Novonor Judicial Restructuring Proceedings, and no assurance can be given on the outcome of the Novonor Judicial Restructuring Proceedings or their effect on us.
We may be subject to attempts to acquire our control, which may lead to significant changes in management, the strategies that we are currently pursuing, or in our current corporate governance practices.
We may be subject to attempts to acquire our control. In the event there is a change in our corporate control, there might be significant changes in management, the strategies that we are currently pursuing, or in our current corporate governance practices.
In addition, under shareholders’ agreements in certain joint ventures we are a party to, in the event there is a change in our corporate control, our partner could execute a call option right and buy all the shares of the company in such joint ventures.
All common and preferred shares issued by us and held by NSP Inv. were pledged with fiduciary assignment (alienação fiduciária) as a collateral given under certain financing agreements entered into by Novonor and certain of its subsidiaries with specific non-bankruptcy creditors (credores extraconcursais). It is possible that, under certain circumstances, the pledge over such shares may be enforced, with the consequent sale of the shares, which could result in a change of Braskem’s control and other consequences arising therefrom.
On August 7, 2020, we received a correspondence from our controlling shareholder, Novonor, informing that, in order to fulfill certain commitments assumed with bankruptcy and non-bankruptcy creditors (credores concursais e extraconcursais), it had taken preliminary measures to structure a process for the private sale of up to its total equity ownership in our company, which, if implemented, will result in the change of our corporate control, adopting the necessary measures to organize such process, with the support of legal and financial advisors.
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On December 15, 2021, we received a letter sent jointly by our shareholders Novonor and Petrobras – Petróleo Brasileiro S.A. (“Petrobras”) regarding the progress of discussions for the potential sale of their equity interests in us. In such communication, Novonor and Petrobras disclosed that they agreed to seek the adoption of the necessary measures: (i) for the sale, through a secondary public offering, of up to all our class A preferred shares held directly or indirectly by them; (ii) to enable Braskem’s migration to the Novo Mercado listing segment of the B3, including in relation to necessary changes to Braskem’s corporate governance, which shall be subject to applicable approvals at the appropriate time and negotiation of a new shareholders’ agreement to conform their rights and obligations to such amended governance structure; and (iii) after the conclusion of Braskem’s potential migration to the Novo Mercado listing segment, carry out the sale of the remaining common shares held directly or indirectly by them and issued by us. The effective implementation of the commitments assumed by Novonor and Petrobras is subject, among other factors, to relevant approvals and market conditions. We are unable to predict the result of the implementation of the commitments assumed, as well as their possible impacts. On January 28, 2022, we received a communication sent jointly by our shareholders Novonor and Petrobras whereby they decided to temporarily cancel the shares offering due to volatility conditions in the financial and capital markets.
On November 3, 2022, we received a correspondence from Novonor, informing that, due to the discussions and analysis currently underway relating to a possible transaction, it may be necessary for us to interact with potential interested parties, for which Novonor asked for our support. Novonor further informed that, at that moment, there was no exclusivity agreement with any interested party, no binding offer, and no definition or decision on the structure to be adopted or on any alternative related to the disposal process. In this sense, we have been supporting Novonor in this process, including interactions with potential interested parties, observing the confidentiality of the information.
On November 9, 2023, we received a correspondence sent by Adnoc International Limited - Sole Partnership L.L.C. (“ADNOC”) to Novonor and to certain creditors holding the fiduciary lien over the shares owned by Novonor (“Financial Institutions”), containing a non-binding offer for the acquisition of the interest held by Novonor in the Company (“Proposal”). The Proposal is also conditioned, among other customary conditions in transactions of this nature, to (i) satisfactory conclusion by ADNOC of Due Diligence; (ii) investigation of possible additional liabilities arising from the event in Alagoas; (iii) no existence of unaccounted for or unreported material contingent liabilities; (iv) alignment and conclusion of a new shareholders' agreement with Petrobras.
In addition, although we are not currently a party to any pending bankruptcy or other judicial restructuring proceedings in Brazil or elsewhere, we are exposed to certain risks related to the Novonor Judicial Restructuring Proceedings, including risks related to the change of our corporate control resulting from decisions taken or agreed under such proceedings and the consequences derived therefrom. We have no control over the Novonor Judicial Restructuring Proceedings, and no assurance can be given on the outcome of the Novonor Judicial Restructuring Proceedings or their effect on us.
We may face conflicts of interest in transactions with related parties.
We maintain trade accounts receivable and current and long-term payables with related parties, including Petrobras and its subsidiaries, which is our Brazilian supplier of naphtha and other raw materials such as propylene, ethane, suppliedpropane and light refinery hydrocarbon, and Novonor and its subsidiaries. These trade accounts receivable and trade accounts payable balances result mainly from purchases and sales of goods, which are mainly made based on international price references. These and other transactions between us and our related parties can result in conflicting interests, which may adversely affect our results of operations and financial condition.
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If we are unable to comply with the restrictions and covenants in the agreements governing our indebtedness, there could be a default under the terms of these agreements, which could result in an acceleration of payment of funds that we have borrowed and could affect our ability to make principal and interest payments on our debt obligations.
Any default under the agreements governing our indebtedness that is not cured or waived by Pemex TRIthe required lenders or noteholders could result in Mexico.the holders of any such indebtedness accelerating the payment of amounts outstanding, which could render us unable to pay principal and interest on those and other obligations. If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in the agreements governing our indebtedness, we could be in default under the terms of such agreements. In the event of such default:
· | the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest; |
· | the lenders or noteholders under such agreements could elect to terminate their commitments thereunder and cease making further loans; |
· | the acceleration under such indebtedness may trigger cross-acceleration provisions under other financing arrangements entered into by us; and |
· | we could be forced into bankruptcy or liquidation. |
Certain of our contractual arrangements, including debt obligations, contain certain change of control provisions that provide our counterparties with a termination right or the ability to accelerate the maturity of our indebtedness in the event of a change of our control without their consent and/or a ratings decline, as applicable.
In addition, pursuant to the indentures governing our 4.500% Notes due 2028, 4.500% Notes due 2030, 8.500% Notes due 2031, 7.250% Senior Notes due 2033, 7.125% Notes due 2041, 5.875% Notes due 2050, Subordinated Resettable Fixed Rate Notes due 2081, 15th Debentures Issuance (used as a security for the issuance of a CRA – Agribusiness Receivables Certificates), 16th Debentures Issuance, 17th Debentures Issuance and 18th Debentures Issuance a “change of control” with a “ratings decline” (as such terms may be defined in each agreement governing our indebtedness) would require a repurchase of, or an offer to repurchase, any such outstanding notes or debentures, plus accrued and unpaid interest, if any, to the repurchase date.
These provisions would be triggered, for example, in the event a third party acquires, directly or indirectly, more than 50% of our voting capital stock outstanding and if, because of such a “change of control” (as such term may be defined in each agreement governing our indebtedness) our ratings are downgraded under certain thresholds (a “ratings decline,” as such term may be defined in each agreement governing our indebtedness) within a certain period of time.
In the case of our 4.500% Notes due 2028, 4.500% Notes due 2030, 7.125% Notes due 2041, 5.875% Notes due 2050 and Subordinated Resettable Fixed Rate Notes due 2081, a “ratings decline” would occur if, at any time within 90 days after the earlier of the date of public notice of a “change of control” and the date on which Braskem and/or any other “person” (as applicable, and as defined in each agreement governing our indebtedness) publicly declares its intention to effect a “change of control,” (i) in the event the notes are assigned an investment grade rating by at least two rating agencies prior to such public notice or declaration, the rating assigned to the notes by at least two of the rating agencies is below an investment grade rating; or (ii) in the event the ratings assigned to the notes by at least two of the rating agencies prior to such public notice or declaration are below an investment grade rating, the rating assigned to the notes by at least two of the rating agencies is decreased by one or more categories (i.e., notches); provided that, in each case, any such “ratings decline” is expressly stated by the applicable rating agencies to have been the result of the “change of control.”
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In the case of our 8.500% Senior Notes due 2031 and our 7.250% Senior Notes due 2033, a “ratings decline” would occur if, at any time within 90 days after the date of public notice of a “change of control,” (i) in the event the notes are assigned an investment grade rating by at least two rating agencies prior to such public notice, the rating assigned to the notes by any two or more of the rating agencies is below an investment grade rating; or (ii) in any other case, the rating assigned to the notes by at least two of the rating agencies is decreased by one or more categories (i.e., notches); provided that, in each case, any such “ratings decline” is expressly stated by the applicable rating agencies to have been the result of the “change of control.”
As a result, if a third party acquires our control, whether as a result of the Novonor Judicial Restructuring Proceedings (or agreements entered into within the context of the Novonor Judicial Restructuring Proceedings) or otherwise, such acquisition may result in a ratings downgrade that constitutes a “ratings decline.” In such cases, if appropriate consents or waivers are not obtained, such creditors could accelerate the maturity of our indebtedness or as applicable, require a repurchase of, or an offer to repurchase, our outstanding notes or debentures.
The termination of any of our contractual arrangements, the acceleration of the maturity of, or the requirement to repurchase or offer to repurchase any of our indebtedness may have a material adverse effect on our business, financial condition, results of operations and cash flows, and ultimately result in the cross-acceleration of all of our indebtedness.
There can be no assurance that Novonor will remain our controlling shareholder. Novonor and Petrobras may enter into transactions or other arrangements that may result in us not having a controlling shareholder. If no single shareholder or group of shareholders holds more than 50% of our voting stock or exercise a controlling interest, there may be increased opportunity for alliances between shareholders and conflicts between them.
Currently, Novonor, directly or through its wholly-owned subsidiary NSP Inv., owns 38.3% of our total share capital, including 50.1% of our voting share capital, and Petrobras holds 36.1% of our total share capital, including 47.0% of our voting share capital. Each of Novonor (our indirect controlling shareholder) and Petrobras are currently a party to a shareholders’ agreement governing the exercise of their voting rights, appointment of directors and officers and other matters related to our corporate governance and their interests in us. In the event there is a change in our corporate control, we may be subject to significant changes to our management, business plan and strategies, as well as to our current corporate governance practices, all of which may have a material adverse effect on our results of operations and financial condition.
On November 3, 2022, we received a correspondence from Novonor, informing that, due to the discussions and analysis currently underway relating to a possible transaction, it may be necessary for Braskem to interact with potential interested parties, for which Novonor asked for our support and for that of our officers. Novonor further informed that, at that moment, there was no exclusivity agreement with any interested party, no binding offer, and no definition or decision on the structure to be adopted or on any alternative related to the disposal process.
On November 9, 2023, we received a correspondence sent by Adnoc International Limited - Sole Partnership L.L.C. (“ADNOC”) to Novonor and to certain creditors holding the fiduciary lien of Braskem S.A. shares owned by Novonor (“Financial Institutions”), containing a non-binding offer for the acquisition of the interest held by Novonor in the Company (“Proposal”). The Proposal is also conditioned, among other usual conditions in transactions of this nature, to (i) satisfactory conclusion by ADNOC of Due Diligence; (ii) investigation of possible additional liabilities arising from the event in Alagoas; (iii) no existence of unaccounted for or unreported material contingent liabilities; (iv) alignment and conclusion of a new shareholders' agreement with Petrobras.
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In addition, as disclosed by us on December 16, 2021, we were notified by Novonor and Petrobras that each of their governance bodies approved, on December 15, 2021, the execution of a term sheet providing for Novonor’s and Petrobras’ mutual commitment to take necessary measures that could, if implemented, ultimately result in a change of control of our company (the “Notice”).
Pursuant to the Notice, Novonor and Petrobras agreed to seek the adoption of the necessary measures: (i) for the sale, through a secondary public offering, of up to all our class A preferred shares held directly or indirectly by them; (ii) to enable Braskem’s migration to the Novo Mercado listing segment of the B3, including in relation to necessary changes to Braskem’s corporate governance, which shall be subject to applicable approvals at the appropriate time and negotiation of a new shareholders’ agreement to conform their rights and obligations to such amended governance structure; and (iii) after the conclusion of Braskem’s potential migration to the Novo Mercado listing segment, carry out the sale of the remaining common shares held directly or indirectly by them and issued by us. On January 28, 2022, we received a communication sent jointly by our shareholders Novonor and Petróleo Brasileiro S.A. whereby they decided to temporarily cancel the shares offering due to volatility conditions in the financial and capital markets. Also, Novonor and Petrobras ratified their interest in resuming the equity offering in the future, at a time when a more favorable economic situation with less volatility exists, and the term sheet entered into between the parties remains in force and the commitment of both to dispose of their respective equity interests in the Company through a secondary public offering, in addition to taking all necessary measures to enable the Company to migrate to the Novo Mercado segment of the B3, including the necessary amendments to its governance, as the studies in this regard being carried out by the Company and referred to in the material fact disclosed on Form 6-K December 16, 2021 are concluded and to the extent that market conditions are favorable.
If we effectively migrate to the Novo Mercado in the future, all of our class A and class B preferred shares will be converted into common shares, resulting in Novonor no longer holding indirectly the majority of our voting stock. Even if Novonor and Petrobras enter into a new shareholders’ agreement, the potential material sale of our common shares held by either or both of them could leave Novonor and Petrobras with less than 50% plus one share of our voting stock.
Irrespective of whether the transactions described in the Notice are implemented, Novonor or Petrobras may initiate discussions regarding other transactions that could ultimately have similar effects in the future.
Should Novonor and Petrobras cease to hold more than 50% of our voting stock, there can be no assurance that the influence by such shareholders will be maintained, including, without limitation, in relation to corporate governance, business plan, strategical, and key management matters. If a control group emerges with decision-making power over us, we may experience sudden and unexpected changes to our corporate governance and strategic policies, including through the replacement of directors and key executive officers.
The absence of a controlling shareholder or controlling group of shareholders may also affect our decision-making process, as the minimum quorum required by Brazilian law for certain decisions by shareholders may not be reached. In that case, we may be unable to pursue our business plan effectively to pursue our business plan and strategies effectively. Additionally, we may be more vulnerable to a hostile takeover.
Additionally, all common and preferred shares issued by Braskem and held by NSP Inv. were pledged with fiduciary assignment (alienação fiduciária) as a collateral given under certain financing agreements entered into by Novonor and certain of its subsidiaries with specific non-bankruptcy creditors (credores extraconcursais). It is possible that, under certain circumstances, the pledge over such shares may be enforced, with the consequent sale of the shares, which could result in a change of Braskem’s control and other consequences arising therefrom.
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Any unexpected change to our management team, business plan and strategies, any dispute between our shareholders, or any attempt to acquire our control may divert our management’s attention and also have an adverse effect on our business plan, strategies, financial condition and results of operations.
Novonor and Petrobras have requested us to conduct studies for a potential migration of Braskem to the Novo Mercado listing segment of the B3, which, if completed, would lead to the conversion of all of our class A and class B preferred shares into common shares and the revision of our corporate governance practices to conform to the Novo Mercado rules.
In order to be listed on the Novo Mercado listing segment of the B3, a company may only have common shares outstanding. If we were to migrate to the Novo Mercado listing segment of the B3, we would be required to convert all of our class A and class B preferred shares into common shares. Such change to our capital structure would lead to significant changes to our corporate governance, which could have a potential impact on our ability to pursue and implement our business plan and strategies.
Our class A preferred shares may be converted into common shares that will be listed on the Novo Mercado listing segment of the B3 in Brazil. The changes to our corporate governance (including amendments to our by-laws) in connection with a potential migration to the Novo Mercado listing segment, as well as the terms and timing of such migration, including the conversion ratio of the class A and class B preferred shares into common shares, are still subject to studies, discussions and approvals involving us and our shareholders, and we cannot foresee or assure how this process will unfold or what its end result will be. The listing of our shares on the Novo Mercado listing segment of the B3 would require us to take certain steps related to corporate governance matters, including the approval, by our shareholders at a shareholders’ meeting, of the conversion of class A and class B preferred shares into common shares, migration to the Novo Mercado listing segment of the B3, and changes to our bylaws to comply with the Novo Mercado listing rules. In addition, pursuant to applicable Brazilian law, holders of our common shares are not entitled to the same dividend and liquidation preferences that holders of our preferred shares have.
The intended corporate reorganization communicated by Novonor and Petrobras to us may not be approved or implemented, and the migration to the Novo Mercado listing segment of the B3 may not occur.
As disclosed by us on December 16, 2021, we were notified by Novonor and Petrobras that each of their governance bodies approved, on December 15, 2021, the execution of a term sheet providing for Novonor’s and Petrobras’ mutual commitment to take necessary measures that could, if implemented, lead to the migration of Braskem to the Novo Mercado listing segment of the B3 (the Notice, as defined above).
Pursuant to the Notice, Novonor and Petrobras agreed to seek the adoption of the necessary measures: (i) for the sale, through a secondary public offering, of up to all our class A preferred shares held directly or indirectly by them; (ii) to enable Braskem’s migration to the Novo Mercado listing segment of the B3, including in relation to necessary changes to Braskem’s corporate governance, which shall be subject to applicable approvals at the appropriate time and negotiation of a new shareholders’ agreement to conform their rights and obligations to such amended governance structure; and (iii) after the conclusion of Braskem’s potential migration to the Novo Mercado listing segment, carry out the sale of the remaining common shares held directly or indirectly by them and issued by us. We are unable to predict the result of the implementation of the commitments assumed, as well as their possible impacts. On January 28, 2022, we received a communication sent jointly by our shareholders Novonor and Petróleo Brasileiro S.A. whereby they decided to temporarily cancel the shares offering due to volatility conditions in the financial and capital markets. Also, Novonor and Petrobras ratified their interest in resuming the equity offering in the future, at a time when a more favorable economic situation with less volatility exists, and the term sheet entered into between the parties remains in force and the commitment of both to dispose of their respective equity interests in the Company through a secondary public offering, in addition to taking all necessary measures to enable the Company to migrate to the Novo Mercado segment of the B3, including the necessary amendments to its governance, as the studies in this regard being carried out by the Company and referred to in the material fact disclosed on Form 6-K December 16, 2021 are concluded and to the extent that market conditions are favorable.
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A potential migration of Braskem to the Novo Mercado listing segment of the B3 is subject to certain measures and steps that would need to be taken and conditions that would need to be fulfilled, many of which are outside our control, including the satisfactory conclusion of the current studies being conducted by us, as well as the approval by the applicable listing commission of the B3, the approval by our shareholders at a general shareholders’ meeting of Braskem’s revised by-laws to comply with the Novo Mercado listing rules, and the approval by the holders of our class A and class B preferred shares at a separate shareholders’ meetings for each class.
As a result of the foregoing, we may not be able to migrate to the Novo Mercado listing segment of the B3 in a timely manner, or at all.
We expect to lose the right of preference set forth in the current shareholders’ agreement with respect to new business opportunities in the petrochemical sector, and as result, Petrobras, which is our largest supplier of raw materials in Brazil, will be able to invest in the petrochemical sector independently from us and without first giving us a preference to do so.
Novonor and Petrobras are currently parties to a shareholders’ agreement that provides, among other matters, for the commitment between them to use their best efforts in the development of new business opportunities in the “petrochemical sector” (defined as business opportunities that involve: (i) the use of ethylene and propylene for the manufacture of PE, PP, PVC and cumene; (ii) petrochemical investments for the production of butadiene, paraxylene, PE, PP, PVC, cumene, PTA and PET, as well as the sale of these products; (iii) investments based on pyrolysis of hydrocarbons for the petrochemical industry; and (iv) other investments or products that Novonor and Petrobras may agree in good faith to include in the definition of the “petrochemical sector” relating to new production processes that may be developed in the future), with a right of preference given to us.
Subject to some exceptions related to specific projects, if there is a direct or indirect business initiative, opportunity, undertaking, investment or participation that each of Novonor or Petrobras intends to pursue in the petrochemical sector (an “Opportunity”) that overlaps with certain objectives described in such shareholders’ agreement, the party that identified the Opportunity (the “Identifying Party”) shall grant Braskem a preference to explore the Opportunity.
If we do not express an interest in exercising the right of preference over a given Opportunity, and the Identifying Party subsequently decides to pursue such Opportunity, the Identifying Party shall offer us the right to market the products related to the Opportunity under mutually satisfactory market conditions.
On December 15, 2021, Novonor and Petrobras entered into an amendment to such shareholders’ agreement, generally providing that, if Braskem’s potential migration to the Novo Mercado listing segment of the B3 is not implemented, Braskem’s right of preference with regard to any future Opportunity will lapse by October 31, 2024. As a result, if the potential migration of Braskem to the Novo Mercado listing segment of the B3 is not completed by October 31, 2024, or, if before October 31, 2024 such migration is completed but such shareholders’ agreement expires or terminates for any reason and no new agreement on preference rights is agreed upon by the parties, Braskem would lose its right of preference with regard to any future Opportunity. The execution of such shareholders’ agreement amendment by Braskem, as an intervening party, is still subject to the appropriate governance approvals. On January 28, 2022, we received a communication sent jointly by our shareholders Novonor and Petróleo Brasileiro S.A. whereby they decided to temporarily cancel the shares offering due to volatility conditions in the financial and capital markets. Also, Novonor and Petrobras ratified their interest in resuming the equity offering in the future, at a time when a more favorable economic situation with less volatility exists, and the term sheet entered into between the parties remains in force and the commitment of both to dispose of their respective equity interests in the Company through a secondary public offering, in addition to taking all necessary measures to enable the Company to migrate to the Novo Mercado segment of the B3, including the necessary amendments to its governance, as the studies in this regard being carried out by the Company and referred to in the material fact disclosed on Form 6-K December 16, 2021 are concluded and to the extent that market conditions are favorable.
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The loss of the right of preference with regard to an Opportunity may result in a decision by Petrobras, which is Braskem’s largest supplier of raw materials in Brazil, to invest in the petrochemical sector, which may affect the implementation of our strategic and growth plans and adversely affect our revenues and results of operations.
Risks Relating To Legal and Regulatory Matters
Adjustments in tariffs on imports that compete with our products could cause us to lower our prices.
The first, second and third generation of petrochemical products currently rely on imports tariffs imposed by Mercosur member states to balance competition in the Mercosur domestic market. However, the Brazilian government has in the past used import and export tariffs to implement economic policies, resultingpolicies. As a result, import tariffs imposed on petrochemical products have varied in varying tariff levels. For example,the past and may vary in September 2012,the future. Until November 2021, tariffs on imports of first-generation petrochemical products varied between 0% and 4%, and tariffs on polyethylene, polypropylene and PVC resins were 14.0%. In November 2021, the Brazilian government increasedunilaterally reduced by 10% the import dutiestariff rates of 87% of all its internationally commercialized goods. In May 2022, Brazil reduced, unilaterally, by an additional 10% tariffs on 100certain exports, which were expected to remain in force until December 2023 at the level of 11.2%.
In July 2022, Mercosur decided to reduce permanently the Common External Tariff (TEC) by 10%, which was applicable to all Mercosur members. Following these changes, tariffs on imports of first-generation petrochemical products related to various industries, including an increasefrom Mercosur members now vary between 0% and 3.6%, and tariffs on polyethylene, polypropylene and PVC resins are set at 12.6%.
In August 2022, the Brazilian government also enacted Resolutions Nos. 369 and 381 of the Executive Management Committee of Chamber of Foreign Trade (“Gecex”) approving a reduction in the import tariff on polyethylene. In October 2012, it increasedtax, by inclusion in the List of Exceptions to the Mercosur Common External Tariff (“Letec”) for the following of our products: (i) ethylene and alpha-olefin copolymers with density lower than 0.94, from 11.2% to 3.3%; (ii) S-PVC resin obtained from suspension processes, from 11.2% to 4.4%; (iii) PP (propylene copolymer) resin, from 11.2% to 4.4%; and (iv) PP (propylene homopolymer), from 11.2% to 6.5%. This reduction was valid for one year, from August 5, 2022 until August 2023. We have historically prioritized supply to the Brazilian market, and currently there are no signs of shortages of the products we supply to the Brazilian market.
On March, 21, 2023, the Executive Management Committee (“Gecex”) of the Foreign Trade Chamber (“Camex”) decided to exclude the following products from the Letec, establishing the import tarifftax rate that had been reduced as follows: ethylene and alpha-olefin copolymers, with a density of less than 0.94, from 3.3% to 11.2%; PVC-S resin, obtained by a 4.4% suspension process to 11.2%; and Resin PP “cup” (propylene copolymer) from 4.4% to 11.2%. The PP (propylene homopolymer) remained in Letec until July 31, 2023, when its import duties were reestablished to 11.2%.
On November 10, 2023, the Gecex of Camex decided to reestablish import tariffs on polyethylene73 chemical products that were included in Resolution 353/2022 (the second unilateral reduction of 10% of the External Common Tariff (Tarifa Externa Comum) (“TEC”). The measure was taken aiming at reversing the negative impacts caused to the national industry, especially related to the surge in imports and the strong price variation that resulted from 14% to 20%, andthe 10% reduction in October 2013, it reducedimport tax that had been implemented. Therefore, as of November 28, 2023, the import tariff on polyethylenetax applied to Braskem resins returned to the previousTEC level, of 14%. Currently, the tariff remainsbeing set at 14%12.6%.
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Adjustments of tariffs could lead to increased competition from imports and cause us to lower our domestic prices and impact the demand for our products, which would likely result in lower net revenue and could negatively affect our overall financial performance. Additionally, the products we export to the United States and Europe are subject to tariffs in the amount of 6.5% in each jurisdiction, subject to certain preferences. These tariffs generally balance the level of competition of our products produced locally and any future adjustments to these tariff structures could negatively impact our sales in these jurisdictions. Future trade agreements entered into by Brazil, the Mercosur, the United States or the European Union could also lead to increased competition from imports and lower domestic prices.
Changes in U.S. and global trade policies and other factors beyond our control may adversely impact our business, financial condition and results of operations.
The international environment in which we operate is affected from inter-country trade agreements and tariffs. As a result of recent revisions in the U.S. administrative policy, there are, and there may be additional changes to existing trade agreements, greater restrictions on free trade and significant increases in tariffs on goods imported into the United States, particularly those manufactured in China, Mexico, and Canada. Future actions of the U.S. administration and that of foreign governments, including China, with respect to tariffs or international trade agreements and policies remains currently unclear.
The escalation of a trade war, tariffs, retaliatory tariffs or other trade restrictions on products and materials eitherincluding those exported by us to China or raw materials imported by us from China, or other countries, may significantly hinder our ability to provide our products to customers in China or other affected locations. Such developments may result in a decrease in demand for our products as well as delays in payments from our customers. Furthermore, other governmental action related to tariffs or international trade agreements, changes in U.S. social, political, regulatory and economic conditions, or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where our customers are located, could lead to a rebalancing of global export flows and an increase in global competition, which in turn could adversely affect our business, financial condition, results of operations and cash flows.
A failure to comply with export control or economic sanctions laws and regulations could have a material adverse impact on our results of operations, financial condition and reputation.
We operate on a global basis and face risks related to compliance with export control and economic sanctions laws and regulations, including those administered by the United Nations, the European Union and the United States, including the U.S. Treasury Department’s Office of Foreign Assets Control. Economic sanctions programs restrict our dealings with certain sanctioned countries, territories, individuals and entities. Economic sanctions are complex, frequently changing, and often increase in number, and may be affected by instabilityimpose incremental prohibitions, fines, restrictions on dealings with additional countries, territories, individuals or entities or compliance obligations on our dealings in certain countries and territories. We have conducted, and may in the global economyfuture seek to conduct, business in certain countries that are subject to sanctions under the laws of the United States, the European Union, or other countries. Although we have pursued these transactions, and by financial turmoil.
Instabilityintend to pursue any future transactions, in full compliance with applicable laws and regulations, we may not be successful in ensuring compliance with limitations or restrictions on business with companies in any such countries. Additionally, Russia’s annexation of Crimea, recognition of two separatist republics in the global marketsDonetsk and Luhansk regions of Ukraine, and the military interventions in Ukraine have led to sanctions and other penalties being imposed by the geopolitical environmentUnited States, the European Union and other countries on Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic, including the agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) payment system. Additional potential sanctions and penalties have also been proposed and/or threatened and the United States and other countries could impose wider sanctions and take other actions should the conflict further escalate. If we are found to be in many partsviolation of the world as well as other disruptions may continue to put pressure on global economic conditions. In the event global economic and market conditions,applicable sanctions laws or economic conditions in key markets, remain uncertain or deteriorate,regulations, we may experience material impacts onface criminal or civil fines or other penalties, we may suffer reputational harm and our business, results of operations and financial condition.condition may be adversely affected. Additionally, even though we have adopted a global trade control directive and provide regular training to our employees, there can be no assurance that our employees, directors, officers, partners or any third parties that we do business with, including, among others, any distributors, or suppliers, will not violate sanctions laws and regulations. We may ultimately be held responsible for any such violation of sanctions laws and regulations by these persons, which could result in criminal or civil fines or other penalties, have a material adverse impact on our results of operations and financial condition and damage our reputation.
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We may not be able to specify in details technical specifications required by our customers’ or updated mechanisms to promptly attend regulatory requirements, and we could be subject to damages based on claims brought against us or our customers as a result of the failure of our products specification.
Our products specification may not meet certain technical or regulatory requirements, specifications or standards. In addition, our customers may impose stricter requirements on our products or governments may enact stricter regulations for the distribution, sale or use of our products. Failure to meet such standards could materially adversely affect our business, financial condition and results of operations if we are unable to sell our products in one or more markets or to important customers in such markets.
As with all quality control systems, any failure or deterioration of our quality control systems could result in defects in our products, which in turn may subject us to contractual, regulatory, product liability and other claims, which could have a material adverse effect on our reputation, business, financial condition and results of operations.
Our businessWe may not be able to obtain or renew all licenses, permits and operationsauthorizations necessary for conducting our business.
We are inherently subject to environmental, healtha wide variety of federal, state and safety hazards. Asmunicipal laws, regulations and licensing requirements, and depend on obtaining licenses, permits and authorizations to carry out our activities.
We cannot guarantee that we will be able to maintain, renew or obtain any new authorization, license, grant, or permit, in a result, our business is also subjecttimely manner, or that any additional requirements will not be imposed in connection with such renewal order.
Failure to stringent environmentalobtain or maintain the permits, authorizations and other regulations.
As a company operating in the petrochemical industry, our operations, operated by us or third parties, involve the generation, use, handling, storage, transportation (mainly by pipeline, road, train, fluvial and maritime), treatment, discharge and disposal of hazardous substances and waste into the environment. Notwithstanding our environmental, health and safety standards, policies and controls, our operations remain subject to incidents or accidents that could adversely affect our business or reputation. Our industry is generally subject to significant risks and hazards, including fire, explosions, toxic gas leaks, contamination of soil and water, spilling of polluting substances or other hazardous materials, smoke emission, failure of operational structures and incidents involving mobile equipment, vehicles or machinery, associated or not with the manufacture of petrochemicals and the storage and transportation of feedstock and petrochemical products. These events may occur due to technical failures, human errors or natural events, among other factors, and could result in significant environmental and social impacts, damage to or destruction of production facilities and communities, personal injury, illness or death of employees, contractors or community members close tolicenses necessary for our operations, or closefailure to our logistic routes and pipelines, environmental damage, delaysobtain or timely maintain them, may result in production, and, in certain circumstances, liability in civil, labor, criminal and administrative lawsuits, difficulties in obtainingfines, loss or maintaining operatingearly termination of permits, and impacts on our reputation, among other consequences.
In addition, our operations, operated by us authorizations and/or third parties, could generate impacts to the communities, from the regular operations of the Company,licenses, as well as in the managementclosing of the existing environmental liabilities, which may result in environmental, materialfacilities, or breach of financing and human damages, fines and sanctions, including loss of operating license, in addition to damage to our image and reputation.
For example, over 30 years ago, a leak of chemical products occurred from a tank installed on a property owned by the company Companhia Carbonos Coloidais (“CCC”), located in Madre de Deus, in the State of Bahia. These products were property of the company Tecnor Tecnolumen Química do Nordeste Ltda. (“Tecnor”) and may have been acquired by domestic producers at the time, including by Companhia Petroquímica de Camaçari, a company that subsequently was merged into Braskem. Both CCC and Tecnor are companies that have never had any corporate relations with Braskem and no longer have any operating activities. Moreover, the Company clarifies that it has never had any industrial operation in Madre de Deus, in the State of Bahia.
In this sense and given the Company's experience in the chemical and petrochemical industry and related products, the authorities requested Braskem's collaboration for analysis, studies and environmental remediation, with monitoring by local authorities, which has been occurring since 2003. Following the agreement between the City of Madre de Deus, the Public Ministry of the State of Bahia and the “CCC” in 2015, by means of an Amendment to this Term of Commitment, Braskem is supporting the implementation of a vacancy program of an area near to the “CCC” property, declared as public utility by the City Hall in February of 2021. The vacancy of about 190 properties is necessary for the safe continuity of the remediation. For the remediation actions, the Company estimates the approximate amount of R$110 million, which has been provisioned.
In 2020, in line with the guidelines established in its Global Policy on Risk Management, Braskem has continued to evolve and made improvements in its adoption of best practices in Enterprise Risk Management (ERM), with the aim of protecting shareholders’ tangible and intangible assets, ensuring people safety and protecting the environment and local communities. The ERM process involves identifying risks, assessing their impacts and determining the applicable treatment measures. As a result, the Company frequently revisits its risk matrix and treatment of the scenarios identified and prioritized, especially those involving social and environment aspects, which are prioritized by the Company.
Changes to applicable laws may impose changes on standards we have already implemented, which can take time to review and update. For example, we are concluding studies related to dams located at certain of our industrial sites as a result of a change in Brazilian law that now requires that all water and waste dams have a safety plan for these structures. We have already classified all of our dams in terms of associated risks and potential damage. At this time, we finalized the dam safety plans and the emergency response plans for two dams, with completion and homologation by public authorities in March 2021, and all planned activities were communicated to public authorities. All of our dams are small in volume, and our detailed assessments indicated some risks with regard to two structures located in Triunfo, in the State of Rio Grande do Sul, and measures for mitigation were taken and communicated to the authorities until the final and definitive actions to eliminate the risks are implemented. Some environmental studies that we have commissioned have indicated instances of environmental contamination at certain of our plants. If the laws and regulations applicable to risks and safety plans change, we may be required to revise the studies that we have carried out, or take further action to rectify potential issues that would not need to be addressed under current laws and regulations. In addition, we and certain of our executive officers have received certain notices related to minor environmental violations and are or have been subject to investigations or legal proceedings with respect to certain alleged environmental violations. These environmental issues, and any future environmental issues that may arise, could subject us to fines or other civil or criminal penalties imposed by Brazilian authorities.
Also, under Brazilian federal and state environmental laws and regulations, we are required to obtain operating licenses and permits for our manufacturing facilities. If any of our environmental licenses or permits lapse or are not renewed or if we fail to obtain any required environmental licenses or permits, we may be subject to fines ranging from R$500 to R$50.0 million, and the Brazilian government may partially or totally suspend our activities and impose other civil and criminal sanctions on us.
In addition, our production and logistics processes are subject to inherent safety risks, which may lead to injuries, disability or death of our employees or individuals participating in such processes and communities, as well negatively impact the environment. Such risks cannot be entirely eliminated or mitigated despite full compliance with all safety measures applicable to us or required by laws or regulations. Despite all monitoring efforts, we may have a negative impact on our image and reputation, and on our business, financial condition and results of operations.
A sufficiently large accident at one of our plants, storage facilities, logistic equipment or pipelines could force us to suspend our operations temporarily and result in significant remediation costs and lost net revenue. Although we maintain insurance coverage for losses due to fire damage and for losses of income resulting from shutdowns due to fire, explosion or electrical damage, insurance proceeds from such insurance policies may not be available on a timely basis and may be insufficient to cover all losses,commercial contracts, which could have a material adverse effect on our financial performance.
The existing salt mines in the state of Alagoas, Brazil, whose operation has been permanently interrupted, are also subject to similar risks and hazards. For example, in certain neighborhoods of the city of Maceió that are located near the geological area of our salt mines, there have been allegations that the ground gave way as a result of the activities carried out by us at these mines, which allegedly may have affected certain nearby private and public properties. Collective and individual lawsuits have been filed in the state of Alagoas in connection with this incident
Mining operations at our salt mine in Alagoas were halted in May 2019. Even though the risk of a sinkhole formation is unlikely, it cannot be fully disregarded. A safety area covering 15 of the 35 wells at the site of our salt mine was designated, and the entirety of the mining area has been monitored. In October 2019, a conceptual project was launched to start backfilling four cavities that came out of the salt layer, which is a condition for sinkhole formation. In November 2020, the first well began to be backfilled with sand. However, these actions are part of a large operation that, following reasonable engineering efforts, may take a few years to be completed. Other caverns that are comparatively more stable will be closely monitored. Based on the results of monitoring routinesoperations and additional studies relating to numerical simulations, which provide data to monitor the stability of the caverns, there could arise the need for further stabilization and backfilling.financial condition.
The mine closure planning was presented to the Brazilian National Mining Agency, or ANM, for proper analysis and decision. Following ANM’s approval, we have been implementing actions consisting of backfilling four salt wells with solid material, and conventional closure and monitoring of our remaining salt wells. These actions were defined based on the recommendations of studies carried out by independent institutions and nationally and internationally recognized experts, which have been shared with ANM.
In September 2020, specialized and independent technical studies commissioned by us and carried out by internationally recognized entities (the “Studies”) were concluded. The Studies presented the potential impacts from the geological event on the surface of the region, bringing an analysis of scenarios in the short and long terms, which included areas identified by the Civil Defense Map of June 2020. The Studies were submitted to the competent Authorities for definition of possible actions to be taken under mutual agreement. Given the update of the Civil Defense Map, in September 2020, the Company and the Authorities agreed to include additional properties in the Financial Compensation and Support for Relocation Program (“PCF”), with the execution of the Instrument of Resolutions in October 2020.
On November 26, 2020, we became aware of an ANM letter, or the ANM Letter, determining the closure of the mine including the backfilling with solid material of a number of additional salt wells, as informed to the market. For the implementation of the measures defined by ANM and taking into account the preliminary information that we obtained to date we estimated approximately R$3.0 billion in costs and expenses in addition to the amounts already recorded. Such incremental costs and expenses, if confirmed, would be incurred in the long term due to the complexity of the technical aspects. Braskem presented an appeal against such decision and an order to stay was granted by ANM, suspending the effects of the ANM Letter until further technical evaluation of the appeal and of the motion for reconsideration.
In February 2021, ANM granted our motion to reconsider its order directing the implementation of additional measures for the mine closure plan proposed by us. ANM’s decision maintained in place the implementation of the measures contemplated in the mine closure plan originally proposed by the Company, and for which the amount of R$1.2 billion had already been provisioned. Lastly, considering that the mine closure plan is a dynamic process with complex execution, ANM will continue to oversight the results of the measures that are being taken by the Company for closing and monitoring the mine, and accordingly further evaluations, requirements and provisions may be necessary in the future.
Our actual costs related to this matter may be materially altered based on a variety of factors, including, but not limited to, the result of the monitoring and backfilling actions of the wells, potential future determinations by ANM, unforeseen technical difficulties or costs, or other factors.
In the context of the geological events occurred in Maceio, we entered into agreements with the Public Prosecutor’s Office to settle three lawsuits (Ações Civis Públicas, or public-interest civil actions), ACP Labor, ACP Socio-environmental and ACP of Residents. The settlements were ratified by the court with the termination of the claims. The terms of the settlements were as follows:
On December 31, 2020, based on its assessment and on that of its external legal advisors, and considering the existing information that was available, discussions held with authorities and estimates of expenses with the various safety measures to benefit residents, the Company recorded a provision of R$9,175.8 million, of which R$4,349.9 million is under current liabilities and R$4,825.8 million is under non-current liabilities. Due to the inherent change in the assumptions related to the provisions arising from new facts and circumstances, execution time and extent of the action plans, the findings of future studies conducted by experts and the outcome of pending lawsuits, the provision may be adjusted over time to reflect new developments.
The provisions are based on current estimates and assumptions and may be updated in the future due to new facts and circumstances, including changes in time, extension and way of action plans, execution; the conclusion of current and future studies that indicate recommendations of experts, and other new developments on the topic.
The measures related to the mine closure plan are subject to the analysis and approval of ANM, the monitoring of results of the measures under implementation, as well as the changes related to the dynamic nature of geological events.
Braskem continues to face and could still face various lawsuits filed by individuals or legal entities not included in the PCF or that disagree with the individual proposal of the agreement, as well as potential claims by public utility concessionaires
For example, as of December 31, 2020, Braskem was a defendant in several actions, that, in aggregate, involved the amount of approximately R$573 million, filed by individuals in Brazil and abroad, seeking the payment of indemnifications related to the geological event in Maceió. Also, in February, 2021, the Brazilian Company of Urban Trains (Companhia Brasileira de Trens Urbanos, or “CBTU”) filed a claim against the Company seeking damages in the amount of R$222.1 million and the imposition of other obligations, including the construction of a new rail line to substitute the stretch that passed through the vacated area. CBTU attributes to the action the approximate amount of R$1.3 billion.
The actions to repair, mitigate or offset potential environmental impacts and damages, as provided for in the Socio-Environmental Remediation Agreement, to be financed by Braskem, will be defined after the conclusion of the Environmental Diagnosis, to be conducted by a specialized and independent company. At this time, it is impossible to predict the outcome of these Environmental Diagnosis studies or their potential implications for additional disbursements to the costs already provisioned for by the Company. Furthermore, the Socio-Environmental Remediation Agreement sets forth the potential adherence by other parties, including the municipality of Maceió, which is under negotiation and will continue over the coming months. To date, the Company cannot predict the results of any discussions or any of their associated costs.
Therefore, we cannot eliminate the possibility of future developments related to the topic or related expenses, and the costs to be incurred by Braskem may differ from its estimates.
For additional information, see “Item 8. Financial Information—Legal Proceedings—Alagoas – Mining Activities.”
Further, we may face difficulties in obtaining or maintaining operating licenses and may suffer damage to our reputation following the occurrence of any such event. Petrochemical producers are sometimes subject to unfavorable market perceptions as a result of the environmental impact of their business, which can have an adverse effect on their results of operations.
In addition, we and other petrochemical producers are subject to stringent federal, state and local environmental laws and regulations concerning human health, the handling, storage, transportation, treatment, discharge and disposal of hazardous substances and waste into the environment. Our operations in Brazil, including those of our subsidiaries Cetrel and DAC, which are responsible for providing environmental services, waste water treatment and water supply to the Camaçari Complex in the state of Bahia, for example, are subject to extensive federal, state and local laws, regulations, rules and ordinances relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment and disposal of hazardous substances and waste materials. The Brazilian government enacted the Environmental Crimes Law in 1998 that imposes criminal penalties on corporations and individuals that cause environmental damage. Corporations found to be guilty of polluting the environment may be fined up to R$50.0 million, have their operations suspended, be prohibited from contracting with the government, be required to repair damage that they caused and lose certain tax benefits and incentives. Executive officers, directors and other individuals may also be imprisoned for up to five years for environmental violations.
Our operations in the United States, Germany and Mexico are subject to extensive U.S., German, European and Mexican federal, state and local laws, regulations, rules and ordinances relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. U.S. environmental laws and regulations may impose liability on us for the conduct of third parties, or for actions that complied with applicable requirements when taken, regardless of negligence or fault. Of particular significance to us are (1) regulatory programs to be established to implement air quality standards under the National Ambient Air Quality Standards for ozone and fine particles promulgated by the U.S. Environmental Protection Agency, or the EPA, and (2) various legislative and regulatory measures in the United States that are under review, discussion or implementation to address greenhouse gas emissions. In Mexico, we adhere to the comprehensive responsibility program promoted by the Mexican National Chemical Industry Association (Asociación Nacional de la Industria Química de Mexico – ANIQ), which is based on the responsible care standard adopted in the United States and Canada. We are also signatories of the Responsible Care program in the United States and Brazil that was launched by certain entities of the chemical industry sector worldwide.
Such existing stringent environmental and other regulations require significant capital expenditures. Our consolidated annual expenditures on environmental control were R$537.9 million in 2020, R$369.8 million in 2019, and R$329.3 million in 2018, including investments, waste and wastewater treatment, emissions management, environment licenses, environmental liabilities and other environmental expenditures. In addition, evolving regulatory requirements could require significant additional capital expenditures depending on the timing of the adoption and enforcement of specific standards imposing such requirements. In addition, changes in environmental regulations could inhibit or interrupt our operations or require modifications to our facilities. Accordingly, environmental, health or safety regulatory matters may result in significant unanticipated costs or liabilities.
We may also, from time to time, be involved in certain claims, disputes or litigation proceedings concerning environmental risks and liabilities, health and safety hazards, among others. For more information, please see “Item 8. Financial Information––Legal Proceedings.”
We could be materially adversely affected by the impacts of the Global Settlement.
In the context of allegations of improper payments in connection with the so-called Operation Car Wash (Operação Lava Jato) in Brazil, we engaged independent expert firms to conduct an investigation into such allegations (the “Investigation”) and report their findings. We have cooperated with governmental authorities in several jurisdictions, including the U.S. Department of Justice, or the DoJ, the U.S. Securities and Exchange Commission, or the SEC, Brazil’s Federal Prosecutor’s Office (Ministério Público Federal), or the MPF, and Switzerland’s Office of the Attorney General, or the OAG. On December 14, 2016, we entered into a leniency agreement with the MPF or the Leniency Agreement,(the “Leniency Agreement”), which was ratified by the competent Brazilian court on June 6, 2017. On December 21, 2016, we filed a plea agreement in the United States District Court for the Eastern District of New York under which we agreed to plead guilty to a one-count criminal information charging us with conspiracy to violate the anti-bribery provisions of the U.S. Foreign Corrupt Practices Act or the FCPA.(the “FCPA”). On the same date, we consented to the entry of a final judgment in a civil action brought by the SEC based on civil violations of the anti-bribery, books and records and internal accounting controls provisions of the FCPA. The competent federal courts in the United States approved the DoJU.S. Department of Justice (the “DoJ”) and SEC resolutions on January 26, 2017 and February 28, 2017, respectively. In addition, on December 21, 2016, the OAGSwiss Attorney General’s Office (“OAG”) closed its investigation of these matters. We refer to these actions as the Global Settlement.“Global Settlement”. Under the Global Settlement, we agreed to pay to the governmental authorities in these jurisdictions an aggregate amount of US$957 million (equivalent to R$3.1 billion), based on the exchange rate of R$3.27 per U.S. Dollar, applicable at the time of the negotiation.
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The MPF will distribute the majority of the amount it receives as restitution to third parties for damages caused by the misconduct. Pursuant to the Global Settlement, the MPF agreed to communicate with other public authorities or entities, as well as stated-owned companies and mixed-capital companies with which Braskem enters into discussions to address the facts under the Global Settlement and avoid making duplicate restitution payments. In this context, as announced to the market on July 10, 2018, and disclosed in a material fact on May 27, 2019, we have cooperated and engaged in negotiations with the Ministry of Transparency and Controllership (CGU) and the Office of the Attorney General (AGU) in Brazil, and our Board of Directors approved the signing of a leniency agreement with the CGU and the AGU (the “CGU/AGU Agreement”). ..
The CGU/AGU Agreement, in the amount of R$2.9 billion, to be adjusted by the SELIC rate, addresses the same facts that are the object of the Global Settlement executed in December 2016 with the Brazilian Federal Prosecution Office (MPF), the U.S. Department of Justice (DoJ),DoJ, the U.S. Securities and Exchange Commission (SEC)SEC and the Swiss Office of the Attorney General (“Global Settlement”). Of this amount, R$2.53.1 billion will be offset by the amount that Company already had undertaken to pay under the scope of the Global Settlement, resulting in an additional disbursement of R$410 million.
As of December 30, 2020,31, 2023, we had paid R$2.73.1 billion, of the total fine established in the Global Settlement, in the following manner:as follows:
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In January 2023, the Company offered own and third-party registered warrants to pay the fourth installment under the Leniency Agreement (due on January 30, 2023). The payment confirmation was subject to analysis by relevant authorities. Hence, the Company wrote off the amount related to said installment, recording a liability payable to third parties and writing off its own registered warrant. However, the administrative rule governing this settlement procedure was revoked, and no new regulation on this matter was enacted prior to the expiration of the agreements for acquisition of third-party registered warrants (on December 31, 2023). As a result, the Company returned this installment amount to the payable balance under the Leniency Agreement, while the requirement to pay such 2023 installment remains suspended, awaiting the enactment of new regulations by the competent authorities.
The amount payable under the Leniency Agreement, at December 31, 2023, was R$1,016 million, of which R$840 million is under current liabilities and R$176 million under non-current liabilities, which will be paid in two annual installments updated by the variation in the Selic rate and payable until January 30, 2025, considering that 2023 installment remains suspended. To guarantee payment of these installments coming due, we gave as collateral assets from its property, plant, and equipment corresponding to one annual installment.
By reason of the Global Agreement, we will continue to cooperate with these relevant governmental authorities and improve our governance and anti-corruption compliance practices. Over the three years between 2017 and 2020, we were subject to independent monitoring as a result of the Agreements (the “CGU/AGU Agreement” and, together with the Global Agreement, the “Agreements”). Such monitors were responsible for verifying compliance with the Global Agreement, as well as the effectiveness of our internal controls, policies and procedures to reduce the risk of non-compliance with anti-corruption laws.
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The outstanding amountIn March 2020, based on the certification report issued by the independent monitors who had monitored us for three years, the MPF confirmed the monitoring conclusion, the effectiveness of R$1.1 billion related toour compliance program and compliance with the Global Settlementobligations of the MPF Agreement. Later, on May 13, 2020, the DoJ and also the CGU/AGU Agreement will be paidSEC confirmed the end of the monitoring provided for in the following manner:agreements with such authorities.
The CGU concluded its monitoring of the Company, and no pending issues involving the Company remained.
On August 15, 2023, we were notified by CGU of the end of the monitoring period of the Company's integrity program as provided for in the Leniency Agreement signed between Braskem, CGU and the Office of the General Counsel of the Federal Government (“AGU”) on May 31, 2019, with emphasis on obtaining ISO 37001 certification by the Company.
We are in compliance with all of our obligations under the Agreements and continue to cooperate with government authorities.
The Global Settlement does not prevent Braskemus from respondingbeing held liable to any legitimate third party, which may seek indemnification against us fromfor damages for the facts subject to the Global Settlement. As a result, we cannot assure you that the aggregate amount disbursed as a requirement pursuant to the agreement will be sufficient to cover indemnification claims of all of the victims. We may be required to make additional disbursements to cover such claims.
Otheragreements, including other authorities with jurisdiction over us may seek to impose monetary sanctions or fines on, or to initiate investigative proceedings against us. As a resultus, which could adversely affect our results of entering into the Global Settlement, Braskem may be prevented from entering into certain agreements with government entitiesoperations and may be subject to increased operating costs for being under the obligation to improve its governance and anti-corruption practices and procedures, including the cost of external monitorships.financial condition.
Under the terms of the Global Settlement, we were required to cooperate with these governmental authorities and improve our governance and anti-corruption compliance practices. We were also subject to external monitorship for a period of three years from 2017, which ended in March 2020, during which time the monitor assessed compliance with the Global Settlement, including the effectiveness of our internal controls, policies and procedures to reduce the risk of any anti-corruption violations.
On May 13, 2020, the MPF, the DoJ and the SEC confirmed the conclusion of the independent compliance monitorship at Braskem, which had been established in the settlement agreements entered into by Braskem, the DoJ and the SEC on December 21, 2016. The decision of the DoJ and the SEC was based on a final report from the independent monitors, who certifiedcannot guarantee that the Company implemented all of the recommendations regarding the structure and execution of its compliance program and concluded that the Company meets the standards set out in the settlement agreements entered into with the DoJ and the SEC. Following the end of the independent monitorship period and the certification by the MPF, the DoJ and the SEC, the Company has complied with its obligations established in the settlement agreements entered into with these authorities and has successfully concluded the three-year monitorship.
We believe we are fully in compliance with our obligations under the Global Settlement.total amount agreed will be sufficient to repair any harm fully.
Unfavorable outcomes in pending or future litigation may reduce our liquidity and negatively affect our financial performance and financial condition.
We are, and in the future may be, involved in numerous tax, civil, environmental and labor disputes, among others, involving monetary claims. If unfavorable decisions are rendered in one or more of these lawsuits, we could be required to pay substantial amounts. For certain of these lawsuits, we have not established any provision on our balance sheet or have established provisions only for a portion of the amounts in controversy, based on our judgments as to the risk of loss for these lawsuits.
In July 2015, two putative class action lawsuits were filed against us and certain of our then-current and former officers and directors or the Defendants, in the United States District Court for the Southern District of New York, or the U.S. Court. In those lawsuits that were subsequently consolidated under the caption In re Braskem, S.A. Securities Litigation, No. 15-cv-5132, the Lead Plaintiff,York. The lead plaintiff, Boilermaker-Blacksmith National Pension Trust, alleged that the Defendantsdefendants made misrepresentations or omissions that inflated the price of Braskem S.A.’sour stock in violation of U.S.United States securities laws.
After the decision on the motion to dismiss filed by us, partially granting its arguments, we and the Lead Plaintiff signed the proposed settlement agreement (“Proposed Settlement”), which was ratified by the applicable Court, which issued a final decision ending all claims from all members of the class of Investors. We have made no admission of any wrongdoing or liability as part of the settlement.
Under the terms of the Proposed Settlement, Braskem paid US$10.0 million (R$31.7 million) to resolve all claims arising out of or relating to the subject matter of the class action of a settlement class consisting of all persons who purchased or otherwise acquired a legal or beneficial ownership interest in Braskem American Depositary Receipts between July 15, 2010 and March 11, 2015, inclusive. The amount of the agreement was deposited by Braskem in the account designated by the judge (“Escrow Account”) on October 2, 2017.
On February 21, 2018, a hearing was held in whichand a decision was handed downrendered for the final approval of the settlement agreement regarding the entire class of investors and the dismissal of the case. Said decision became finallawsuit, and unappealable. The individual distribution of the amount of thesuch agreement is the responsibility of the manager of the Escrow Account, as determined by the Court and in accordance with the ratified allocation plan. The Proposed Settlement was signed solely to avoid the risk, uncertainty, and expense of further litigation and does not represent the admission of any wrongdoing or liability by Braskem.us. Such decision became final and binding.
On August 25, 2020, a class action was filed against us and some of our current and former executives in the U.S. District Court for the District of New Jersey, in the United States, on behalf of an alleged class of investors who acquired Braskem's shares between March 21, 2019 and July 8, 2020.securities issued by us. The action islawsuit was grounded in the U.S. Securities Exchange Act, of 1934 and its rules, based on allegations that the defendants made false statements or omissions related to the geological event in Alagoas.
On December 15, 2022, the parties entered into an agreement to settle the class action with a payment of US$3 million, which was made in January 15, 2021,2023. On December 20, 2022, as the Court named two plaintiffs to act as leading plaintiffs infirst measure for approval of the action. On April 28, 2021,agreement, the lead plaintiffsplaintiff filed a preliminary approval motion, and the U.S. District Court for the District of New Jersey is expected to follow the required procedure for the approval of the action filed a consolidated complaint with its initial arguments. We engaged a U.S. law firm to represent it insettlement agreement. The extinction of the class action.
Our management, based on its assessment and that of its external legal advisors, and givenaction is expected to be declared only after the initial phasefinal approval of the potential class action mentioned above, it is not possible atsettlement agreement and after the momentobligations assumed by the parties to reliably estimate the potential amount involved.settlement agreement are met.
Braskem
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We cannot reliably predict all of the future developments ofcosts related to solving this matter or the expenses arising from it, including rates and costs in solving the dispute. The CompanyWe may be named as a defendant in other similar legal actions. We may also be named as a defendant in other lawsuits.
In the context of the geological events occurred in Maceio,Maceió, we entered into agreements withfor the Public Prosecutor’s Office to settletermination of three lawsuits (Ações Civis Públicas, or public-interest civil actions), ACPactions (ACP Labor, ACP Socio-environmental and ACP of Residents. Residents). The terms of the settlements were as follows:
· | ACP Labor settlement: we committed to investing R$ |
· | ACP of Residents settlement: we committed to supporting the relocation |
· | ACP Socio-environmental settlement: we committed to (i) adopting the necessary measures to stabilize the cavities and monitor the soil, implementing the measures of the mine closure planning presented to ANM and subject to its approval; (ii) repairing, mitigating or compensating potential environmental impacts and damages resulting from the mining activities (salt extraction) in the city of Maceió, to be defined by an Environmental Diagnosis developed by an expert and independent company approved by the Prosecutor’s Office; (iii) allocating R$1.28 billion to implement measures in the vacated area, actions related to urban mobility and to compensate potential socio-urbanistic impacts and damages; and (iv) allocating R$ |
On December 13, 2023, the Senate set up a Parliamentary Investigative Committee ("CPI") regarding the geological event in Alagoas. We have been monitoring the matter.
An investigation has been carried out under secrecy by the Federal Police in Alagoas for around four years. In December 2023, the Federal Police conducted search and seizure of documents under this investigation, named Salt Tears Operation. In this sense, the Company informs that it is and has always been at the disposal of authorities and that it has been providing all the information related to salt mining during the investigation.
We have been making progress with local authorities about other indemnification requests to understand them better. Although future disbursements may face otheroccur as a result of progress in negotiations, as of the reporting date, we are unable to predict the results and timeframe for concluding these negotiations or its possible scope and the total associated costs in addition to those already provisioned for.
It is not possible to anticipate all of the new claims in the future related to this matter. The measuresdamages or other nature that may be brought by individuals or groups, including public or private entities, that understand they suffered impacts or damages related to the Mine Closure Planning are subject to ANM analysesgeological phenomenon and approval,the relocation of people from risk areas, as well as new notices of infraction or administrative penalties of diverse nature. Braskem continues to modifications related toface and could still face administrative procedures and various lawsuits filed by individuals or legal entities not included in the dynamicityPCF or that disagree with the financial compensation offer for individual settlement, as well as new collective actions and new lawsuits filed by public utilities, entities of the geological events. Actions to repair, mitigatedirect or compensate potential environmental impacts and damages, to be funded by Braskem, will be defined after the conclusionindirect administration of the Environmental Diagnosis.State of Alagoas, the Municipality of Maceió or the Brazilian federal government. Therefore, the number of such actions or lawsuits, their nature or the amounts involved cannot be accurately estimated at this time.
For more information about our legal proceedings, see “Item 8. Financial Information—Legal Proceedings.”
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Labor unrest may materially and adversely affect our operations.
Labor unrest in our plants and facilities may have a material adverse effect on our financial condition or results of operations. Although we believe that we maintain good relations with our employees, future labor actions, including strikes, could have a material adverse effect on our financial performance.
Natural disasters, severe weather and climate conditions, or health epidemics could have a material adverse effect on our overall business.
Some of our facilities are located in places that could be affected by natural disasters, such as floods, earthquakes, hurricanes, tornados and other natural disasters, which could disrupt our operations or the operations of our customers and could damage or destroy infrastructure necessary to transport our products as part of the supply chain. Additionally, other unanticipated problems such as health epidemics or pandemics, including the COVID-19 outbreak that began in China and spread to the rest of the world, could also cause operational disruptions of varied duration. Such events could require maintenance shutdowns, delay shipments of existing inventory or result in costly repairs, replacements or other costs, all of which could have a material adverse effect on our financial performance.
While our energy risk policy dictates that we purchase energy in advance at fixed prices through long-term contracts, the majority of Brazilian power generation capacity is provided by hydroelectric generation facilities. If the amount of water available to energy producers becomes scarce due to drought or diversion for other uses, the cost of energy may increase. In addition, if the amount of water available to industrial facilities becomes scarce, there may be a need to reduce production at the affected sites. Such conditions could have a material adverse effect on our sales and margins.
We could be materially affected by violations of the U.S. Foreign Corrupt Practices Act,FCPA, the Brazilian Anti-CorruptionAnti-Corruption Law and similar anti-corruption laws.
We, our subsidiaries and our joint venture partners are subject to a number of anti-corruption laws, including Law No. 12,846/2013, or the Brazilian Anti-Corruption Law, which entered into effect on January 28, 2014, the FCPA and various other anti-corruption and anti-bribery laws of other jurisdictions.
The FCPA, the Brazilian Anti-Corruption Law and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. Violations of these laws may result in criminal or civil sanctions, inability to do business with existing or future business partners, injunctions against future conduct, profit disgorgements, disqualifications from directly or indirectly engaging in certain types of businesses, the loss of business permits or other restrictions which could have a material adverse effect on our business, financial condition, results of operations or liquidity. See “—WeAny negative reflection on our image or our brand from any violation of these laws could be materially adversely affected by the impacts of the Global Settlement” for thehave a negative impact on us of allegations of improper payments in connection with the Operation Car Wash.
For example, in light of the allegations of undue payments related to the Ethylene XXI project, which were originally published in the media in Mexico and were included in the testimony by the former CEO of Pemex to the Office of the Attorney General of Mexico, we, together with Braskem Idesa, in compliance with the standards established by Braskem’s Global Compliance System Policy and Braskem Idesa’s governance guidelines, approved the engagement of a U.S. law firm with proven experience in similar cases to conduct an independent internal investigation of the allegations. The investigation is ongoing and we are unable to estimate the date for its conclusion or the outcome. If the investigation concludes that there is evidence supporting any of the allegations, such findings could affect our business, reputation, financial condition, controls, and results of operations, as well as our ability to achieve our growth strategy. Furthermore, the liquidityBrazilian Anti-Corruption Law provides for joint and priceseveral liabilities between companies of the securities issuedsame economic group.
Given the size of our operations and the complexity of our production chain, there can be no assurance that our internal policies and procedures will be sufficient to prevent or detect all inappropriate or unlawful practices, including fraud or violations of law or violations of our internal policies and procedures by us.our employees, directors, officers, partners or any third-party agents or service providers. Furthermore, there can be no assurance that such persons will not take actions in violation of our policies and procedures (or otherwise in violation of applicable laws and regulations) for which we or they may ultimately be held responsible. Violations of anti-fraud, anti-corruption, anti-money laundering or other international laws and regulations could have a material adverse effect on our business, reputation, brand, selling prices, results of operations and financial condition, including as a result of the closure of international markets. We may be subject to one or more enforcement actions, investigations or proceedings by authorities for alleged infringement of these laws. These proceedings may result in penalties, fines, sanctions or other forms of liability.
We are exposed to behaviors of our employees, non-employees and non-employeesthird parties that may be incompatible with our ethics and compliance standards, and failure to timely prevent, detect or remedy any such behavior and/or process vulnerabilities may have a material adverse effect on our results of operations and financial condition.
Our business, including our relationships with third parties, is guided by ethical principles. We have adopted a Code of Conduct, a Global Compliance System Policy, an Anti-Corruption Policy, and several other internal policies designed to guide our management, employees and counterparties and reinforce our principles and rules for ethical behavior and professional conduct. We maintain an independent whistleblower channel (denominated “Ethics Line”) managed by a third party available for employees and non-employees (including third parties). Every whistleblower complaint is investigated and submitted for evaluation to our Ethics Committee.
We are subject to the risk that our employees, partners, counterparties, or any person doing business with us may engage in fraudulent activity, corruption, or bribery, or circumvent, or override our internal controls and procedures or misappropriate or manipulate our assets for their personal or business advantage. In the event that we believeInvestigations conducted by us internally or have reason to believe that our employees or agents have or may have violatedthrough outside counsel on potential violations of any applicable anti-corruption laws, including the FCPA we may be required to investigateby our employees or have outside counsel investigate the relevant facts and circumstances, whichagents can be expensive and require significant time and attention from senior management. We have in place a robust Compliance andOur Anti-Corruption Program implemented through every area of our Company, including several processesmay not be completely effective for identifying, monitoring, and mitigating these risks, but such program may not be completely effective.risks.
Our management isIn addition, we cannot guarantee the existence of a socially responsible for establishingvalue chain that offers decent working conditions. Any breach of work-related regulations could result in human rights violations, impacts on people’s quality of life, and maintaining adequate internal control over financial reporting as definedpoor work conditions, which in Rules 13a-15(f) and 15d-15(f) under the Exchange Actturn could have an impact on our results of 1934. During our assessment of internal control over financial reporting as of December 31, 2020 (see “Item 15. Controls and Procedures”), we identified one material weaknesses. This specific material weakness in internal control over financial reporting was first identified of December 31, 2019, andoperations due to its remediation complexity existed as of December 31, 2020. A material weakness is defined as a deficiency,potential financial implications and lawsuits brough by individuals, public authorities, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement ofother agents, which could impact our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
As we were required to conduct additional proceduresreputation and analyses with respect to our internal processes and controls for the year ended December 31, 2017, we were unable to timely conclude our audited financial statements for such year and, therefore, were unable to timely file our annual report on Form 20-F for the year ended December 31, 2017. We obtained extensions from the SEC to file our annual report on Form 20-F for the year ended December 31, 2017 until May 16, 2019. Since we were not able to file our Form 20-F until the date granted by SEC and no further extensions were granted pursuant to Section 802.01E of the NYSE Listed Company Manual, on May 13, 2019, we were notified by the NYSE that it had suspended the trading of our ADSs and had initiated delisting procedures. Trading of our ADSs resumed after we filed our annual reports on Form 20-F for the years ended December 31, 2017 and December 31, 2018 on October 8, 2019 and October 17, 2019, respectively.image.
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In the future, we may be required to conduct additional procedures and analyses with respect to our internal processes and controls that may lead to a delay in the conclusion of our audited financial statements and, as a result, prevent us from filing future annual reports in a timely manner. Any failure to timely file our annual reports in the future may have an adverse effect on our business.
If we are unable to comply with the restrictions and covenants in the agreements governing our indebtedness, there could be a default under the terms of these agreements, which could result in an acceleration of payment of funds that we have borrowed and could affect our ability to make principal and interest payments on our debt obligations.
Any default under the agreements governing our indebtedness that is not cured or waived by the required lenders or noteholders could result in the holders of any such indebtedness accelerating the payment of amounts outstanding, which could make us unable to pay principal and interest on those and other debt obligations. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in the agreements governing our indebtedness, we could be in default under the terms of such agreements. In the event of such default:
In addition, certain of our contractual arrangements, including debt obligations, contain change of control provisions that provide our counterparties with a termination right or the ability to accelerate the maturity of our indebtedness with them in the event of a change of our control without their consent. These provisions would be triggered in the event Novonor, formerly called Odebrecht, ceases to own, directly or indirectly, capital stock representing more than 50% of the voting power of our capital stock outstanding. As a result, if Novonor ceases to control, or in some cases, own a certain percentage of our common shares, whether as a result of the Novnor Judicial Restructuring Proceedings, an alternative sale, foreclosure by creditors, reorganization, restructuring or other similar circumstance in connection with the Novonor Judicial Restructuring Proceedings or otherwise, if appropriate consents or waivers are not obtained, such counterparties could terminate such contracts or accelerate the maturity of such financing arrangements. The termination of any of our contractual arrangements or the acceleration of the maturity of any of our financing arrangements could have a material adverse effect on our business, financial condition, results of operations and cash flows, and ultimately result in the cross-acceleration of all of our indebtedness.
Furthermore, pursuant to the indentures governing our 5.375% Notes due 2022, 3.50% Notes due 2023, 6.45% Notes due 2024, 4.50% Notes due 2028, 4.500% Notes due 2030, 7.125% Notes due 2041, 5.875% Notes due 2050 and Subordinated Resettable Fixed Rate Notes due 2081, a change of control with a ratings decline would require a repurchase of any such outstanding notes, plus accrued and unpaid interest, if any, to the repurchase date.
In addition, on December 31, 2020, due to the breach of certain covenants contained in financing agreements, Braskem Idesa recorded under current liabilities its financial obligations with original long-term maturities. Braskem Idesa has been settling all of its obligations in accordance with the original maturity schedule and no creditor required or indicated the intention of requesting immediate reimbursement of these obligations or accelerating the indebtedness. As of December 31, 2020, certain non-monetary obligations established in the financing agreements remained unfulfilled. As a result, the entire balance of non-current liabilities, in the amount of R$6,538.6 million was reclassified to current liabilities, in accordance with IAS 1 (Presentation of Financial Statements). Furthermore, Braskem Idesa intends to negotiate a waiver of such breaches with its creditors to reclassify the entire amount reclassified from current liabilities back to non-current liabilities. We may in the future need to obtain waivers under our other indebtedness to avoid being in default. If we breach any covenants under any of our debt instruments and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under such agreements, the lenders could exercise their rights or remedies under the agreements, and we could be forced into bankruptcy or liquidation.
Unauthorized disclosure or loss of intellectual property, trade secrets, other sensitive business or personal information, or disruption in information technology by cyberattacks or other security breaches, as well as our failure to comply with data protection laws and information security requirements can subject us to significant penalties or liability and can adversely impact our operations, reputation, and financial results.
We collect, store, process, and use certain confidential information and other personal data in connection with our business operations. We must ensure that any personal data activity such as processing, collection, use, storage, dissemination, transfer, and disposal of data for which we are responsible complies with relevant data protection and privacy laws. The protection of information relating to our business partners (customers and suppliers), employees and confidential information related to our business is critical to us. We rely on commercially available systems, software, and monitoring tools to provide secure processing, transmission, and storage of relevant information, such as business confidential information and personal data including sensitive information.
Data protection and privacy laws are developing to take into account the changes in cultural and consumer attitudes towards the protection of personal data. For example, on August 14, 2018, Brazil enactedThe Brazilian Constitution, Law No. 13,709/2018 (Lei Geral de Proteção de Dados)10,406/2002 (Civil Code), or the LGPD, a comprehensive data protection law establishing general principlesLaw No. 8.078/1990 (Consumer Protection and obligations that apply across multiple economic sectors and contractual relationships. The LGPD establishes detailed rulesDefense Code), Law No. 12.965/2014 (Brazilian Civil Rights Framework for the collection, use, processingInternet), Decree No. 8771/2016 and storage of personal data and will affect all economic sectors, including the relationship between customers and suppliers of goods and services, employers and employees, and other relationships inrecent Law No. 13.709/2018 (Brazilian General Data Protection Law or LGPD), which personal data is collected, whether in a digital or physical manner.
The LGPD entered into effectforce on September 18, 2020, except for administrative sanctions,are the main laws governing the practice of processing personal data in Brazil.
The LGPD is a comprehensive legislation, which will enter into effect on August 1, 2021, pursuantregulates practices related to Law No. 14,010/2020, which delayed the applicabilityprocessing of certain provisionspersonal data, through a set of rules that impacts all sectors of the LGPD.economy and organizations of all sizes, both digitally and physically. The LGPD establishedestablishes a new legal framework to be observed in thepersonal data processing of personal datatransactions and provides, among other measures, the duty of transparency on the part of the data controller, the rights of the holders of personal data, subjects, caseshypotheses in which the processing of personal data is allowed obligations and requirements relating(legal bases), obligation to designate a data controller, rules related to information security, incidents involving personal data, requirements and theobligations related to international data transfer and sharingdata sharing. The LGPD also provides for administrative sanctions that can be applied in case of personal data between different countries, as well as penalties for non-compliance with its provisions ranging from a warning and exclusion of personal data treated in an irregular way to fines or the prohibition from processing personal data. The LGPD also authorized the creation ofby the National Data Protection Authority (Autoridade Nacional de Proteção de Dados)(“ANPD”), an authority that oversees theresponsible for preparing guidelines and supervising compliance with the ruleslaw. Non-compliance with any provisions provided for in the LGPD may result in the following consequences: (i) the filing of lawsuits or administrative proceedings by individual or collective competent bodies seeking compensation for damages arising from violations, among others, that are based not only on the LGPD, but also on sparse or specific data protection.protection regulation still in force; and (ii) the enforcement by consumer protection agencies of penalties provided for in the sparse data protection regulation, such as those set forth in the Consumer Protection and Defense Code and the Brazilian Civil Rights Framework for the Internet, given that even before the LGPD entered into force and the ANPD was finally structured such agencies had authority to act in this regard, mainly in cases concerning security incidents that result in improper access to personal data.
Since August 1, 2021, with the entry into force of the LGPD’s administrative sanctions, if the ANPD understands that we are not in compliance with the LGPD, we may be subject to individual or cumulative sanctions, warning, requirement to disclose the incident, temporary blocking and/or exclusion of personal data to which the violation refers, daily fine, simple fine of up to 2% of the company, group or conglomerate’s revenue in Brazil in its last fiscal year, excluding taxes, and up to the aggregate amount of R$50.0 million per infringement. In case of recurrence, more severe administrative penalties provided for in the LGPD may be applied, such as partial suspension of the database operation to which the infringement refers for a maximum period of six months, extendable for an equal period, until the regularization of the activity of processing by the controller, suspension of the exercise of the activity of processing the personal data to which the infringement refers for a maximum period of six months, extendable for an equal period or partial or total prohibition of the activities related to the processing of data.
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In addition, we may be held liable for material, moral, individual or collective damages caused to the holders of personal data, including when caused by our subsidiaries or by third parties that process personal data on our behalf or as controllers together with us due to non-compliance with the obligations provided by the LGPD. In this sense, we cannot guarantee that we will be successful in adapting our activities, procedures, documentation and the relationship with third parties hired by us to meet the high standards provided by the LGPD. Administrative sanctions or legal convictions may cause material financial impacts, in addition to adversely affecting our reputation in the market.
Even if we adopt practices in line with the provisions and obligations set forth in the LGPD, it cannot be guaranteed that the measures adopted to adapt our personal data processing activities will be considered adequate or sufficient by ANPD, by other public authorities, such as the Public Ministry and consumer protection bodies, or by the court.
Any additional privacy laws or regulations enacted or approved in Brazil or in other jurisdictions in which we operate could seriously harm our business, financial condition or results of operations. On May 25, 2018, the Regulation No. 2016/279 of the European Parliament and of the Council of April 27, 2016 on the protection of personal data (the General Data Protection Regulation), or the GDPR, became directly applicable in all member states of the European Union. The GDPR has introduced new obligations relating to data privacy, control and retention, including, among others: (i) accountability and transparency requirements; (ii) enhanced data consent requirements; (iii) obligations to consider data privacy as any new products or services are developed and limit the amount of information collected, processed, stored and its accessibility; (iv) constraints on using data to profile data subjects; (v) providing data subjects with personal data in a useable format upon request and erasing personal data in certain circumstances; and (vi) reporting breaches without undue delay.
As we seek to expand our business and operations, we expect to be increasingly subject to laws and regulations relating to thepersonal data activity such as collection, use, retention, security, and transfer of our employee and customer data. These may change over time and may vary by jurisdiction, and it is possible they will be interpreted and applied in ways that will materially and adversely affect our business. Any failure—real or perceived—by Braskem to comply with any applicable privacy or data protection-related laws and regulations could cause our customers to reduce their use of our products and services.
Compliance with data protection laws requires us to expend resources to revise our procedures and policies. There are no guarantees that we have sufficient resources to comply with new regulations or to successfully comply with this changing regulatory environment.environment successfully. Further, there is a risk of improper implementation and sanctions or reputational damage for noncompliance, both of which could have a material adverse effect on our operations, financial condition, and prospects.
In addition, despite the information security measures that we have in place, our facilities and systems—and those of our third-party service providers—may be vulnerable to security breaches, cyberattacks (including ransomware and phishing), computer viruses, misplaced or lost data, programming or human errors, or other similar events. The ongoing military conflict between Russia and Ukraine has led to an increasing number of cyberattacks globally. Any security breach or perceived threat resulting in the loss or other unauthorized disclosure of confidential information could damage our reputation, expose us to litigation risk and liability, subject us to negative publicity, disrupt our operations and harm our business.
Our own security measures cannot be guaranteed and are susceptible to new cyberattacks. On October 4, 2020, we detected a cyberattack on our information technology environment as it occurred. Our security system immediately interrupted access to our servers and software, allowing us to eliminate the external threat before relevant data loss or damage occurred. We restored access to most of our servers and software, which allowed us to resume our normal operations at our plants on October 7, 2020. We took this opportunity to expedite the implementation of additional security measures that had already been planned. We have investigated and continue to investigate whether there was any breach of personal data and personal information. As of the date of this annual report, we have not found any evidence that a breach of personal data and personal information occurred.
As of the date of this annual report, we have not found any evidence that a breach of personal data and relevant information occurred. We are also unable to assess all the effects of this incident on our operations, data processing and other information technology systems. We continue to undertake our best efforts to assess the extent of the incident and take appropriate measures, including from a criminal standpoint, to prevent similar cyber-attacks from happening in the future
We have investigated whether there was any breach of personal data and personal information. As of the date of this annual report, we have not found any evidence that a breach of personal data and relevant information occurred. We are also unable to assess all the effects of this incident on our operations, data processing and other information technology systems. We continue to undertake our best efforts to assess the extent of the incident and take appropriate measures, including from a criminal standpoint, to prevent similar cyber-attacks from happening in the future.
Cyberattacks or security breaches could compromise critical information and cause a disruption in our operations, which are heavily dependent on information technology and telecommunication systems and services. Information assets, including intellectual property, trade secrets, personal data and other business-sensitive critical information are an attractive asset to cyber criminals, cyberterrorism or other external agents. While we can offer no assurances, we have a comprehensive cybersecurity program in place, which is continuously reviewed, maintained and upgraded to prevent aA significant cyberattack, a human error, including from our employees and partners, or obsolescence of technology could result in the loss of critical business information and/or negatively impact our operations, which could have a negative impact on our financial results.
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Our own security measures cannot be guaranteed and are susceptible to new cyberattacks. On October 4, 2020, we detected a cyberattack on our information technology environment and several improvements in people, processes and technologies have been and are being applied in the company’s environment, significantly increasing the maturity of information security at Braskem. We believe that all these actions ensured that no new incidents happened to date.
We are subject to audit by the tax authorities in the jurisdictions in which we operate, which may adversely affect our operating results and financial condition.
We operate in and sell our products into several countries, such as Brazil, Argentina, Colombia, Chile, the United States, Germany, the Netherlands, Mexico and Singapore, each with its own tax legislation and specific audit procedures. The tax legislations in each country are frequently ambiguous and subject to interpretation, which may lead to divergent views between the tax authorities in each country and us and/or our advisors.
We are routinely audited by the tax authorities in different countries and other sub-national authorities in Brazil and abroad. As a result of such audits, our tax positions may be questioned by the tax authorities. We cannot guarantee that we will make provisions in amounts sufficient for lawsuits resulting from inspection, nor that there will be no identification of additional tax exposure. As a result, the increase in the amount of taxation as a result of disputes over our tax positions may adversely affect our business, operating results and financial condition.
Changes in tax laws may result in increases in certain direct and indirect taxes, which could reduce our gross margin and negatively affect our overall financial performance.
We operate in several countries, such as Brazil, Argentina, Colombia, Chile, the United States, Germany, Netherlands, Mexico and Singapore. Besides, we sell our products to several other countries through different commercial approaches.
Each of these countries has its own tax legislation, and these tax laws undergo frequent changes according to specific government purposes in each country. An example is the Brazilian government, which implements, from time to time, changes to tax regimes that may increase our and our customers’ tax burdens.These changes include modifications in the rate of assessments and, on occasion, enactment of temporary taxes.
We cannot predict the changes to Brazilian tax law or in any other jurisdiction in which we operate that may be proposed and enacted in the future. However, future changes in these tax laws may result in increases in our overall tax burden, which could reduce our gross margin and negatively affect our overall financial performance.
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Risks Relating to Brazil
Brazilian political, economic and business conditions, and the Brazilian government’s economic and other policies, may negatively affect demand for our products as well as our net revenue and overall financial performance.
The Brazilian economy has been characterized by frequent and occasionally extensive intervention by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the course of Brazil’s economy. The Brazilian government’s actions to control inflation and implement other policies have at times involved wage and price controls, blocking access to bank accounts, imposing capital controls and limiting imports into Brazil.
Our results of operations and financial condition may be adversely affected by factors such as:
· | expansion or contraction of the Brazilian economy, as measured by rates of growth in |
· | fluctuations in exchange rates; |
· | exchange control policies; |
· | interest rates; |
· | inflation; |
· | tax |
· | liquidity of domestic capital and lending markets; and |
· | other political, diplomatic, social, economic and business developments in or affecting Brazil. |
Brazilian markets have been experiencingexperienced heightened volatility due to the uncertainties derived from the ongoing corruption investigations by the Federal Prosecutor’s Office under Operations Car Wash, Zelotes, Greenfield, Efficiency and others,other investigations, and their impact on the Brazilian economy and political environment. Certain current and former members of the Brazilian government and of the legislative branch, as well as former senior officers of the state-owned oil company and our shareholder Petrobras are beinghave been prosecuted for political corruption. These government officials and former senior officers allegedly accepted bribes by means of kickbacks on contracts granted by Petrobras to several infrastructure, oil and gas and construction companies, including Odebrecht,Novonor, our controlling shareholder. We cannot currently predict how the Operation Car Wash investigation, related investigations and any future decisions and actions by authorities or developments in relation to our shareholders, may impact us. The profits of these kickbacks allegedly financed the political campaigns of political parties of federal, state and city governments that were unaccounted for or not publicly disclosed, as well as served to personally enrich the recipients of the bribery scheme. As a result of the ongoing Operation Car Wash investigation, a number of current and former senior politicians, including congressman and officers of the major state-owned companies in Brazil have resigned or have been arrested. Senior elected officials and other public officials in Brazil are beinghave been investigated for allegations of unethical and illegal conduct identified during the Operation Car Wash investigation.
The potential outcome of these investigations is uncertain, but they have adversely affected and we expect that they willmay continue to adversely affect the Brazilian markets and trading prices of securities issued by Brazilian issuers. We cannot predict whether the allegations will lead to further political and economic instability or whether new allegations against government officials or other companies in Brazil will arise in the future. Luiz Inácio Lula da Silva, who served two terms as Brazil’s president from 2003 to 2011 and later spent over one year in prison on charges of corruption and money laundering recovered his political rights and was elected in 2022 for a third term as president of Brazil. In addition, we can neither predict the outcomeaftermath of any such allegations nor their effect on the Brazilian economy. The development of those unethical conduct cases could have2022 election results, there were mass protests and demonstrations throughout Brazil highlighting a material adverse effect.
In addition, Brazilian politics have beendeeply polarized electorate amidst a political climate characterized by considerable instability in recent years. The convictionuncertainty as the country awaits definition regarding the political and economic agenda of Former the new administration, which could contribute to increased macroeconomic and political instability. As a result of the past corruption allegations against President Luiz Inácio Lula da Silva, and potential ongoing judicial appeals may further increasehis political and economic instability. In addition, followingactions are a divisive presidential race, former Congressman Jair Bolsonaro became Brazil’s president on January 1, 2019. It is unclear if and for how long the political divisionsmatter of controversy in Brazil, that arose priorand such controversy could lead to further political uncertainty and impasse, which could have negative macroeconomic impacts. Further, during the elections will continue under Mr. Bolsonaro’s presidencyterm of former president, Jair Messias Bolsonaro, there were several inquiries related to potential misconduct, including a Supreme Court investigation following allegations made by the former Minister of Justice as well as a Parliamentary Committee Inquiry (Comissão Parlamentar de Inquérito, or “CPI”) focused on the president’s handling of the COVID-19 pandemic, including the potential misuse of government funds.
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The potential outcome of these and other inquiries, as well as potential new inquiries involving former president Jair Messias Bolsonaro and any new inquiries involving current president Luiz Inácio Lula da Silva, are uncertain, but they have had a negative impact on the general perception of the Brazilian economy and the effects that any such divisions will have on Mr. Bolsonaro’s abilitysecurities of Brazilian companies and affected and may continue to govern Brazil and implement reforms. Any continuation of such divisions could result in congressional deadlock, political unrest and massive demonstrations and/or strikes that could materially adversely affect our business, our financial condition and results of operations. Uncertainties
Additionally, uncertainties in relation to the implementation by thea new government of changes relating to monetary, tax, labor and pension funds policies as well as to the relevant legislation may contribute to economic instability. These uncertainties and measures adopted by the new administration could materially adversely affect our operations and may increase market volatility of Brazilian securities issued abroad.
Also, imports of suspension PVC from the United States and Mexico have been subject to anti-dumping duties of 16.0% and 18.0%, respectively, that were imposed by the Brazilian Foreign Trade Chamber (Câmara de Comércio Exterior), or CAMEX. Since 2008, imports of suspension PVC from China have also been subject to a duty of 21.6, and imports of suspension PVC from South Korea have been subject to duties ranging between 0% and 18.9%, depending on the producer, as a result of the imposition of anti-dumping duties by CAMEX. In August 2020, however, CAMEX decided to terminate the anti-dumping duties applied on imports of PVC from South Korea and to temporarily suspend the application of anti-dumping duties on imports from China. The duties imposed on imports from the United States and Mexico are scheduled to expire in 2021.
Additionally, in December 2010, CAMEX imposed an anti-dumping duty of 10.6% on polypropylene imports from the United’ States, which was extended in November 2016. In August 2014, the Brazilian government imposed anti-dumping duties on polypropylene imports from South Africa, India and South Korea of 16.0%, 6.4% to 9.9%, and 2.4% to 6.3%, respectively. In December 2020, CAMEX decided to terminate the anti-dumping duties applied on imports of polypropylene from South Korea and reduced the anti-dumping duties for South Africa to range between 4.6% and 16%. The duties imposed on imports of polypropylene from the United States are scheduled to expire in 2021, and the duties imposed on imports from South Africa and India are set to expire in 2025.
Finally, in December 2020, the Brazilian government temporarily reduced to 4%, for an initial period of three months initially, for a quota of 160,000 tons, the import tariffs levied on imports of PVC resins from countries that do not benefit from preferential import rates in Brazil. The Brazilian government extended such reduction in March 2021 for three additional months and 160,000 additional tons. In March 2021, the Brazilian government also temporarily reduced to 0%, for an initial period of three months, for a quota of 77,000 tons, the tariffs levied on imports of PP from countries that do not benefit from preferential import rates in Brazil.
In 2018, 25% of Brazilian PE, PP and PVC resins were imported products, which reflected a 12.3% annual increase in the volume of resins imported, due to higher availability of products from plants that recently started to operate.
In 2019, 31% of Brazilian PE, PP and PVC resins were imported products, which reflected an 8.5% annual increase in the volume of resins imported.
In 2020, 32% of Brazilian PE, PP and PVC resins were imported products, which reflected an 11% annual increase in the volume of resins imported.
Changes in industrial policy and related actions undertaken by the Brazilian government and local state governments in Brazil may negatively affect demand for our products as well as our net revenue and overall financial performance.
We currently benefit from certain industrial policies and related actions undertaken by the Brazilian government and local state governments in Brazil intended to strengthen the domestic economy and certain local industries. Some of these policies and actions have recently included reductions in payroll taxes for plastic manufacturers, a program to improve the competitiveness of Brazilian producers in the export markets by refunding, in part or in full, the federal taxes levied on their export sale, intervention of the federal government to reduce incentives to imports at local ports, increases in import duties on certain products, including polyethylene, and the reduction in the rates of the Social Integration Program (Programa de Integração Social), or PIS,PIS), a federal value-added tax, and Contribution for Social Security Financing (Contribuição para Financiamento da Seguridade Social), or COFINS,COFINS), taxes on feedstock purchases by first- and second-generation petrochemical producers.producers, reduction of the tax burden and tax incentives in certain regions to foster local industries.
In July 2021, the former President of Brazil sanctioned the Conversion Bill No. 12/2021, arising from the approved amendments of Provisional Measure No. 1,034/2021, later converted into Law No. 14,183/2021, providing for the gradual reduction of the Petrochemical Industry Special Regime (“REIQ”) until January 1, 2025, when it was expected to terminate.
However, in December 2021, the Brazilian government issued a new Provisional Measure No. 1,095/2021 amending the Law No. 14,183/2021 in order to extinguish REIQ starting in the beginning of 2022. However, in May 2022, the Brazilian National Congress approved its suspension until the end of 2022, resumption in 2023 and a new gradual reduction until the end of 2027, subject to the regulation of labor and environmental conditions. In this sense, in the absence of regulation, the REIQ will not come back into force until the Brazilian government publishes it. In addition, the Brazilian National Congress also approved the insertion of a provision that would grant a further 1.5% REIQ increase for investments to expand installed capacity between 2024 and 2027.
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These taxes on feedstock purchases were set at a rate of 5.6% for naphtha and 9.25% for other feedstocks prior to June 2013. After September 2013, naphtha and also other feedstocks tax rates were lowered to 1% in 2015, increased to 3% in 2016, 5% in 2017 and further increased to 5.6% in 2018. On May 30, 2018, the Brazilian government issued Provisional Measure No. 836/18, which revoked the tax rebates for social contribution taxes, PIS and COFINS, beginning on September 1, 2018. Further, in early October 2018, the petrochemical industry special regime (REIQ) was not passed into law, which kept the PIS/COFINS taxes levied on the acquisition of domestic and imported feedstocks unchanged at 5.6%.
We cannot predict or control which policies will be renewed or discontinued and whether future changes to Brazilian industrial policy will be proposed and enacted in the future. If industrial policies that benefit us expire, or policies detrimental to us are implemented, our business, results of operations and financial condition may be adversely affected.
Fluctuations in the real/U.S. dollar exchange rate could increase inflation in Brazil, raise the cost of servicing our foreign currency-denominated debt and negatively affect our overall financial performance.
The exchange rate between the real and the U.S. dollar and the relative rates of depreciation and appreciation of the real have affected our results of operations and may continue to do so.
The Brazilian real has been devalued on several occasions. Throughout the last several decades, the Brazilian government has implemented various economic plans and various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. From time to time, there have been significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies. On average, the The real depreciated by 16.5% against the U.S. dollar4.0% during 2016,2019, 28.9% during 2020, 7.4% during 2021, and appreciated by 8.5%6.5% during 2017, depreciated2022 and appreciated by 14.5%7.2% during 2018, depreciated by 7.9% during 2019 and depreciated by 30.7% during 2020.
2023. Depreciation of the real relative to the U.S. dollar also could result in inflationary pressures in Brazil by generally increasing the price of imported products and services. On the other hand, the appreciation of the real against the U.S. dollar may lead to a deterioration of the country’s current account and the balance of payments and may dampen export-driven growth.
We had total foreign currency-denominated debt obligations, all of which were denominated in U.S. dollars, in an aggregate amount of R$52,293.648,414 million (US$10,062.810,000 million) as of December 31, 2020 (inclusive of2023, (including an aggregate amount of R$12,059.211,250 million (US$2,320.62,324 million) outstanding as of December 31, 20202023, in connection with our secured debt related to our Mexico Complex), representing 96.8%90.5% of our consolidated indebtedness. As of December 31, 2020,2023, we had R$5,626.05,446 million (US$1,082.61,125 million) in foreign currency-denominated cash and cash equivalents, including the aggregate amount of R$904.41,562 million (US$174.0323 million) of Braskem Idesa’s cash and cash equivalents.
A significant depreciation of the real in relation to the U.S. dollar or other currencies could increase our financial expenses as a result of foreign exchange losses that we must record and could reduce our ability to meet debt service requirements of our foreign currency-denominated obligations. To enable us to more efficiently manage the effects of exchange rate fluctuations on our results, in 2013 we decided to designate part of our U.S. dollar-denominated liabilities as a hedge for our future exports. However, we cannot assure that the designation of part of our U.S. dollar-denominated liabilities as a hedge for our future exports will be enough to not affect our financial results.
The prices of naphtha, our most important raw material, and of some of our other raw materials, are denominated in or linked to the U.S. dollar. NaphthaFor the year ended December 31, 2023, naphtha accounted, directly and indirectly, for 35.1%34.5% of our consolidated cost of products sold in 2020.sold. When the real depreciates against the U.S. dollar, the cost in reais of our U.S. dollar-denominated and U.S. dollar-linked raw materials increases, and our operating income in reais may decrease to the extent that we are unable to pass on these cost increases to our customers.
Therefore, with the goal of partially mitigating the long-term exchange risk, in September 2016, the Company started to contract financial derivatives to establish a long-term foreign exchange hedge program. The program aims to mitigate dollar call and put option contracts by hedging expected cash flows over a 24-month period.
The Brazilian government’s actions to combat inflation may contribute significantly to economic uncertainty in Brazil and reduce demand for our products.
Historically, Brazil has experienced high rates of inflation. Inflation, as well as government efforts to combat inflation, had significant negative effects on the Brazilian economy, particularly prior to 1995. The inflation rate, as measured by the General Price Index—Internal Availability (Índice Geral de Preços—Disponibilidade Interna), or the IGP-DI,“IGP-DI”), reached 2,708% in 1993. Although inflation rates have been substantially lower since 1995 than in previous years, inflationary pressures persist. Inflation rates, as measured by the IGP-DI, were 7.2% in 2016, negative 0.4% in 2017, positive 7.1% in 2018, 7.3%7.37% in 2019, and 23.1% in 2020.2020, 17.7% in 2021 and, 5.03% in 2022, and negative 3.30% in 2023. The Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting availability of credit, and reducing economic growth. Inflation, actions to combat inflation and public speculation about possible additional actions also may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets.
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Brazil may experience high levels of inflation. Increasing prices for petroleum, the depreciation of the real and future governmental measures seeking to maintain the value of the real in relation to the U.S. dollar may trigger increases in inflation in Brazil. Periods of higher inflation may slow the rate of growth of the Brazilian economy, which would lead to reduced demand for our products in Brazil and decreased net revenue. Inflation is also likely to increase some of our costs and expenses, which we may not be able to pass on to our customers and, as a result, may reduce our profit margins and net income. In addition, high inflation generally leads to higher domestic interest rates, and, as a result, the costs of servicing our real-denominated debt may increase, causing our net income to be reduced. Inflation and its effect on domestic interest rates can in addition, lead to reduced liquidity in the domestic capital and lending markets, which could adversely affect our ability to refinance our indebtedness in those markets. Any decline in our net revenue or net income and any deterioration in our financial condition would also likely lead to a decline in the market price of our securities, including class A preferred shares and the ADSs.
Fluctuations or changes in, or the replacement of, interest rates could raiseimpact the cost of servicing our debt or reduce our financial revenue, negatively affecting our overall financial performance.
Our financial expenses are affected by changes in the interest rates that apply to our floating rate debt. As of December 31, 2020,2023, we had, among other debt obligations:
· | R$ |
· | R$ |
· | R$ |
The TLP includes an inflation factor and is determined quarterly byAll debt agreements that were subject to U.S. Dollar LIBOR (“LIBOR”) were amended or adjusted to replace LIBOR for Term SOFR, as a response to the Central Bank. In particular, the TLP, thediscontinuation of LIBOR as being a base rate for U.S. Dollar financial transactions.
The CDI and the SELICIPCA rates have fluctuated significantly in the past in response to the expansion or contraction of the Brazilian economy, inflation, Brazilian government policies and other factors. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” A significant increase in any of these interest rates could adversely affect our financial expenses and negatively affect our overall financial performance.
Due to the concerns regarding LIBOR, there have been market initiatives to enact its replacement. In June 2021, the Federal Reserve’s Alternative Reference Rates Committee selected the Secured Overnight Financing Rate, or SOFR, as the preferred alternative to LIBOR. Subsequently, a schedule has been announced for the cessation of LIBOR. The ICE Benchmark Association, or IBA, has announced that it intends to end publication of the 1-week and 2-month LIBOR after December 31, 2021. The remaining tenors of LIBOR would remain in publication until June 2023, on a representative basis; after this date, publication will cease altogether. New risk-free rates, or RFRs, are also being introduced alongside SOFR for interbank offered rates in other currencies, such as the Euro, British pound, Swiss franc and Japanese yen, among others. Due to these changes, interest rates on future indebtedness may be adversely affected or we may need to renegotiate the terms of our existing facilities to replace LIBOR with the new standard, or to otherwise agree with lenders, trustees or agents, as applicable, on a new means of calculating interest. The elimination of LIBOR or anyAny other changes or reforms to the determination or supervision of LIBORthese interest rates could have a materialan adverse effect on our financial expenses and/or financial revenue and materially adversely affect our overall financial performance.
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Brazilian government exchange control policies could increase the cost of servicing our foreign currency-denominated debt, adversely affect our ability to make payments under our foreign currency-denominated debt obligations and impair our liquidity.
The purchase and sale of foreign currency in Brazil is subject to governmental control. The current laws and regulations governing the Brazilian foreign exchange system allow the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures. Many factors could cause the Brazilian government to institute more restrictive exchange control policies, including the extent of Brazil’s foreign currency reserves, the availability of sufficient foreign exchange on the date a payment is due, the size of Brazil’s debt service burden relative to the economy as a whole, Brazil’s policy towards the IMF and political constraints to which Brazil may be subject. A more restrictive policy could increase the cost of servicing, and thereby reduce our ability to pay, our foreign currency-denominated debt obligations and other liabilities.
Our foreign-currency debt denominated in U.S. dollars represented an aggregate of 96.8%90.5% of our indebtedness on a consolidated basis as of December 31, 2020,2023, including transaction costs and Braskem Idesa Financing.Debt. If we fail to make payments under any of these obligations, we will be in default under those obligations, which could reduce our liquidity as well as the market price of our securities, including our class A preferred shares and ADSs.
Changes in tax laws may result in increases in certain direct and indirect taxes, which could reduce our gross margin and negatively affect our overall financial performance.
The Brazilian government implements, from time to time, changes to tax regimes that may increase our and our customers’ tax burdens. These changes include modifications in the rate of assessments and, on occasion, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. We cannot predict the changes to Brazilian tax law that may be proposed and enacted in the future. However, future changes in Brazilian tax law may result in increases in our overall tax burden, which could reduce our gross margin and negatively affect our overall financial performance.
Risks Relating to Mexico
Political and economic conditions and government policies in Mexico may affect actions or decisions by the Mexican government, including political interferences in state-owned companies such as Pemex TRI, Cenagas, CFE and Cenagas,CENACE, which are, respectively, Braskem Idesa’s main suppliers of ethane, a provider of natural gas transportation services, an electricity back-up supplier, and elsewhere maythe controller of national grid and dispatches of energy power generators, all of which are Mexican state-owned enterprises or governmental entities subject to political interference and related risks.
The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Accordingly, Mexican governmental actions concerning the Mexican economy and state-owned enterprises could have a materialsignificant impact on Mexican private sector entities in general and on our operations in particular. We cannot predict the impact that political conditions will have on the Mexican economy or on our operations.
Deterioration We can give no assurances that changes in Mexico’s economic condition, social instability, political unrest or other adverse social developments in Mexico couldMexican federal government policies will not adversely affect our business, financial condition, results of operations and financial condition. These events could also leadprospects. We currently do not have and do not intend to increased volatilityobtain political risk insurance.
Pemex produces polyethylene and competes in the financial markets, thereby affectingsame commercial market as we do. The Mexican government may intentionally interfere with us and our abilityoperations in various ways in order to maintain financial liquidity and servicelimit our debt. Additionally, spending cuts relatedcommercial competitiveness. According to Pemex or other government expenditures, or lackPemex’s public disclosure, its production of investments inoil, natural gas and ethane, recovery,over which we have no control, has decreased in recent years, and no assurance can be given that there will not be a decrease in the delivery of ethane in the future.
Furthermore, our long-term supply agreement to purchase ethane from Pemex TRI, a state-owned Mexican entity, could be modified through regulatory means, terminated or jeopardized by them as a result of political pressure to not comply with the agreement, to change the terms of the agreement, expropriation measures, or change in laws regulations by the Mexican government. Any non-compliance, modification, termination or interruption of this supply agreement could have a material adverse effect on the results of our operations or our financial condition.
Elections in Mexico in 2024 may result in changes in the Mexican administration, governmental authorities and state-owned companies, which could result in changes in Mexico policy and regulations in a manner that increases or mitigates adverse effects on our businesses.
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In light of the allegations of undue payments related to the Ethylene XXI project, the former name of Braskem Idesa during the construction phase, which were originally published in the media in Mexico and were included in the testimony by the former CEO of Pemex to the Office of the Attorney General of Mexico, Braskem S.A., together with Braskem Idesa, in compliance with the standards established by Braskem’s Global Compliance System Policy and Braskem Idesa’s governance guidelines, approved the hiring of an U.S. law firm with proven experience in similar cases to conduct an independent internal investigation of the allegations (the “Investigation”). The investigation was concluded in February 2022 and did not find evidence to support the allegations by the former CEO of Pemex regarding allegedly improper payments in connection with or otherwise related to the Ethylene XXI project.
Mexico has experienced adverse economic conditions, which may adversely affect Pemex, Pemex’s ability to produce and recover ethane, the Mexican economy and, consequently, our business, financial condition, operating results and prospects.business.
In the past, Mexico has experienced several periods of slow or negative economic growth, high inflation, high interest rates, currency devaluation and other economic problems. These problems may worsen or reemerge, as applicable, in the future and could adversely affect our business and ability to service our debt. A worsening of international financial or economic conditions, such as a slowdown in growth or recessionary conditions in Mexico’s trading partners, including the United States, or the emergence of a new financial crisis, could have adverse effects on the Mexican economy, our financial condition and our ability to service our debt.
Furthermore, our long-term supply agreement to purchase ethane from Pemex TRI, a state-owned Mexican entity, could be modified through regulatory means, terminated or jeopardized by them as a result of political pressure to not comply with the agreement, to change the terms of the agreement, expropriation measures, or change in laws regulations by the Mexican government. Any non-compliance, modification, termination or interruption of this supply agreement could have a material adverse effect on the results of our operations or our financial condition.
In early December 2020, Braskem Idesa received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency responsible for all natural gas pipelines and transportation in Mexico, related to the unilateral termination of the service of natural gas transportation, an essential energy input for the production of PE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities. Later in January 2021, Braskem Idesa partially resumed its operations based on an experimental business model to produce PE. Braskem Idesa has taken legal measures pursuant to the ethane supply agreement entered into with Pemex. Braskem Netherlands B.V, which is Braskem Idesa’s direct shareholder, has also taken legal measures under applicable international investment protection standards to protect the interests of Braskem Idesa and its parent company with regard to their investment in Mexico. Such measures include a negotiation period to attempt to resolve the dispute between the parties.
In the first quarter of 2021 Braskem Idesa entered into the following agreements under a strict reservation of all rights: (i) a memorandum of understanding with Pemex TRI setting out certain understandings regarding potential amendments to the ethane supply agreement and the development of an ethane import terminal, subject to further negotiation, a definitive agreement and approval by Braskem Idesa’s shareholders and creditors; and (ii) a natural gas transport service agreement with Cenagas for a term of 15 years, which is conditioned upon the execution of the definitive agreement referenced in item (i) above. Following the execution of these agreements by Braskem Idesa, it resumed receiving natural gas transportation services from Cenagas, which had unilaterally terminated gas supply to Braskem Idesa in December 2020. The existing ethane supply agreement between Braskem Idesa and Pemex TRI has not been modified and remains in full force and effect. At this time, Braskem Idesa is unable to predict the outcome of ongoing discussions with Pemex TRI, its shareholders and creditors.
For additional information, see “—We depend on ethane supplied by Pemex TRI in Mexico,” “—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof” and “We depend on ethane supplied by Pemex TRI in Mexico.”
Mexico has experienced adverse economic conditions, which may adversely affect our business.
Mexico has historically experienced uneven periods of economic growth. In 2017, Mexico’sMexican GDP only increased by 2.1%, while inflation increased2.2% in 2018, before two subsequent decreases by 0.1% and by 8.2% in 2019 and 2020, respectively, and then increasing by 5.0% in 2021, 3.1% in 2022 and is expected to 6.8%. At the end of 2017, Mexico’s inflation rate reached a 17-year high, primarily due to a weaker Peso comparedincrease 3.4% in 2023, according to the U.S. dollarIMF. We cannot assure you that these estimates and the termination of government controls on gasoline and other fuels. In 2018, Mexico’s economy rebounded slightly from the prior high inflation rate, decreasingforecasts will prove to 4.8%. Inflation remained above the consumer price index target of 3%, and Mexico’s GDP growth for 2018 decreased slightly to 2.0%, from 2.1% in 2017. In 2019, Mexico’s GDP stagnated in relation to 2018. According to the IMF, because of the adverse effects of the COVID-19 pandemic, the GDP of Mexico shrank significantly in 2020, leading to anbe accurate. Any future economic contraction and a recessiondownturn or uncertainty, including downturns in the country.United States could lead to fall in Mexican production markets or price levels, and it’s the same situation with Europe, Asia or anywhere else in the world, any change or variable affecting external markets could affect our financial condition and results of operations.
Decreases in the growth rate of the Mexican economy, periods of negative growth or reductions in disposable income may result in lower demand for our products. The Mexican government recently cut spending in response to an austerity, policy and a downward trend in international crude oil prices, and it may further cut spending in the future. These cuts could adversely affect the Mexican economy and, consequently, our business, financial condition, operating results and prospects. In addition, there can be no assurance that the recent Mexican sovereign debt rating downgrades will not adversely affect our business, financial condition or results of operations.
Our revenues are subject to the risk of loss from unfavorable political and diplomatic developments, social instability, and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest-rate caps and tax policies. As a result, the actions of the Mexican government concerning the economy and regulating certain industries could have a significant effect on Mexican private sector entities, including us, and on market conditions, prices and returns on Mexican securities, including our securities.
A renegotiation of commercial treaties or changes in foreign policy among Mexico, Canada and the United States may negatively affect our business, financial condition, results of operations and prospects.
In recent years, following entry into force of the United States-Mexico-Canada Agreement (the “USMCA”), economic conditions in Mexico have become increasingly correlated with economic conditions in the United States as a result of the North American Free Trade Agreement, or NAFTA, and increased economic activity between the two countries.States. Adverse economic conditions in the United States or other related events could have a significant adverse effect on the Mexican economy, which could adversely affect our business. As a result of talks to renegotiate NAFTA,Although the USMCA, which replaced the North American Free Trade Agreement (“NAFTA”) as the principal trade agreement between the U.S., Mexico and Canada, went into force in July 2020, its long-term impact on November 30, 2018,our operations remains uncertain.
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Elections this year in the United States Canada,may result in changes in the U.S. Administration, which could in turn result in changes in the U.S. trade policy in a manner that increases or mitigates adverse effects on our businesses. Increasing immigration policy tensions between the United States and Mexico signedmay also negatively affect U.S. trade policy going forward. Policy changes or other measures could adversely affect imports and exports between Mexico and the United States-Mexico-Canada Agreement, U.S. and negatively impact the U.S., Mexican and other economies and the companies with whom we conduct business, which could materially adversely affect our business, financial condition, results of operations, cash flows and/or USMCA. prospects.
The original term of the USMCA replaced NAFTA and, although it enteredis effective for 16 years after the date of its entry into force, on July 1, 2020, it may failunless extended upon mutual agreement by the parties. Any determination to be implemented. If such event occur, itmodify, withdraw or not extend the USMCA could adversely affect imports and exports between Mexico and the U.S. and negatively impact the U.S., Mexican and other economies and the companies with whom we conduct business, which could materially adversely affect our business, financial condition, results of operations, cash flows and/or prospects.
In July 2022, the U.S. and operations. Canada requested dispute settlement consultations with Mexico under the USMCA, arguing potential discriminatory policies against U.S. and Canadian companies in favor of Mexico’s state-owned electrical utility (CFE) and state-owned oil and gas company (PEMEX). In October 2022, the three countries agreed to extend such period and in December 2022, they published a working outline to solve the pending issues and continue the consultations. If disagreements persist, the U.S. or Canada could request an independent dispute settlement panel under the USMCA. Such outcome and any retaliatory tariffs against Mexico could adversely affect our business, results of operations and financial condition.
Since 2003, exports of petrochemical products from Mexico to the United States have enjoyed a zero-tariff rate under NAFTA.NAFTA and now under the USMCA. Any action taken by the current or future U.S., Mexico or Canada administrations, including changes to or non-compliance with the USMCA requirements that would increase the tariff rate between the countries, could have a negative impact on the Mexican economy, such as reductions in the levels of remittances, reduced commercial activity or bilateral trade, or declining foreign direct investment in Mexico. In addition, increased or perceptions of increased economic protectionism in the United States and other countries could potentially lead to lower levels of trade and investment and economic growth, which could have a similarly negative impact on the Mexican economy. These economic and political consequences could adversely affect our business, results of operations and financial condition.
The 2016 U.S. presidential election and the change in the U.S. administration have had an impact on the worldwide economy and in Mexico. The current U.S. governmental policies towards Mexico have created instability, uncertainty and may adversely affect the Mexican economy. For example, President Donald Trump has instituted import tariffs on a limited amount of products imported from Mexico and enforced measures intended to control illegal immigration from Mexico, which have created friction between the U.S. and Mexican governments and may reduce economic activity between these countries. In addition, in June 2019, the Trump administration announced plans to impose an escalating series of tariffs on Mexico unless the Mexican government enacted certain policy changes. While the Mexican and U.S. governments were able to reach an understanding, we cannot assure you that the U.S. government will not impose escalating or other tariffs on Mexico and that we will not be materially adversely affected by tariffs in the future.
Our profitability is affected by numerous factors including demand for the products we provide. The demand for our products in Mexico, Central and South America, the Caribbean, Europe the U.S. and in the other countries in which we operate may be adversely affected by the tightening of credit markets and economic downturns. As a global company, we depend on the demand from customers in Mexico, the U.S. and the other countries in which we operate, and reduced consumer spending that falls short of our projections could adversely affect our business, results of operations and financial condition.
Political events in Mexico could affect the Mexican economic policy and our business, financial condition and results of operations.
The lastIn Mexico, political instability has been a determining factor that investors, in general, take into consideration when deciding on business investment. Political circumstances in Mexico may significantly affect Mexican presidential and congressional elections took place in July 2018. Andrés Manuel López Obrador, presidential candidate for the National Regeneration Movement Party (Movimiento de Regeneración Nacional), or Morena, was elected President of Mexico and took office on December 1, 2018. Additionally, Mexican congressional elections took place in July 2018, resulting in Morena effectively controlling the Mexican House of Representatives (Cámara de Diputados) and having a significant influence in the Mexican Senate (Senado de la República), obtaining a historical absolute majority and reducing the rest of the political forces to a level of marginal influence. Mexico’s next federal legislative election will be in July 2021.
During the presidential campaign, the candidates for the presidency and the federal legislatures presented diverse proposals to, among other things, modify or terminate certain structural reforms introduced in the previous administration, with the purpose of reducing the participation of private investment in sectors such as energy. Accordingly, as has happened historically in any change of administration or congress, the Mexican governmenteconomic policies, which could implement significantaffect our operations. Significant changes in laws, public policies and/or regulations, or the use of public referendums (consultas populares) could affect Mexico’s political and regulations, and could reduce or eliminate the independence of organizations or of semi-autonomous or decentralized dependencies,economic situation, which could, in turn, adversely affect the economic and political situation in Mexico.our business. We cannot predict if the current administration will implement substantial changes in law, policy and regulationsprovide any assurances that political developments in Mexico, over which could affectwe have no control, will not have an adverse effect on our business, results of operations, or financial condition.condition and prospects.
Morena’s control overWe cannot assure you that changes in the Mexican Congress,federal government policies or regulations will not adversely affect our business, financial condition and results of operations.
In general, changes that may be made to the existing legal framework, as described above, couldwell as the impact of new regulations, may result in further reformsincreased costs to us or our customers and secondarymay require us to amend existing permits, secure additional permits to operate natural gas, ethane or render our services, or take additional measures to secure permits for our projects. Specifically, Mexican tax legislation of key sectors ofis subject to continuous change, and we cannot assure you that the Mexican economy. The rulinggovernment will maintain existing political, coalition led by Morena has been strengthened by fragmented support from the Green Ecologist Party of Mexico (Partido Verde Ecologísta), the Institutional Revolutionary Party (PRI) andsocial, economic or other policies or that such changes would not have a deficient organization of dissident political groups. As a result, in the state elections of 2019, Morena expanded its influence in the entities acquiring control of 21 of 32 local congresses. We cannot ascertain whether, and to what extent, such policies may affectmaterial adverse effect on our business, financial condition, results of operations and financial condition or the legal framework in which we operate.prospects.
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In addition,The administration of Mr. López Obrador has taken actions that have significantly undermined investor’s confidence in private ventures following the results of public referendums, such as the cancellation of public and private projects authorized by previous administrations, including the construction of the new administration canceledMexican airport, which immediately prompted the New Mexico City Airport (Nuevo Aeropuerto Internacional de la Ciudad de México) project,revision of Mexico’s sovereign rating from stable to negative and has announced the kickoffcancellation of the main infrastructure projects that were promised during campaign (including a new refinery at Dos Bocas, the “Mayan train,” and the construction of a new airportbrewing facility of “Constellation Brands” in Santa Lucía). Several investorsBaja California, Mexico. Investors and credit rating agencies are stillmay be cautious about the newpresident’s political party administration’s policies, which could contribute to a decrease in the Mexican economy’s resilience in the event of a global economic downturn. Morena’s led coalition controlWe cannot assure you that similar measures will not be taken in the Congressfuture, which could have a negative effect on Mexico’s economy.
Additionally, President López Obrador has conducted and expressed his intentions to move forward with certain substantial changes in Mexico’s policies and laws, including various local Congresses are enough to implement significant reforms withoutausterity measures, the approvalcancellation of the rest of the other Mexican political parties, includinggovernment trusts, amendments to the Mexican Constitution. Such concentration of powerpension system and any instability in Mexican politicsthe national energy generation and distribution system, among others. Also, he has declared that he will seek government de-centralization, meaning that there could be important changes to the constitution, laws, policies and regulations, or the Mexican economy as a resultdecrease or elimination of the above can have a negative impact onindependence of government agencies, which may change the economic and political situation of the country. We cannot predict if the new administration will implement substantial changes in law, policy and regulations pertaining to the petrochemical sector in Mexico, any of which could negatively affect our business, financial position or operating results. The extentcondition, operations and prospects.
Measures adopted by the Mexican government with respect to the economy and productive state-owned companies could have a significant effect on the private sector companies in general, including the Company, as well as on Mexican market conditions, securities and commodities prices and the return on investment of such impact cannot be accurately predicted.certain Mexican securities issuers.
Developments in other countries could adversely affect the Mexican economy, our financial performance and the price of our shares.
The Mexican economy and the market value of Mexican companies may be affected to varying degrees by global economic and market conditions, and the economic and market conditions in other emerging market countries and major trading partners, in particular the United States. In recent years, economic conditions in Mexico have become increasingly correlated with economic conditions in the United States as a result of the North American Free Trade Agreement, or NAFTA, increased economic activity between the two countries, and the remittance of funds from Mexican immigrants working in the United States to Mexican residents. Therefore, adverse economic conditions in the United States, the termination of, or modifications to, NAFTA or its successor agreement, USMCA, or other related events, including global trade disputes and instability, could have a significant adverse effect on the Mexican economy. We cannot assure you that events in other emerging market countries, in the United States or elsewhere will not adversely affect our financial performance.
Mexico has experienced a period of increased criminal activity, including violence associated with drug trafficking and organized crime, and such activities could adversely affect our financing costs and exposure to our customers and counterparties.
During recent years, Mexico has experienced a period of increased criminal activity and violence, primarily due to organized crime. This violence has taken place throughout Mexico, including the State of Veracruz, where our Mexico Complex is located. Despite the efforts of the Mexican government to increase security measures by strengthening its military and police forces, drug-related violence and crime continues to threaten the Mexican economy and the peace and security of certain regions, resulting in economic and political instability and uncertainty in Mexico. Systematic criminal activity and isolated criminal events could interrupt ourBraskem Idesa’s operations, affect ourits ability to generate revenue and increase the cost of ourits operations. Continued violence could result in the Mexican government adopting additional security measures, such as transport restrictions, prohibiting the transit of goods and people at certain times, and cross-border trade. We cannot assure you that these activities, their escalation and the violence associated with them, over which we have no control, could have a negative impact on the business environment in which we operate, and therefore on our results of operations and financial condition.
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We may interpret certain provisions of our ethane supply agreement differently than our counterparty Pemex TRI.
As of the date of this annual report, we source substantially allOur Mexico Segment currently sources part of the ethane for the production of polyethylene at our Mexico Complex from Pemex TRI pursuant to the take-or-pay long-term ethane supply agreement with Pemex TRI.ESA and the Amended ESA. The ethane supply agreementESA, including the Amended ESA, is a complex agreement and, for that reason, we may interpret certain of its provisions differently than Pemex TRI does. For example, if Pemex TRI fails to supply a determined percentage of the ethane contractually specified under the ethane supply agreementAmended ESA for six consecutive months, we will have the right to terminate the ethane supply agreementAmended ESA and require Pemex TRI to pay to the other parties involved in the project an amount equal to the termination value of thisthe project (the value of which is determined pursuant to the contractESA and takes into consideration, among other factors, the outstanding debt of the project and the amount invested in the project at such time). A difference of interpretation between us and Pemex TRI of certain provisions of the ethane supply agreement,Amended ESA, including the provisions relating to calculation of the termination value,provisions, could have an adverse effect on our results of operations and financial position. See “—Further, under Mexican law any dispute regarding the interpretation of the Amended ESA shall be resolved by mediation and/or arbitration before International Chambers of Commerce.
We have no control over the corporate actions or decisionssource part of our ethane feedstock from Pemex TRI and Cenagas,in Mexico, which are, respectively,we expect to be our primary main suppliersource of ethane until the Ethane Import Terminal is operational.
We currently source part of our supply of ethane, which is the primary feedstock used in our polyethylene production process, from Pemex Transformación Industrial, or Pemex TRI, a state-owned Mexican entity, which is a subsidiary of Petróleos Mexicanos (“Pemex”), the state-owned Mexican oil and gas company. Pursuant to the Amended ESA, ethane prices negotiated under such an agreement are referenced to the Mont Belvieu purity ethane price, which is a providerU.S. dollar-based international reference price. As a result, in case one or more of natural gas transportation servicesthe following events occurs, our production volumes, net revenue and Mexican state-owned enterprises subject to political interference.”profit margins would likely decrease, materially adversely affecting our overall financial performance:
· | significant damage to Pemex TRI’s gas processing centers or to any of the pipelines connecting our complex to Pemex TRI’s facilities, whether as a consequence of an accident, natural disaster, fire or otherwise; |
· | any further decrease in the amount of ethane currently being delivered by Pemex TRI to our petrochemical complex; |
· | any dispute with Pemex TRI and Pemex Exploración y Producción (“Pemex PEP”), (which engages in exploration and production activities) related to the Amended ESA, including the non-recognition or non-payment of shortfall penalties and the decrease or failure to supply the contracted volume of ethane; |
· | any material default by us or by Pemex TRI to supply ethane in the contractually agreed volumes or qualities negotiated under the ESA; |
· | any repudiation or termination by Pemex TRI or by us of the Amended ESA, or any repudiation or termination by other Mexican state-owned companies of related supply (including those for the transportation of supplies) agreements, such as Cenagas (Centro Nacional de Control del Gas Natural); or |
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· | delays in the availability of ethane of acceptable quality, or our inability to obtain acceptable ethane in the quantities and quality that we need, or at all, or at reasonable prices. |
As provided in the Amended ESA, any daily volume rejected by us must be purchased in installments in subsequent deliveries until the deficit has been resolved, and the same mechanics apply to Pemex TRI delivery obligations. If we failPemex TRI delivers to develop an alternative source of ethane orus less than the volumes required under the ESA and fails to expand the current alternative source of ethane, it may have a negative impact on our business because we cannot operate our Mexico Complex at full capacity.
In order to increase the operating rate of our Mexico Complex, we need to obtain additional quantities of ethane to offsetcompensate for the shortfall in subsequent deliveries, it needs to pay compensation for shortfall penalties to us.
Furthermore, the amountAmended ESA could also be impacted by changes in laws and regulations, terminated or repudiated by Pemex TRI as a result of ethane suppliedpolitical pressure or be subject to expropriation or other adverse measures by the Mexican government or government entities. We may also renegotiate the terms of the Amended ESA, voluntarily or as a result of changes in laws and regulations, or otherwise.
The provisions for early termination by Pemex TRI under the Amended ESA include: (i) our failure to pay that continues for more than six months after notice; or (ii) an emergency stoppage in operations or force majeure event due to which our insurers consider the petrochemical complex to be a total loss, or after which we cannot or do not resume operations for 48 months.
Delays in the availability of ethane of acceptable quality, or our inability to obtain acceptable ethane in the quantities and quality that we need or at all, or at reasonable prices, have in the past and would in the future have a material adverse effect on our business, results of operations and financial condition.
We may be unable to operate the Mexican Complex at full capacity or at all if one or more of our sources of ethane is disrupted.
During 2023, our Mexican petrochemical complex had an operating rate of approximately 77% primarily due to the shortfall in ethane supplied under the ESA offset by imported ethane solution (“ Fast Track”). We diversified our sources of feedstock supply agreement. Aswith the Fast-Track Solution, and we have increased our import capacity by adding additional discharge stations, both at the port and at our plant by the implementation of the date of this annual report, our Mexico Complex is importing additional supplies of ethane through a private terminal in CoatzacoalcosFast Track 3.0 and transporting it to our complex via a logistical solution, or the Fast-Track Solution. In the future, we may consider the development and construction of a new terminal, or the Ethane Import Terminal. However, we cannot guarantee that the potential construction ofbe increased further with the Ethane Import Terminal will be completed or that the Fast-Track Solution will be able to increase our production to our expected levelstart of output.operation by 2025. In addition, we cannot guarantee that we will be able to import ethane at current market prices, which could also adversely affect our business, results of operations and financial condition.
The development and construction of the Ethane Import Terminal and the establishmentperformance of the Fast-Track Solution for the importation of ethane (including the construction of Fast Track 3.0) may involve significant risks and uncertainties, such as:
· | failure to obtain or maintain requisite approvals and permits from the applicable regulators and governmental entities; |
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· | failure to achieve expected results; |
· |
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· | unanticipated liabilities; or |
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The spreadoperation of COVID-19 has caused usexisting facilities and any future projects we are able to modify certaincomplete involves many risks, including, among others, the potential for unforeseen design flaws, engineering challenges, equipment failures or trucks accidents or the breakdown for other reasons of the import facilities; labor disputes; fuel interruption; environmental contamination; and operating performance below expected levels. In addition, weather-related incidents and other natural disasters, pandemics, cyber or other attacks by third parties and other similar events can disrupt storage, transmission and distribution systems and have other impacts than those that we discuss in this section. The occurrence of any of these events could lead to our facilities being idle for an extended period of time or our facilities operating below expected capacity levels, which may result in lost revenues or increased expenses, including higher maintenance costs and penalties. Any such occurrence could materially adversely affect our businesses, financial condition, cash flows, results of operations and/or prospects.
We depend on authorizations to import ethane for our production activities
On June 11, 2021, the Tax Administration Service amended the General Rules of Foreign Trade (Reglas Generales de Comercio Exterior) in connection with the authorizations to import or export products through places other than those authorized (Autorización para el despacho en lugar distinto al autorizado), in order to establish that said authorizations would only be granted to “productive” state-owned companies (empresas productivas del Estado) (i.e. PEMEX and CFE), regarding hydrocarbons, oil products, petrochemicals and biofuels, among others.
Our or our contractor’s impossibility, failure to obtain, renew or comply with any authorizations to import ethane may cause increased costs, delays or even suspension of our production activities and may impact our operations and have a material effect on our business, practices,results of operations and financial condition.
The development of the Ethane Import Terminal may not be successful and may not commence operation as scheduled, be completed within budget or operate at expected levels, which could have a material adverse effect on our businesses, financial condition, cash flows, results of operations and/or prospects.
We continue to develop the Ethane Import Terminal. The development, construction and operation of this project involves numerous risks. We may be required to spend significant sums for permitting, fuel supply, infrastructure development, legal and other expenses.
If the Ethane Import Terminal is not completed: (i) we may take further actions as required by government authorities, including closure of ports,have to impair or write off amounts that we determine arehave invested in the best interests of our employees, customers, partners and suppliers. These actions could impact the development and construction of the Ethane Import Terminal and never receive any return on these preliminary investments; and (ii) could result in a material adverse effect to the establishmentoperation of our Mexico Complex.
Success in developing the Ethane Import Terminal is contingent upon, among other things:
· | our financial condition and cash flows and may be influenced by a number of external factors outside our control, including the global economy and global energy and financial markets; |
· | any dispute, material default or termination of the engineering, procurement and construction agreement (“TQPM EPC Agreement”), including its renegotiation may result in failures to meet specified deadlines with respect to the Ethane Import Terminal; |
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· | any dispute, material default, termination or failure under the Shareholder Agreement with Advario; |
· | timely receipt of required governmental permits, licenses and other authorizations, including any required authorizations to import and store ethane, that do not impose material conditions and are otherwise granted under terms we find reasonable, as well as maintenance of these authorizations; |
· | our contractors and other counterparties’ willingness and financial or other ability to fulfill their contractual commitments; |
· | timely, satisfactory and on-budget completion of construction, which could be negatively affected by engineering problems, adverse weather conditions or other natural disasters, pandemics, cyber or other attacks by third parties, work stoppages, equipment unavailability, contractor performance shortfalls and a variety of other factors; |
· | the existence of hidden defects or inherited environmental liabilities; or |
· | fast and cost-effective resolution of any litigation or unsettled property rights affecting the Ethane Import Terminal. |
Any failures with respect to the above factors or other factors material to the Ethane Import Terminal could involve significant additional costs to us and otherwise materially adversely affect the successful completion of the Fast-Track Solution forEthane Import Terminal. If we are unable to complete the importationEthane Import Terminal, if we experience substantial delays, or if construction, financing or other project costs exceed our estimated budgets and we are required to make additional capital contributions, our businesses, financial condition, cash flows, results of ethane.operations and/or prospects could be materially adversely affected.
The Ethane Import Terminal is expected to be completed in 2024 and to reach full capacity in 2025, but there may be delays. We currently expect Pemex TRI’s undersupplycannot guarantee that a delay in the start of ethaneoperations at the Ethane Import Terminal will not cause a blacklash against us, whether by the Mexican government or other market participants. The overall investment expected to continue.build such terminal is R$2,808 million (US$580 million) including VAT and financing costs, the expected investment without VAT and financing costs is R$2,159 million (US$ 446 million). In June 2022, Braskem Idesa announced the sale of 50% of TQPM’s stake to Advario, a global storage company, which was consummated on March 1, 2023.
Risks Relating to Our Equity and Debt Securities
The totalityAll of the shares issued by Braskem and owned by OSP Investimentos S.A. were given as collateral in financing agreements entered into byNSP Inv. are secured for the benefit of certain secured creditors of the Novonor Group.
Pursuant to a shares fiduciary assignment agreement (alienação fiduciária em garantia) entered into by the Novonor Group and some non-bankruptcy creditors (credores extraconcursais) on November 27, 2013, as amended on May 13, 2016, July 19, 2016, April 24, 2017, May 23, 2018, March 29, 2019 and October 9, 2020, all ordinary and preferred shares issued by Braskem and held by OSP Investimentos S.A. have been given as collateralNSP Inv. are secured for the benefit of certain secured creditors of the Novonor group in connection with certain financing agreements entered into by Novonor S.A. and certain of its subsidiaries. In the event that Novonor Group defaultsand certain of its subsidiaries default on such financing agreements, or if such financing agreements are accelerated and, as a result, such collateral is seized by a creditoror if creditors consolidate the ownership of the shares and dispose them (assuming that Petróleo Brasileiro S.A. – Petrobras does not exercise its preemptive rights to acquire such shares) we may be subject to a change of control following statutory, legal and procedural formalities required pursuant to our shareholders’sshareholders’ agreement. A change of control under these circumstances may adversely affect us.
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AThe foreclosure on or sale of our shares held by OSP Investimentos S.A.NSP Inv. - whether within or outsidein the Novonor Judicial Restructuring Proceedings -or agreements entered into within the context of the Novonor Judicial Restructuring Proceedings may result in a change of our control. As we do not have the ability to consent to or otherwise influence or control the Novonor Judicial Restructuring Proceedings or otherwise the acquirer of the shares from any such foreclosure,disposal, we may havebe subject to a change in our corporate control in the foreseeable future.
ShareholdersHolders of our class A preferred shares or the ADSs may not receive any dividends or interest on shareholders’ equity.
As permitted by the Brazilian Corporate Law, our by-laws specify that 25% of our adjusted net profitAdjusted Net Income for each fiscal year must be distributed to shareholders as mandatory dividends, or the Mandatory Distribution of Dividends. Under our by-laws, our class A and class B preferred shareholders are entitled to an annual non-cumulative preferential dividend, or the Minimum Preferred Dividend, equal to 6% of their pro rata share of our capital before dividends may be paid to our common shareholders. The Brazilian Corporate Law allows a publicly traded company like ours to suspendnot distribute the Mandatory Distribution of Dividends in any particular year if our board of directors informs our shareholdersin connection with an annual shareholders’ meeting that such distributions would be inadvisable in view ofincompatible with our financial condition, or cash availability, provided that such suspension does not affect the Minimum Preferred Dividend, which is still payable to the holders of preferred shares. However, the shareholders, including the holders of our class A preferred shares or the ADSs, may not receive any dividends or interest on shareholders’ equity in any given year if we do not record a profit.profit. The non-payment of dividends may frustrate expectations of cash return on the part of our investors and may lead to a loss in the value of our shares in the market.
In addition, the income tax exemption on the dividends distribution and the taxation currently levied on the payment of interest on equity provided for in current legislation may be revised through tax reforms carried out by the Brazilian government, and both dividends received and distributed by the Company may become taxed or, in the case of interest on equity, have its taxation increased in the future, reducing the net amount to be paid to shareholders, which may have an adverse effect on the price of the securities we issue.
Our class A preferred shares and the ADSs have limited voting rights and are not entitled to vote to approve corporate transactions, including mergers or consolidations of our Company with other companies, or the declaration of dividends.
Under the Brazilian Corporate Law and our by-laws, holders of our class A preferred shares and, consequently, the ADSs underlying these shares are not entitled to vote at meetings of our shareholders, except in very limited circumstances. These limited circumstances directly relate to key rights of the holders of class A preferred shares, such as modifying basic terms of our class A preferred shares or creating a new class of preferred shares with superior rights. Holders of preferred shares without voting rights are entitled to elect one member and his or her respective alternate to our board of directors and our fiscal council, depending on specific requirements provided in the Brazilian Corporate Law. Holders of our class A preferred shares and the ADSs are not entitled to vote to approve corporate transactions, including mergers or consolidations of our Company with other companies, or the declaration of dividends. However, if we do not pay dividends for three consecutive years, holders of our class A preferred shares and the ADSs will be granted voting rights. See “Item 10. Additional Information—Description of Our By-laws—Voting Rights.”
Holders of the ADSs may find it difficult to exercise even their limited voting rights at our shareholders’ meetings.
Under Brazilian law,Corporate Law, only shareholders registered as such in our corporate books may attend our shareholders’ meetings. All class A preferred shares underlying the ADSs are registered in the name of the depositary. ADS holders may exercise the limited voting rights with respect to our class A preferred shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs, which provides that voting rights are only available to ADS holders at our discretion. There are practical limitations upon the ability of ADS holders to exercise their voting rights due to the additional steps involved in communicating with ADS holders. For example, we are required to publish a notice of our shareholders’ meetings in certain newspapers in Brazil. To the extent that holders of our class A preferred shares are entitled to vote at a shareholders’ meeting, they will be able to exercise their voting rights by attending the meeting in person, voting by proxy or by remote voting, if applicable. By contrast, holders of the ADSs will receive notice of a shareholders’ meeting by mail from the depositary following our notice to the ADS depository requesting the ADS depository to do so. To exercise their voting rights, ADS holders must instruct the depositary on a timely basis. This noticed voting process will take longer for ADS holders than for holders of class A preferred shares. If it fails to receive timely voting instructions for all or part of the ADSs, the depositary will assume that the holders of those ADSs are instructing it to give a discretionary proxy to a person designated by us to vote their ADSs, except in limited circumstances.
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In the limited circumstances in which holders of the ADSs have voting rights, they may not receive the voting materials in time to instruct the depositary to vote the class A preferred shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out the voting instructions of the holders of the ADSs or for the manner of carrying out those voting instructions. Accordingly, holders of the ADSs may not be able to exercise their voting rights, and they will have no recourse if the class A preferred shares underlying their ADSs are not voted as requested.
If holders of the ADSs exchange them for class A preferred shares, they may risk temporarily losing, or being limited in, the ability to remit foreign currency abroad and certain Brazilian tax advantages.
The Brazilian custodian for the preferred shares underlying the ADSs must obtain an electronic registration number with the Central Bank to allow the depositary to remit U.S. dollars abroad. ADS holders benefit from the electronic certificate of foreign capital registration from the Central Bank obtained by the custodian for the depositary, which permits it to convert dividends and other distributions with respect to the class A preferred shares into U.S. dollars and remit the proceeds of such conversion abroad. If holders of the ADSs decide to exchange them for the underlying preferred shares, they will only be entitled to rely on the custodian’s certificate of registration with the Central Bank for five business days after the date of the exchange. Thereafter, they will be unable to remit U.S. dollars abroad unless they obtain a new electronic certificate of foreign capital registration in connection with the preferred shares, which may result in expenses and may cause delays in receiving distributions. See “Item 10. Additional Information—Exchange Controls.”
Also, if holders of the ADSs that exchange the ADSs for our Class A preferred shares do not qualify under the foreign investment regulations, they will generally be subject to less favorable tax treatment of dividends and distribution on, and the proceeds from any sale of, our preferred shares. See “Item 10. Additional information—Exchange Controls” and “Item 10. Additional Information—Taxation—Brazilian Tax Considerations.”
Restrictions on the movement of capital out of Brazil may impair the ability of holders of our shares, ADSs and debt securities to receive payments on their respective obligations or guarantees and may restrict our ability to make payments in U.S. dollars.
In the past, the Brazilian economy has experienced balance of payment deficits and shortages in foreign exchange reserves, and the government has responded by restricting the ability of Brazilian or foreign persons or entities to convert reais into foreign currencies. The government may institute a restrictive exchange control policy in the future. Any restrictive exchange control policy could prevent or restrict our access to U.S. dollars, and consequently our ability to meet our U.S. dollar obligations under our shares, ADSs and the guarantees we granted pursuant to our outstanding debt securities and could also have a material adverse effect on our business, financial condition and results of operations. We cannot predict the impact of any such measures on the Brazilian economy.
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The foreign exchange policy of Brazil may affect the ability of Braskem to make money remittances outside Brazil in respect of our equity securities or debt securities.
Under current Brazilian regulations, Brazilian companies are not required to obtain authorization from the Central Bank in order to make payments under guarantees in favor of foreign persons, such as the holders of our shares, ADSs or our outstanding debt securities. We cannot assure you that these regulations will continue to be in force in the event that Braskem is required to perform its payment obligations under its shares, ADSs or the guarantees under our outstanding debt securities. If these regulations or their interpretation are modified and an authorization from the Central Bank is required, Braskem would need to seek an authorization from the Central Bank to transfer the amounts under such obligations out of Brazil or, alternatively, make such payments with funds held by Braskem outside Brazil. We cannot assure you that such an authorization will be obtained or that such funds will be available. If such authorization is not obtained, we may be unable to make payments to holders of our shares, ADSs or the applicable debt securities in foreign currency. If we are unable to obtain the required approvals, if needed for the payment of amounts owed by Braskem through remittances from Brazil, we may have to seek other lawful mechanisms to effect payment of amounts due under the shares, ADSs or debt securities. However, we cannot assure you that other remittance mechanisms will be available in the future, and even if they are available in the future, we cannot assure you that payment on the outstanding debt securities would be possible through such mechanism.
Holders of the ADSs may face difficulties in protecting their interests because we are subject to different corporate rules and regulations as a Brazilian company and our shareholders may have fewer and less well-defined rights than under the laws of other jurisdictions, including in a jurisdiction in the Unites States.
Holders of the ADSs are not our direct shareholders and are unable to enforce the rights of shareholders under our by-laws and the Brazilian Corporate Law.
Our corporate affairs are governed by our by-laws and the Brazilian Corporate Law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the State of Delaware or New York, or elsewhere outside Brazil. Even if a holder of ADSs surrenders its ADSs and becomes a direct shareholder, its rights as a holder of the class A preferred shares underlying the ADSs under the Brazilian Corporate Law to protect its interests relative to actions by our board of directors may be fewer and less well-defined than under the laws of those other jurisdictions.
Although insider trading and price manipulation are crimes under Brazilian law and are the subject of continuously evolving regulations promulgated by the Brazilian Securities Commission, or the CVM, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of our class A preferred shares and the ADSs at a potential disadvantage when compared to holders of shares of companies incorporated in other jurisdictions. Corporate disclosures also may be less complete or informative than for a public company in the United States or in certain other countries.
Holders of the ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.
We are a corporation (sociedade por ações) organized under the laws of Brazil, and all of our directors and executive officers and our independent public accountants reside or are based in Brazil. Most of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for holders of the ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. In addition, because a substantial portion of our assets, and all of our directors and officers reside outside the United States, any judgment obtained in the United States against us or any of our directors or officers may not be collectible within the United States. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, holders may face greater difficulties in protecting their interests in the case of actions by us or our directors or executive officers than would shareholders of a U.S. corporation.
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Judgments of Brazilian courts enforcing Braskem’s obligations under our equity securities, debt securities or therelated guarantees would be payable only in reais.reais.
If proceedings are brought in the courts of Brazil seeking to enforce our obligations under our shares,equity securities, ADSs, the guarantees under our outstanding notesdebt securities or our other indebtedness, we would not be required to discharge our obligations in a currency other than reais. Any judgment obtained against us in Brazilian courts in respect of any payment obligations under such shares,equity securities, ADSs, guarantees or other indebtedness would be expressed in reais. We cannot assure you that this amount in reais will afford the holders of the shares, ADSs, notes or our other indebtedness full compensation of the amount sought in any such litigation.
Actual or anticipated sales of a substantial number of class A preferred shares could decrease the market prices of our class A preferred shares and the ADSs.
Sales of a substantial number of our class A preferred shares could negatively affect the market prices of our class A preferred shares and the ADSs. If substantial sales of shares are made through the securities markets by our controlling shareholdersshareholder or other class A preferred shares, the market price of our class A preferred shares and, by extension, the ADSs may decrease significantly. As a result, holders of the ADSs may not be able to sell the ADSs at or above the price they paid for them.
Holders of the ADSs or class A preferred shares in the United States may not be entitled to the same preemptive rights as Brazilian shareholders have, pursuant to Brazilian legislation, in the subscription of shares resulting from capital increases made by us.
Under Brazilian law, if we issue new shares in exchange for cash or assets as part of a capital increase, subject to certain exceptions, we must grant our shareholders preemptive rights at the time of the subscription of shares, corresponding to their respective interest in our share capital, allowing them to maintain their existing shareholding percentage. We may not legally be permitted to allow holders of ADSs or class A preferred shares in the United States to exercise any preemptive rights in any future capital increase unless (1) we file a registration statement for an offering of shares resulting from the capital increase with the U.S. Securities and Exchange Commission, or the SEC, or (2) the offering of shares resulting from the capital increase qualifies for an exemption from the registration requirements of the U.S. Securities Act.Act of 1933, as amended (the “Securities Act”). At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement for an offering of shares with the SEC and any other factors that we consider important in determining whether to file such a registration statement. We cannot assure the holders of the ADSs or class A preferred shares in the United States that we will file a registration statement with the SEC to allow them to participate in any of our capital increases. As a result, the equity interest of such holders into us may be diluted.
Brazilian tax laws may have an adverse impact on the taxes applicable to the disposition of our ADSs and preferred shares.
According to Law No. 10,833, of December 29, 2003, if a nonresident of Brazil disposes of assets located in Brazil, the transaction will be subject to taxation in Brazil, even if such disposition occurs outside Brazil or if such disposition is made to another nonresident. Dispositions of our ADSs between nonresidents, however, are currently not subject to taxation in Brazil. Nevertheless, in the event that the concept of “disposition of assets” is interpreted to include the disposition between nonresidents of assets located outside Brazil, this tax law could result in the imposition of withholding taxes in the event of a disposition of our ADSs made between nonresidents of Brazil. Due to the fact that, as of the date of this annual report, there is no judicial guidance on the applicationgeneral and broad scope of Law No. 10,833/2003, and the absence of judicial precedent, we are unable to predict whether an interpretation applying such tax laws to dispositions of our ADSs between nonresidents could ultimately prevail in Brazilian courts. See “Item 10. Additional Information—Taxation—Brazilian Tax Considerations.”
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The relative volatility and liquidity of the Brazilian securities markets may adversely affect holders of our class A preferred shares and ADSs.
The Brazilian securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States and other jurisdictions and may be regulated differently from the manner in which U.S. investors are accustomed. Factors that may specifically affect the Brazilian equity markets may limit the ability of holders of the ADSs to sell class A preferred shares underlying ADSs at a price and at a time when they wish to do so and, as a result, could negatively impact the market price of the ADSs themselves.
Economic developments and investor perceptions of risk in other countries, including both in developed or emerging market economies, may adversely affect the trading price of Brazilian securities, including our common shares and ADSs, as well as any outstanding debt securities.
The market value of securities of Brazilian issuers is affected in varying degrees by economic and market conditions in other countries, including in developed countries, such as the United States and certain European countries, and in emerging market countries. Although economic conditions in such countries may differ significantly from economic conditions in Brazil, the reaction of investors to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. The price of shares traded in the Brazilian capital markets, for example, has been historically subject to fluctuation of interest rates in the United States and the variation in the main U.S. stock exchanges. In addition, crisis in other emerging countries may diminish investor interest in securities of Brazilian issuers, including our shares and ADSs and our debt securities. This could adversely affect the market price of our shares, ADSs and outstanding debt securities and could also make it more difficult for us to access capital markets, affecting our ability to finance our operations on acceptable terms.
We are exposed to disruption and volatility of global financial markets due to their effects on the economic and financial environment, particularly in Brazil, such as economic downturn, increased unemployment rate, decreased purchasing power of consumers and unavailability of creditcredit.
In addition, the persistence of the COVID-19 pandemic could negatively impact the market value of securities odof Brazilian issuers, including our shares and ADSs and our debt securities. The extent to which the COVID-19 pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including the severity of the COVID-19 pandemic, actions to contain it or treat its impact, among others
These disruptions or volatility in global financial markets may increase even further the negative effects on the Brazilian economic and financial environment, adversely affecting us.
Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit the ability to react to changes in the economy or our industry and prevent us from meeting our obligations under our financing agreements.
Our level of indebtedness and our leverage, together with changes to our ratings and those of our debt securities by the main credit rating agencies, could have certain material consequences to us, including the following:
· | limit our ability to obtain additional financing for working capital, additions to fixed assets, product development, debt service requirements, acquisitions and general corporate or other purposes; |
· | limit our ability to pay dividends; |
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· | a portion of our cash flows from operations must be set aside for the payment of interest on existing indebtedness and is therefore not available for other purposes, including for operations, additions to fixed assets and future business and investments opportunities; |
· | limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that have less debt; |
· | we may become vulnerable in a downturn in general economic conditions; and |
· | we may be required to adjust the level of funds available for additions to fixed assets. |
As a result of the factors listed above, our financial condition and results of operations may be adversely affected.
Any downgrade in the ratings of Brazil, our Company or our debt securities would likely result in increased interest and other financial expenses related to our borrowings and debt securities and could reduce our liquidity.
Currently, Standard & Poor’s Ratings Group, a division of McGraw Hill, Inc., or Standard & Poor’s, and Fitch Ratings Ltd., or Fitch, maintain our ratings on a global and national basis. On a global basis, we maintain ratings at: (i) Standard & Poor’s of BBB- with a negative outlook and (ii) Fitch Ratings downgraded us to BB+ with negative outlook in December 2023. Our ratings are higher than the Brazilian sovereign rating by all these three main rating agencies. On a national basis, we maintain investment grade rating at: (i) Standard & Poor’s of brAAA with a stable outlook and (ii) Fitch Ratings of AAA(bra) with a negative rating outlook.
On December, 12 2023, we decided to cancel the corporate credit rating on a global scale issued by the Moody’s Investors Service, Inc., or Moody’s. Our credit rating is sensitive to any change in the Brazilian sovereign credit rating. The credit rating of the Brazilian federal government was upgraded in July 2023 by Fitch, and December 2023 by S&P.
In 2020, the COVID-19 pandemic significantly impacted economic activity and markets around the world, and its severity, magnitude and duration are highly uncertain, rapidly changing and difficult to predict. Actual and potential impacts of the COVID-19 pandemic on the global economy, the economies of certain countries and certain companies has led ratings agencies to review and downgrade the credit ratings of sovereigns and issuers of securities around the world. In May 2020, Fitch Ratings revised the outlook of the Brazilian sovereign credit rating to negative from stable. In November 2020, Fitch Ratings affirmed the negative outlook and later in December 2021, Fitch Ratings reaffirmed Brazil’s rating of BB- maintaining the same outlook.
Any decision by these rating agencies to downgrade the Brazilian sovereign credit rating, our ratings and the ratings of our debt securities in the future would likely result in higher interest rates and other financial expenses related to the loans and debt securities, and the inclusion of financial covenants in the agreements regulating such new debts, which may significantly reduce our ability to raise funds under satisfactory conditions or in the amounts necessary to ensure our liquidity, as well as force us to issue cash collateral as a result of our covenants, or letters of credit to back collaterals given by us.
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Because Braskem Finance Limited and Braskem Netherlands Finance B.V. and Braskem America Finance Company have no operations of their own, holders of our outstanding debt securities issued by Braskem Netherlands Finance LimitedB.V. or Braskem NetherlandsAmerica Finance B.V.Company depend on Braskem to provide Braskem Finance Limited or Braskem Netherlands Finance B.V., respectively, with sufficient funds to make payments on these debt securities when they become due.
Braskem Finance Limited, a wholly-owned subsidiary of Braskem incorporated in the Cayman Islands, and Braskem Netherlands Finance B.V., or Braskem Netherlands Finance, an indirect wholly-owned subsidiary of Braskem incorporated under the laws of The Netherlands, and Braskem America Finance Company, a direct wholly-owned subsidiary of Braskem America, and an indirect wholly-owned subsidiary of Braskem, incorporated under the laws of the State of Delaware, have no operations of their own other than the issuing and making of payments on their respective debt securities and other indebtedness, and using the proceeds therefrom as permitted by the agreements governing these issuances, including lending the net proceeds of the debt securities and other indebtedness incurred by Braskem Netherlands Finance Limited and Braskem NetherlandsAmerica Finance Company to Braskem and subsidiaries of Braskem. Accordingly, the ability of either Braskem Finance Limited or Braskem Netherlands Finance and Braskem America Finance Company to pay principal, interest and other amounts due on the outstanding debt securities issued by it and other indebtedness will depend on our financial condition and results of operations and those of our subsidiaries that are debtors of Braskem Netherlands Finance Limited or Braskem NetherlandsAmerica Finance Company, respectively. In the event of an adverse change in our financial condition or results of operations or those of our subsidiaries that are debtors of Braskem Netherlands Finance Limited or Braskem NetherlandsAmerica Finance Company, these entities may be unable to service their indebtedness to Braskem Netherlands Finance Limited or Braskem NetherlandsAmerica Finance Company, as the case may be, which would result in the failure of Braskem Netherlands Finance Limited or Braskem NetherlandsAmerica Finance Company, as the case may be, to have sufficient funds to repay all amounts due on or with respect to the respective outstanding debt securities.
Payments on Braskem’s guarantees will beare junior to Braskem’s secured debt obligations and effectively junior to the debt obligations of Braskem’s subsidiaries and jointly controlled companies.
The outstanding debt securities are fully guaranteed by Braskem on an unsecured basis.Braskem. The Braskem guarantees constitute senior unsecured obligations of Braskem. The guarantees rank equal in right of payment with all of Braskem’s other existing and future senior unsecured indebtedness. Although the guarantees provide the holders of the debt securities with a direct but unsecured claim on Braskem’s assets and property, payment on the guarantees is subordinated to the secured debt of Braskem to the extent of the assets and property securing such debt.
Upon any liquidation or reorganization of Braskem, any right of the holders of the debt securities, through enforcement of Braskem’s guarantees (i) to participate in the assets of Braskem, including the capital stock of its subsidiaries and jointly controlled entities, will be subject to the prior claims of Braskem’s secured creditors, and (ii) to participate in the assets of Braskem’s subsidiaries and jointly controlled entities will be subject to the prior claims of the creditors of such subsidiaries and jointly controlled entities. The indentures relating to the outstanding debt securities include a covenant limiting the ability of Braskem and its subsidiaries to create liens, although this limitation is subject to significant exceptions.
OurThe construction of our Mexico Complex was financed under a project finance structure, in which the construction loan must be repaid using exclusively the cash generated by usBraskem Idesa, with shareholders pledging limited guarantees. Braskem Idesa’s financings have no recourse against us. Its financing structure includes guarantees, typical for this type of deal, such as assets, receivables, cash generation, and other rights of Braskem Idesa.In October 2021, Braskem Idesa issued sustainability-linked debt securities in the aggregate amount of US$1.2 billion, maturing in ten years. The coupon of 7.0% can be increased by up to 37.5 basis points in case of non-compliance with the sustainability target. The proceeds obtained from the sale of the bonds, plus a credit line of US$150 million, were used to pay off the Project Finance signed in 2012.
On November 1, 2023, Braskem Idesa S.A.P.I. (“Braskem Idesa”), an indirect subsidiary of Braskem, concluded through its subsidiary Terminal Química Puerto México (“TQPM”), a company formed in partnership with Advario, the process to obtain the financing of R$1,975 (US$408) million for the construction of the ethane import terminal in Mexico. The construction of the import terminal of Terminal Química Puerto Mexico, or TQPM, is financed under a syndicated project finance loan structure, issued by TQPM with the support of both shareholders, Braskem Idesa and Advario, with a 5-year term deal and with usual guarantees for transactions of this nature, in which the construction loan must be repaid using exclusively the cash generated by its operations with shareholders pledging limited guarantees. Accordingly, this financing structure includes guarantees typical to transactions of this kind, such as assets, receivables, cash generation, and other rights of Braskem Idesa.TQPM.
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As of December 31, 2020,2023, Braskem had (1) consolidated corporate debt, of R$41,968.242,236 million (US$8,075.98,724 million), and (2) consolidated Braskem Idesa debt related to our Mexico Complex (including TQPM) of R$12,059.211,250 million (US$2,320.62,324 million). Of the consolidated corporate debt, R$2,303.6 million (US$443.3 million) was unsecured debt of Braskem S.A., R$1.5 million (US$0.3 million) was secured debt of Braskem S.A., and R$39,663.1 million (US$7,632.4 million) was unsecured debt of Braskem’s subsidiaries and special purpose entities (other than Braskem Idesa S.A.P.I.).
Braskem conducts a portion of its business operations through subsidiaries and jointly controlled companies. In servicing payments to be made on its guarantees of the outstanding debt securities, Braskem may rely, in part, on cash flows from its subsidiaries and jointly controlled companies, mainly in the form of dividend payments and interest on shareholders’ equity.payments. The ability of these subsidiaries and jointly controlled entities to make dividend payments to Braskem will be affected by, among other factors, the obligations of these entities to their creditors, requirements of Brazilian corporate and other law,laws, and restrictions contained in agreements entered into by or relating to these entities. In the event that these subsidiaries and jointly controlled entities are unable to make dividend payments to Braskem due to insufficient cash flows, Braskem may be required to utilize its own cash flows to service payments. Further, if these subsidiaries and jointly controlled entities are unable to pay their debt, they may become subject to bankruptcy or insolvency proceedings. Any bankruptcy or insolvency proceedings of these subsidiaries and jointly controlled entities may have an adverse effect on our financial condition and results of operations.
Braskem’s obligations under the guarantees of the outstanding debt securities are subordinated to certain statutory preferences.
Under Brazilian law, Braskem’s obligations under the guarantees of the outstanding debt securities are subordinated to certain statutory preferences. In the event of a liquidation, bankruptcy, or judicial restructuring of Braskem, such statutory preferences, including post-petition claims, claims for salaries, wages, social security, taxes and court fees, and expenses and claims secured by collateral, among others, will have preference over any other claims, including claims by any investor in respect of the guarantees. In such event, enforcement of the guarantees may be unsuccessful, and holders of the outstanding debt securities may be unable to collect amounts due under the outstanding debt securities.
Brazilian bankruptcyinsolvency laws may be less favorable to holders of our shares, ADSs, and outstanding notesdebt securities than bankruptcy and insolvency laws in other jurisdictions.
If we are unable to pay our indebtedness, including our obligations under the shares, ADSs, and guarantees under the outstanding notes,debt securities, then we may become subject to bankruptcyinsolvency proceedings in Brazil.
The Brazilian insolvency laws currently in effect allow Brazilian companies in a situation of insolvency to be the target of bankruptcy requests by creditors and/or to initiate legal measures aiming to resolve their debts, thus maintaining their activities, preserving value and promoting their social purpose. In cases of bankruptcy decree, payments of the debts must be made in accordance with a legal order provided for by law. In cases of judicial reorganization or a request for ratification of an extrajudicial recovery plan, payments of debts subject to such procedures would be made in accordance with the provisions of the judicial or extrajudicial recovery plan.
The insolvency laws of Brazil currently in effect are significantly different from, and may be less favorable to creditors than, those of certain other jurisdictions. For example, holders of our outstanding debt securities may have limited voting rights at creditors’ meetings in the context of a court reorganization proceeding. In addition, any judgment obtained against us in Brazilian courts in respect of any payment obligations under the guarantees normally would be expressed in the real equivalent of the U.S. dollar amount of such sum at the exchange rate in effect (1) on the date of actual payment, (2) on the date on which such judgment is rendered, or (3) on the date on which collection or enforcement proceedings are started against us. Consequently, in the event of our bankruptcy, all of our debt obligations that are denominated in foreign currency, including the guarantees, will be converted into reais at the prevailing exchange rate on the date of declaration of our bankruptcy by the court. We cannot assure you that such a rate of exchange will afford full compensation of the amount invested in our outstanding debt securities plus accrued interest.
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ITEM 4. INFORMATION ON THE COMPANY
According to IHS, weWe are a corporation (sociedade por ações) organized under the laws of Brazil. Our registered office is at Rua Eteno, 1561, Pólo Petroquímico, Camaçari, Bahia, postal code 42810-000, Brazil, and our telephone number at this address is +55 71 3413-2102. Our head office is at Rua Lemos Monteiro, 120 – 24ºfloor, Butantã, São Paulo, SP, postal code 05501-050, Brazil, and our telephone number at this address is +55 11 3576-9000.
We are the largest producer of thermoplastic resinsplastics in the Americas, based on the annual production capacity of our 29 plants according to CMA. We operate in the first and second generations of the petrochemical industry, with integrated operations in Brazil six plants inand Mexico. In the United States two plantsand Europe, our operations are directly supplied with raw material for the second generation by non-integrated suppliers. Through renewable, non-renewable and recycled raw materials, we offer a broad portfolio of chemicals and plastics transformed by our customers in Germanymore than 70 countries into applications such as food packaging, household furniture, industrial and four plantsautomotive components, paints and coatings, among others.
We believe that the transition of plastics and chemical production from fossil raw materials to sustainable renewable sources represents one of the key opportunities for growth and sustainability in Mexico as of December 31, 2020.the global chemical industry. We are the only producerglobal leader in green PE production, according to CMA, and benefit from our proximity to Brazil, which is one of ethylene, polyethylene and polypropylene in Brazil. We are the largest producer of PE in Mexico and of PPrenewable energy producers in the Unites States, We produce a diversified portfolio of petrochemical and thermoplastic products, including polyethylene, green polyethylene, polypropylene and PVC.
As of December 31, 2020, our business operations were organized into three segments, which corresponded to our principal production processes, products and services. Our segments were as follows:
The Brazil Segment accounted for net revenue of R$40,794.4 million, or 68.7% of our consolidated net revenue of all reportable segments, including inter-segment sales;
In 2020, 2019 and 2018, 55.3%, 54.5% and 54.8% of our net revenue, respectively, related to sales performed in Brazil, and 44.7%, 45.5% and 45.2% of our net revenue in 2020, 2019 and 2018 was derived from our international operations.
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Our StrategyHistory
Our strategic objective is to satisfy clients mainlyIn July 2001, in partnership with the Mariani Group, Novonor (formerly called Odebrecht S.A.) acquired a controlling interest in Copene (Camaçari Petrochemical Complex) in the chemicalsstate of Bahia. In August 2002, with the merger of Copene with five other companies, Braskem was created.
Between 2006 and plastics value chain in a sustainable way and maximize return on the capital2010, we invested by shareholders, with a focus on polyethylene, or PE, resins, polypropylene, or PP, polyvinyl chloride, or PVC, chemicals, and renewable chemistry.
The key pillars of our strategy include:
The petrochemical industry is constantly evolving through investments in the current asset base, advances in innovation and technology, and the additionconsolidation of new capacities with enhanced productivity and competitiveness. Therefore, to maintain our leadership position in the industry a key element of our strategy is to pursue improvements in productivity and competitiveness of our current operations through innovation, focusing on operational efficiency and excellence, commercial and logistics effectiveness, cost leadership, and differentiation through our relationships with clients.
This strategy will allow us to ensure optimal operational performance, considering reliability, production optimization, cost reductions, investment discipline, and improvements of our industrial processes.
We have been operating with a sustainable development framework since 2012, with the purpose of improving people’s lives by creating sustainable solutions through chemicals and plastics. With solid goals and consistent directives and actions, we have been contributing, directly and indirectly, towards the United Nations Sustainable Development Goals.
In 2020, sustainable development became an important part of our corporate goal with the definition of our macro objectives along seven lines: health & safety; plastic waste; climate change; financial & economic results; operational eco-efficiency; social responsibility & human rights; sustainable innovation.
Additionally, in 2020 we announced our commitment to expand its efforts to achieve the following goals related to mitigate climate change and eliminating plastic waste:
Plastic Waste:
Climate Change:
· achieve carbon neutrality by 2050;
· provide a 15% reduction in carbon emissions by 2030.
Feedstocks are a key element of competitiveness in the petrochemical industry driving a large part of production costs. Petrochemical feedstocks follow the volatile nature of commodity markets with the competitive gap between different feedstocks fluctuating over time. We are constantly seeking to diversify our feedstock profile and suppliers to reduce the volatilityin Brazil. Two relevant steps in this stage of our results, reduce risks related to feedstock availability, and position ourselves to capture opportunities.
Additionally, regional markets are influenced by the local supply and demand balance, macro-economic factors, and the political environment. Having a local presencegrowth were conducted in a given market not only provides easier access to regional customers, feedstock opportunities and industrial policies but also exposes the player to several risks related to government decisions, feedstock availability and demand growth. Having a diversified footprint is important to have access to regional opportunities but also to hedging our operations against local risks.
Furthermore, the evolving consumer behavior and industry trends present different opportunities and risks to us. To capture the value of changing markets, we continue to evolve our product portfolio, enabling business growth and profitability, and anticipating and mitigating potential disruptions to our business.
We are committed to strengthening our image and reputation among our key stakeholders: employees, communities, and investors, through advances in our compliance system, sustainability, innovation, and people management, while strengthening our culture and financial health.
In people management, we intend to develop a work environment that reinforces diversity and stimulates the attraction and integration of talented young people, preparing our team for our increasing globalization and preparing us for the new paradigms of managing people.
We are committed to strengthening our compliance system, guaranteeing the involvement and responsibility of all leaders, and implementing all policies and actions defined by our compliance committee, guided by transparency, integrity, and ethics.
By these means, we intend to continue strengthening our image and reputation together with our stakeholders, positioning ourselves as a human-oriented, forward-thinking global company that cultivates strong relationships and generates value to all.
Maintaining sound financial health and discipline in capital allocation is one of our strategic pillars, especially considering that we are a capital-intensive business, the petrochemical industry is subject to volatility throughout its cycles, and we are always looking for opportunities to create value.
Considering the volatility in market prices of our feedstocks, our products and, consequently, our margins, we are constantly seeking to maintain a high liquidity position and a long amortization schedule of our obligations, allowing us to maintain financial health and not to resort to costly financings during low petrochemical cycles or distressed economic scenarios.
To ensure permanent compliance with our financial obligations, we maintain a relevant cash and cash equivalents and financial investments position taking into consideration quantitative criteria, such as a minimum cash position, calculation established in our financial policy, and qualitative criteria, such as the macroeconomic scenario and any other risks that might be identified. We also maintain a proactive and continuous financial risks management approach, identifying, measuring, and defining mitigating strategies for our financial risks, such as foreign exchange and interest rates.
Our dividends policy also reflects our commitment to financial health, setting guidelines for the payment of dividends in excess of the mandatory dividend in accordance with the Brazilian Corporate Law. The dividends policy establishes that we must consider our capacity to generate cash flow based on our long-term projections, including investment plans, as well as any other factors we deem pertinent, and the impact of such distribution on the Net Debt/EBITDA ratio.
Innovation is a comprehensive pillar that helps deliver and shape our corporate strategy, with several initiatives focused on productivity and competitiveness, sustainability, product development and people management.
Innovation and technology are an important path to increase productivity and competitiveness, and we are constantly improving our operations, through the adoption and implementation of new digital technologies and solutions that bring greater efficiency in our industrial processes and business management.
A robust pipeline of sustainable solutions aims to provide step-change process, technology and upgrades for energy efficiency and carbon emission reduction, applications for plastic waste reduction, new renewable chemicals and polymers and more efficient carbon capture and utilization.
By leveraging new technologies and expanding our product portfolio with innovative solutions, R&D efforts seek to ensure the business perpetuity, with solutions from disruptive technologies such 3D printing through, portfolio upgrades such as high-performance film grades for packaging, high-performance grades for agrochemicals packaging, new proprietary catalysts for polyolefin production and several process technology upgrades are examples of developments that support current business growth.
Our History and Development
Our business began when the Odebrecht Group (comprised of Odebrecht S.A. and its subsidiaries) and Mariani Group acquired control of Copene, a raw materials petrochemical complex in Camaçari, in July 2001, and then subsequently integrated their assets in the petrochemical sector with Copene. From 2001 to 2004, we underwent a corporate reorganization and merged many companies that had been acquired. In addition, we acquired Polialden in 2005 and Politeno in 2006.
Through a partnership with Petrobras, we began consolidatingwhich led to the increase of their stake in the Company: the consolidation of our Southern Complex, in Brazil inwhich was executed between March 2007 with the acquired petrochemical assets from the Ipiranga group. In November 2007, we signed an agreement with Petrobras and Odebrecht, which required them to contribute part of their assets in the petrochemical sector to Braskem. In September 2008, Ipiranga Petroquímica, Petroquímica PaulíniaMay 2009; and the spun-off portion of Ipiranga Química were merged into us. In May 2009, our merger with Triunfo was approved.
In January 2010, we announced the acquisition of Quattor, which owned significant assets in order to strengthenSão Paulo and Rio de Janeiro, announced in January 2010. This consolidation strengthened the Brazilian petrochemical sector and establish ourselves amongallowed us to reach a new level of scale to face the five largest and most competitive petrochemical companies inchallenges of the world. international market.
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In February 2010 we began our internationalization strategy, when we announced the acquisition of the polypropylenePP assets of Sunoco Chemicals the fourth largest producer of this resinand in the United States. This acquisition represented an important step towards strengthening our internationalization strategy, which combines our growth in the U.S. market with alternative access to competitive raw materials and main consumer markets. As a result of this acquisition, we became a leader of thermoplastic resins in the Americas, consolidating our position as a major player in the international petrochemical market and the third largest global player in the polypropylene industry. In 2010, Braskem inaugurated its green ethylene plant in Triunfo, Rio Grande do Sul, becoming the world leader in biopolymers and launched the brand I’m greenTM, which identifies Braskem’s products made from renewable sources.
In July 2011, we announced the acquisition of Dow Chemical’s polypropylenePP business, including four plants (two plants in the United States and two plants in Germany). The U.S. assets, located in Freeport and Seadrift, Texas, have a combined annual production capacity of 545,000 tons, which represented a 50% increase in annual capacity polypropylene production in the United States. The German assets, located in the cities of Wesseling and Schkopau, have a combined annual production capacity of 545,000 tons. This acquisition represented an important step in the consolidation of our internationalgrowth strategy positioningin the Americas, consolidating us as the largest producer of polypropylene in the United States.
In June, 2017, we announced the construction of a Polypropylene Unit (“Delta”) atStates and strengthening our La Porte, Texas site. Aligned with the strategy to diversify the raw materials matrix and geographic expansion in the Americas, this is a new world-class PP production facility with an annual polypropylene production capacity of 450,000 tons. In September, 2020, we announced that after completing the commissioning phase, we had started commercial production of PP at this new plant. We believe that this investment reinforces our PP leadership position in the region, as it will enable us to replace imported PP volumes in the North American domestic market and also scale up our exports supporting structural global demand with existing global clients.
In February 2020, we announced the new project at the Triunfo Petrochemical Complex in the State of Rio Grande do Sul state to expand the current production capacity of green ethylene, a feedstock made from sugarcane ethanol and used to produce our “I’m GreenTM” resins, which have a negative carbon footprint. With an estimated investment of R$316.8 million (US$61.0 million), the Project is expected to add 60 kta to the production of green ethylene on our portfolio and is expected to start operations by the end of 2022.
Beginning of Operations of Our Mexico SegmentEurope.
In April 2016, our subsidiary Braskem Idesa, oura joint venture with the Mexican Idesa group, reached an important milestone with the production of the first batch of polyethylenePE in the Mexico Petrochemical Complex followingpetrochemical complex, strengthening our internationalization strategy and ensuring greater access to competitive gas-based feedstocks.
In September 2020, we successfully started the greenfield Project Delta to produce PP in La Porte, Texas, with a gradual start-up process initiatedproduction capacity of 450 kilotons per year. We believe that this investment reinforces our PP leadership position in December 2015 with the beginningregion and strengthens our strategy to diversify the raw materials matrix and geographic expansion in the Americas.
Beginning of utilities areaour renewable’s operations followed by the start-up of the cracker
In September 2010, Braskem started up its green ethylene plant in March 2016.
LocatedTriunfo, in the state of Veracruz,Rio Grande do Sul, Brazil, with a capacity to produce 200 kilotons per year, becoming the Mexico Complex includes an ethane cracker integrated with three polyethylene plants, as well as utilities plants (electric power, waterworld leader producer in biopolymers and steam). Ethane supply is assured throughproducts made from renewable sources, according to CMA.
In February 2021, we announced a 20-year contract with Pemex TRInew project at a price peggedthe Triunfo petrochemical complex in Rio Grande do Sul to expand our current production capacity of green ethylene. The project added 60 kilotons per year to the U.S. gas price.production of green ethylene in our portfolio and was completed in April 2023.
Additionally, in November 2021, Braskem and Lummus Technology LLC (“Lummus”), through our subsidiary Braskem Netherlands B.V., executed a memorandum of understanding to jointly develop and license our green ethylene technology. On April 28, 2022, we entered into a partnership agreement with Lummus, through our subsidiary Braskem Netherlands B.V., to develop and license our green ethylene production technology, reflecting our global interest in the technology. We are a pioneer in the production of resins made from renewable feedstock and have undertaken a commitment to reach production capacity of 1.0 million tons of bioproducts by 2030. Lummus has the technical capacity and experience in licensing to support us in developing and marketing our technology for producing green ethylene. The partnership brings the complementary expertise needed to accelerate the achievement of our commitment, expand the geographic footprint of green ethylene production technology globally and accelerate the use of bioethanol in chemical and plastic products, supporting the industry’s efforts towards a carbon neutral circular economy. In addition, the partnership is aligned with our sustainability goals.
In early December 2020,2022, we officially announced the establishment of Sustainea, a joint venture between Sojitz and Braskem, Idesa received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agencywhich will be responsible for all natural gas pipelines and transportation in Mexico, related to the unilateral termination of the service of natural gas transportation, an essential energy input for the production and marketing of PE in our Mexico Segment. AsbioMEG (monoethylene glycol) and bioMPG (monopropylene glycol), cutting-edge plant-based chemicals with lower CO2 production footprints. The joint venture offers two products: (i) bioMEG, a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities. Later in January 2021, Braskem Idesa partially resumed its operations based on an experimental business modelraw material used to produce PE. Braskem Idesa has taken legal measures pursuantPET, a product used to the ethane supply agreementcreate bottles, textiles, and other types of packaging; and (ii) bioMPG, a raw material utilized in industrial, cosmetic, and personal care goods.
In August, 2023, we entered into, with Pemex.through our subsidiaries Braskem Netherlands B.V, whichB.V. and Braskem Europe GmbH, a joint venture agreement with Thai Polyethylene Company Limited (“TPE”), a wholly owned subsidiary of SCG Chemicals Public Company Limited, to establish Braskem Siam Company Limited, a joint venture company for conducting the project engineering for a bio-ethylene from bioethanol dehydration plant using the EtE EverGreen™ technology ethanol-to-ethylene process technology. The investment is Braskem Idesa’s direct shareholder, has also taken legal measures under applicable international investment protection standardssubject to, protect the interests of Braskem Idesaamong other terms and its parent company with regard to their investment in Mexico. Such measures include a negotiation period to attempt to resolve the dispute between the parties.conditions, approval by competent governance bodies.
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Our Global Strategy
In 2022, we reviewed and consolidated our global strategy for the first quarterperiod ending in 2030. Our global strategy is anchored in strategic pillars and foundations with a focus on creating value to our shareholders through a balanced capital allocation and prioritization of 2021, Braskem entered into the following agreements under a strict reservation of all rights: (i) a memorandum of understanding with Pemex TRI setting out certain understandings regarding potential amendments to the ethane supply agreementinvestments in growth avenues, and the developmentobjective of an ethane import terminal, subjectreturning value to further negotiation,our shareholders over the petrochemical cycles.
Foundations
The foundations of our global strategy are:
· | Safety: safe operations as a permanent and non-negotiable value; |
· | People: human-centered company that promotes diversity, inclusion and human rights; and |
· | Governance: governance and compliance in line with the best global market practices. |
Strategic Pillars and Goals:
The strategic pillars of our global strategy and our goals are:
· | Productivity and competitiveness: to move towards the first quartile of the global cash-cost curve in the petrochemical industry, focusing on de-carbonization initiatives and high-aggregated-value investments; |
· | Sustainability: to be a reference in the chemical and plastics sector in sustainable development globally; |
· | Growth and diversification: to increase global diversification in bio and circular feedstock and products; and |
· | Innovation: to deliver high-value sustainable solutions through chemical and plastic innovation. |
Growth Avenues
Pursuant to our global strategy, the principal growth avenues we intend to pursue are:
1. | Traditional businesses: to grow our current businesses through selective investments, including improvements in productivity and competitiveness and continuing to implement the decarbonization of our current assets, in line with the objective of reaching carbon neutrality by 2050 and reducing scope 1 and 2 emissions by 15% by 2030. With respect to this growth avenue, the following projects are examples of focus areas, among others: |
(i) | Ethane import terminal construction project in Mexico: to advance the construction of an ethane import terminal in Mexico, which will allow the diversification of the feedstock supply and operation of Braskem Idesa at full capacity; |
(ii) | Industrial de-carbonization program: to advance initiatives that aim to reduce scope 1 and 2 carbon emissions in line with the commitments we expect to be fulfilled by 2030. |
2. | Biobased: to continue to grow in biobased resins and chemical products and expand the use of renewable feedstocks, in line with our objective to increase our bioproducts production capacity to one million tons by 2030. With respect to this growth avenue, the following projects are examples of focus areas, among others: |
(i) | Conclusion of the expansion production capacity of green ethylene at the Triunfo Petrochemical Complex in the State of Rio Grande do Sul: we have concluded the expansion of current green ethylene production capacity from 200 thousand tons per year to 260 thousand tons per year, using feedstock derived from sugarcane ethanol; |
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(ii) | Build a new green ethylene plant in Thailand: to move forward with feasibility studies to invest jointly with SCG Chemicals in the construction of a new green ethylene plant in Thailand; |
(iii) | Joint licensing of green ethylene technology: to advance the partnership to develop and license Braskem’s technology to produce green ethylene in partnership with Lummus; |
(iv) | Joint-venture for the production and commercialization of bioMEG and bioMPG: to move forward with the joint venture formed by Sojitz and Braskem to produce monoethylene glycol (“bioMEG”) and monopropylene glycol (“bioMPG”) from sustainable raw materials; |
(v) | Studies to produce Green PP in the United States: Studies to evaluate a potential investment in the production of the world's first bio-based PP on an industrial scale in the United States; and |
(vi) | Studies for new opportunities in green ethylene: Develop potential partnerships for different ethylene chains. |
3. | Recycling: to grow our circular products portfolio through mechanical recycling, and to increase the use of circular feedstocks through chemical recycling, in line with the commitment to grow to one million tons of resins and chemicals products with recycled content by 2030. With respect to this growth avenue, the following projects are examples of focus areas, among others: |
(i) | Partnership for the development of recycling technology: to move forward with the joint venture with Terra Circular to develop technology capable of converting low-quality plastic waste into final products; |
(ii) | Acquisition of a majority stake in Wise Plásticos: to move forward with the strategic plan for doubling the current production capacity of Wise Plásticos S.A. to 50 thousand tons by 2026; and |
(iii) | Contract for the supply of pyrolysis oil produced through chemical recycling: to move forward with the use of circular feedstocks through the signing of a contract with Vitol, a multinational energy and commodities company, to supply pyrolysis oil produced through chemical recycling from WPU – Waste Plastic Upcycling A/S facilities in Denmark. |
For the next cycle, we expect to focus on these pillars of action, finding a definitive agreementbalance between optimizing the current asset portfolio and approval by Braskem Idesa’s shareholdersexecuting growth and creditors;transformation investments, aligned with our long-term corporate strategy, ensuring profitability and (ii) a natural gas transport service agreement with Cenagas for a term of 15 years, which is conditioned upon the executionfinancial health of the definitive agreement referenced in item (i) above. Following the execution of these agreements by Braskem Idesa, it resumed receiving natural gas transportation services from Cenagas, which had unilaterally terminated gas supply to Braskem Idesa in December 2020. The existing ethane supply agreement between Braskem Idesa and Pemex TRI has not been modified and remains in full force and effect. At this time, Braskem Idesa is unable to predict the outcome of ongoing discussions with Pemex TRI, its shareholders and creditors.
For additional information, see “Item 3. Key Information—Risk Factors—We depend on ethane supplied by Pemex TRI in Mexico,” “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof” and “Item 3. Key Information—Risk Factors— Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico.”company:
(i) | Resilience and financial health: implement initiatives to mitigate the impacts of the industry's down cycle, seeking the maximization of cash generation; and |
(ii) | Business growth: implement the Company's growth ambitions, leveraging its competencies and strategic differential, seeking additional cash contribution. |
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Our Corporate Structure
The following chart presents our simplified ownership structure and the corporate structure of our principal subsidiaries as of the date of this annual report. The percentages in bold and not in italics represent the direct andor indirect percentage of the voting share capital owned by each entity, and the percentages not in bold and italics represent the direct andor indirect percentage of the total share capital owned by each entity.
In November 2017, Braskem Petroquímica Ltda., or Braskem Petro, merged with and into Braskem S.A., with Braskem S.A. as the surviving entity. This merger simplifiedFor a complete list of our corporate structure by consolidatingsubsidiaries, please see note 2.3 to our activities to reduceaudited consolidated financial and operating costs.
In January 2019, Odebrecht informed us of the Odebrecht Reorganization, which was effective as of December 31, 2018. For additional information on the Odebrecht Reorganization, see “Item 5. Operating and Financial Review and Prospects.”
In December 2020, Odebrecht informed us about the change of its name and brand from “Odebrecht” to “Novonor.”statements included elsewhere in this annual report.
The SEC maintains an internet website at www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file or funishfurnish documents electronically to the SEC, including us. Our internet website is www.braskem.com.br, and the internet website of our investors relations’ department is www.braskem-ri.com.br. The information included on our internet website, the internet website of our investor relations’ department, or the information that might be accessed through such websites is not included in this annual report and is not incorporated into this annual report by reference.
Our Competitive Strengths
Leading Plastics Producer in the Americas
We are a corporation (sociedade por ações) organized under the lawslargest producer of Brazil. Our registered office is at Rua Eteno, 1561, Pólo Petroquímico, Camaçari, Bahia, CEP 42810-000,plastics in the Americas, based on the annual production capacity of our plants in Brazil, in the United States and in Mexico as of December 31, 2023, according to CMA. We are the only integrated petrochemical company producing basic chemicals and polymers in Brazil, and the largest producer of PE in Mexico and PP in the Unites States, according to CMA. Globally, we have a global installed capacity of 21.4 million tons per year.
We produce a diversified portfolio of petrochemical and thermoplastic products, including polyethylene, green polyethylene (biopolymer), polypropylene, and PVC. Our products are typically used in large volume applications, and we benefit from our telephone number at this addressworld-scale plants to enhance our competitiveness.
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According to CMA, global demand for PE, PP, and PVC in 2023 was estimated to be 117 million metric tons, 85 million metric tons, and 46 million metric tons, respectively. Between 2024 and 2028, global demand for PE, PP, and PVC is +55 71 3413-2102.expected to grow on average by 3.5%, 4.0%, 3.9% per year, respectively, according to CMA. This is driven by strong end market dynamics, global gross domestic product growth, and infrastructure and construction projects spending. Polymers will likely continue to replace traditional materials, such as aluminum, steel, wood, and glass, in applications where they can provide cost advantages and better performance.
Global Leader in Green PE, Pioneer in Renewable Plastics
We are the global leader in green PE production made from ethanol from sugarcane, 100% verified by ASTM D6866 standard of the American Society for Testing and Materials organization, and it is the first PE of renewable origin to be produced in industrial scale in the world. We have developed a global portfolio of clients, and our green PE has more than 168 customers in 35 countries. Green PE also has a competitive price, as demand for sustainable products generally outstrips supply. We benefit from our presence in Brazil, which is the world’s largest producer of ethanol from sugarcane, with ample access to bio-ethanol feedstock.
We believe that our green PE has distinctive capabilities compared to other alternative solutions. Compared to biodegradable, recycled and fossil-based PE, we believe our renewable product has: (i) negative carbon footprint, (ii) higher feedstock sustainability, (iii) lower risk and better equipment fit as process uses same existing equipment, (iv) proven technology and scale, (v) better applicability with same properties and applications as fossil-PE, and (vi) better recyclability as products as 100% recyclable.
Benchmark Operator, With World Class Safety Practices and Track Record
We are widely recognized as an experienced and capable operator of petrochemicals plants. Our principal executive officeplants have recorded low accident rates and high utilization levels compared to industry peers. For example, our PP plants in the United States and Europe achieved in the same period an average utilization rate of 90% compared to global industry average of 85% according to CMA.
Competitive Asset and Raw Material Base
Our plants are located close to customer demand. In Brazil, in particular, competitors need to bring in products from locations as far away as the Middle East and face import tariffs which reduces their competitiveness compared to us. Considering freight and import tariffs, Brazilian producers have an advantage with respect to PE, PP and PVC on average 25% higher than average international reference prices from CMA for these products in 2023.
We rely on a diversified mix of raw materials, such as naphtha, ethane, propane, propylene and ethanol. We also source our raw materials from a diversified base of suppliers, which we continuously work to expand in the regions where we operate.
Our green PE is at Rua Lemos Monteiro, 120 – 24° andar, Butantã, São Paulo, SP, CEP 05501-050,made from ethanol from renewable sugarcane in Brazil, the main producer for sugarcane globally. Our other Brazilian businesses operate on naphtha, ethane, propane, and propylene sourced from Brazil and our telephone number at this address is +55 11 3576-9000.
Until December 31, 2019, our five reportable petrochemical segments were: Chemicals, Polyolefins, Vinyls, USA and Europe, and Mexico. As from January 1, 2020, we made changes to our macro structure to seek synergies in all of the regions in which we operate to achieve a more integrated operational performance.several other sources abroad. As a result of these changes, our management revised the structurecontinued efforts to further diversify our feedstock base, 43% of our internal reportingnaphtha consumption was sourced by local suppliers as of December 31, 2023.
Our businesses in the United States and in Mexico benefit from propylene and ethane availability from producers that are well situated on their respective global cost curves. Our PP plants in the Northeast region of the United States are able to source refinery-grade and chemical-grade propylene from non-U.S. Gulf Coast refineries and steam crackers at an advantaged cost compared to polymer-grade propylene. In the United States Gulf Coast, we have a well-diversified supply base with well-developed pipeline connectivity that allow us to source feedstock at a competitive cost in the region. With 19 sources of supply in North America, our geographic and logistics diversity allows for redundancy in supply and flexibility at our PP plants.
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Global Marketing Platform
We are a client-focused organization and have built a deep network of local relationships with 2,270 clients worldwide as of December 31, 2023. We have a lengthy history of development of long-term and close partnerships with clients, focusing on their needs and individual value creation solutions. Our market orientation and wide network are underpinned by a global platform with commercial offices in the Americas, Europe and Asia. Our global marketing platform combines market-focused teams for key market segments as well as regional teams for broader coverage. We encourage innovative thinking, an entrepreneurship mindset, a focus on the value chain and on product quality and service level.
Innovation and Technology, and Research and Development Capabilities
We drive innovation to extract value from our existing assets and create new value propositions to our customers. As a result of our innovation efforts, 11% of our current products have been introduced in the last five years. We employ 366 employees globally in innovation and technology, spread across our research and development centers in Pittsburg (United States), Wesseling (Germany), Coatzacoalcos (Mexico), Triunfo, Campinas and São Paulo (Brazil).
Additionally, in November 2021, Braskem and Lummus, a worldwide leader in ethylene, petrochemical, energy transition and other process technologies, executed a memorandum of understanding to jointly license Braskem’s green ethylene technology to two projects in different regions of the world, displaying a global interest in the technology. In 2022, we formalized our partnership for licensing technology to produce green ethylene. The partnership will accelerate the use of bioethanol for the production of chemicals and plastics.
In November 2022, we announced the launch of a new Renewable Innovation Center in Lexington, Massachusetts (United States). The innovation center will focus on accelerating innovation in renewable chemicals and sustainable materials. Capabilities at the new center are expected to expand our competencies in biotechnology, catalysis, process engineering, and open innovation (a partnership that Braskem has with universities and technical institutes, aiming to achieve better results regarding innovation). A particular focus will be given to early-stage science and engineering related to the conversion of biomass-based feedstocks, including sugars, cellulose, plant oils, and lignin, to sustainable chemicals and materials. This will enhance our resources focused on the discovery of technologies that are expected to drive new growth-oriented offerings centered around carbon circularity.
In May 2023, we inaugurated the expansion of the Technology and Innovation Center (CTI) located at the Triunfo Petrochemical Complex, which represents an increase of 25% in the company's R&D area on site. The disbursement amount was R$108 million, of which R$64 million was spent on the physical structure of the new building and R$44 million on laboratory equipment to accelerate our innovation process. The new building counts to expanded laboratory structures such as catalysis and advanced characterization, chromatography, polymer fractionation and microscopy. It also has a dedicated structure for PVC and EVA, focusing on finding new applications for resins, such as new uses for Green EVA produced from sugar cane. Another highlight was the acquisition of new robots that speed up processes such as mechanical testing and chemical analysis, in addition to generating more accurate results.
Qualified Management Team with Proven Success
Our senior management team combines deep operational expertise and knowledge of petrochemical global markets developed over long tenures. We have a strong mergers and acquisitions track record that supported our global expansion in the last decade, including into the United States and internationalizationEurope.
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We have proven success in executing large, complex projects. Through our subsidiary Braskem Idesa, we built and operated the largest petrochemical complex in Latin America, which started operations in April 2016. In September 2020, we successfully started the production of PP from our Project Delta greenfield in La Porte, Texas, with a viewproduction capacity of 450 kilotons per year.
Financial Performance Through the Industry Cycles
We have a track record of solid financial performance based on our scale and competitiveness. The average net cash generated from operating activities was R$6,005 million (US$1,134 million), considering the last five years from 2019 to simplifying2023, which illustrates our ability to generate cash across the industry cycles and streamliningvarying macroeconomic circumstances.
Industry Overview
In 2023, the workglobal growth registered a slowdown pace compared to the previous year. Among the main factors that impacted: (i) continued geopolitical conflicts in Russia/Ukraine and/or Israel and decision-making processes,Hammas; (ii) China-US tensions; (iii) the Chinese economy slowdown; and (iv) high global interest rates to control inflation. Despite of that, the growth of the global economy was positive, mainly driven by the strong performance from the US economy, supported by a strong labor market and consumer spending, even after the aggressive policy rate hikes in 2022 and 2023. Therefore, according to the IMF, the global economy is expected to grow 3.1% in 2023, 0.2 p.p. higher than the IMF projection of 2.9% in early 2023.
Regarding the petrochemical scenario, following the movement started in the second half of 2022, the significant new capacities in PE and PP piled up over a global waning demand and disappointing Chinese recovery for the manufacturing sector, even with the end of Covid-Zero policies in January of 2023. Crude oil also continued to oscillate drastically, in the tug-of-war between risk of supply disruption caused by geo-conflicts (prices up) and bearish demand (prices down), with the latter constantly showing more influence over the barrel prices. This combination of factors contributed to the decline in the majority of the petrochemicals spreads in the international market throughout 2023, with some momentaneous upticks, but not sustained for too long.
On the other side, refineries continued what the industry has called “the golden age”, with a strong demand for Gasoline and Diesel, and due to the high run rates, keeping naphtha oversupplied, with naphtha crack spreads discounted at negative double digits in nine out of the twelve months of 2023, something not seen at least in the past thirteen years.
This uncertain and challenging scenario is expected to continue for the first half of 2024, but with an overall optimistic perception regarding the recovery of global economies.
In response to these conditions, during 2023 we implemented many initiatives to preserve our financial health and value creation such as, (i) optimization of asset operations, focused on cost discipline; (ii) implementation of financial initiatives to increase our liquidity position, such as bond issuance; (iii) prioritization of investments and reduction of Capex requirement, without impacting asset reliability; and (iv) advancement in all fronts related to the geological event in Alagoas, accomplishing the commitments established in agreements.
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Industry Trends
In January 2024, the IMF revised its projection for the world’s GDP growth in 2024 to 3.21%, an estimate 0.12% higher than that forecasted in October 2023. Their projection is consistent with a “soft landing” scenario, with inflation gradually decelerating (from 6.8% expected for 2023 to 5.8% in 2024) without a major downturn in global activity, especially in the US, where labor market remains resilient. The growth is expected to continue uneven between advanced economies and emerging markets and developing ones, once the tighter monetary policy transmission is different across countries and they are also at different points in their cycles: most advanced economies are in the peak, while some emerging economies (Brazil included) have already started easing.
The IMF also considers some risks for global economy growth: (i) real estate crisis in China; (ii) more volatile commodities prices due to renewed geopolitical tensions and disruptions related to climate change; (iii) inflation rates are still high, even with the recent decreases; (iv) many countries are more vulnerable to crisis as fiscal buffers have eroded in the last years; and (v) repricing of risk in emerging markets, that would appreciate the US dollar and trigger capital outflows.
Regarding the global petrochemical scenario, the expectation of external consulting firms for 2024 is a scenario of modest spreads’ recovery along the year (except for PP), mainly impacted by: (i) the reduction of new capacities coming online globally for PE; (ii) the recovery of vinyl and butadiene markets; (iii) an upward trend of global consumption, as inflationary pressure is easing across the globe; and (iv) some level of rationalization on capacities, to balance run rates of petrochemicals. Meanwhile PP might still struggle in 2024 as there are still plenty of new capacities to go online in China and in the US (6.5 MM tons), which led usare expected to adopt a new structurepressure run rates to the lower levels from the last thirty years (77% versus an average of 86% over the last 10 years).
In this context, we intend to maintain our focus on: (i) accomplishing the commitments established in the agreements signed with the authorities in Maceió, in the state of Alagoas; (ii) optimizing our asset operation strategy and maintaining cost discipline, increasing productivity and competitiveness; (iii) promoting discussions regarding Brazilian industry’s competitiveness, seeking measures to ensure competitive equality; (iv) implementing initiatives for petrochemical reporting segmentsfinancial preservation, deleveraging and reduction of cash need, with focus on resilience and financial healthy; (i) prioritizing investments related to the Company’s growth strategy, supported by region. As from January 1, 2020, our three reporting segments are as follows:innovation and digital transformation initiatives; and (vi) completing the construction of the ethane terminal and pursue value-creating initiatives in Mexico.
Brazil SegmentReportable Segments
As of December 31, 2020, according2023, our business operations were organized into three segments, which corresponded to IHS, our principal production processes, products and services. Our reportable segments were as follows:
Brazil Segment: includes: (i) the production and sale of chemicals at the Camaçari Petrochemical Complex in Bahia, the Triunfo Petrochemical Complex in Rio Grande do Sul, the Capuava Petrochemical Complex in the state of São Paulo, and the Duque de Caxias Petrochemical Complex in the state of Rio de Janeiro; (ii) the supply of electricity and other inputs produced in these complexes to second-generation producers located in the petrochemical complexes; (iii) the production and sale of PE, including the production of green PE made from renewable resources, and of PP; and (iv) the production and sale of PVC and caustic soda.
USA and Europe Segment:operations related to PP production and sale in the United States and Europe, through the subsidiaries Braskem America and Braskem Alemanha, respectively.
Mexico Segment: comprises the activities related to the PE production and sale in Mexico, through the subsidiary Braskem Idesa.
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Brazil Segment
We have 29 industrial units within four petrochemical complexes in the Brazil Segment (South America) that mainly use naphtha, ethane/propane and refinery off gas (ROG) as feedstock to produce ethylene, propylene, and its respective chemical co-products, which subsequently are partused as feedstock to make thermoplastic resins (PE, PP and PVC) or to be sold to third parties.
As of December 31, 2023, our Brazil Segment’s facilitiesSegment had one of the largest annual PE, PP and PVC production capacities of all first-generation producerscapacity in the Americas.South America, according to CMA. Our Brazil Segment generated net revenue of R$40,794.449,512 million during 2020,2023, or 68.7%69% of the net revenue of all of our reportable segments, including inter-segment sales.
Nomenclature of Segment
Chemicals Operations that are Partsegments. The following table sets forth our net revenue derived from sales of our Brazil Segment for the years indicated:
For the Year Ended December 31, | |||
2023 | 2022 | 2021 | |
(in millions of reais) | |||
Net revenue: | |||
Brazil | 49,512 | 69,080 | 69,495 |
Our chemicalsolefins and polyolefins operations that are part of our Brazil Segment isare comprised of the chemicals1st and 2nd generation operations conducted by us in the Northeastern Complex, the Southern Complex, the São Paulo Complex and the Rio de Janeiro Complex.us.
Our chemicalsolefins operations that are part of our Brazil Segment produce:
· | olefins, such as ethylene, polymer and chemical grade propylene, butadiene and |
· | intermediates, such as cumene, paraxylene, ortho-xylene, and others; |
Our polyolefins operations produce:
· |
· | polypropylene. |
Our PVC production is integrated through our production of chlorine, ethylene and other raw materials, and as of December 31, 2023, our PVC production facilities had the largest annual production capacity in South America, according to CMA. The main use of PVC is for pipes and fittings and other products related to the civil construction market. Our vinyl’s operations also manufacture caustic soda, which is mainly used by producers of alumina, pulp, and paper, and in the soap industry.
Our vinyl’s operations produce:
· |
· |
Our Specialties operations consider products produced from naphtha and which are produced in our olefins units, however, they are considered intermediate products and have market characteristics and applications that are different from our Olefins products considered commodities, such as ethylene and propylene.
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Our Specialties operations produce:
· | Fuels, such as gasoline, boosters, and others; |
· |
· |
Products of our Brazil Segment
The products of our chemicalsOlefins operations that are part of our Brazil Segment are used primarily in the manufacture of ethylene and propylene, intermediate second generationsecond-generation petrochemical products, including those manufactured by our polyolefins and vinyls operations that are part of our Brazil Segment.and specialties operations. Our chemicalsOlefins operations that are part of our Brazil Segment also supply other second generationsecond-generation producers in each of the petrochemical complexes in which we operate, and other companies located outside of these complexes, and renders services to those producers.
ProductsThe following table sets forth a breakdown of Our Chemicals Operations that are Partthe sales volume of our Brazil SegmentOlefins and Polyolefins operations by product and by market for the years indicated (excluding our intra-company sales).
Year Ended December 31, | |||
2023 | 2022 | 2021 | |
(in thousands of tons) | |||
Domestic sales: | |||
Ethylene | 388 | 477 | 517 |
Propylene | 265 | 320 | 371 |
Cumene | 193 | 213 | 204 |
Butadiene | 156 | 167 | 172 |
Benzene, Toluene and para-xylene | 539 | 730 | 742 |
Gasoline | 866 | 981 | 1,059 |
Others | 359 | 430 | 443 |
Total domestic sales of Olefins | 2,766 | 3,318 | 3,507 |
Total export sales of Chemicals | 706 | 704 | 842 |
Total olefins sales | 3,472 | 4,022 | 4,349 |
Our Polyolefins operations produce polyethylene, including LDPE, LLDPE, HDPE, UHMWPE, EVA, “green polyethylene” from renewable resources and polypropylene, including homopolymer and copolymer grade. We manufacture a broad range of polyolefins for use in consumer and industrial applications, including plastic films for food, agricultural and industrial packaging, bottles, shopping bags and other business unitsconsumer goods containers, automotive parts, engineering and third-partyinfra-structure goods and household appliances. We also provide technical assistance to our customers to meet their specific needs by adapting and modifying our polyethylene and polypropylene products. We believe that the variety of technological processes at our polyolefins plants provides us with a competitive advantage in meeting our customers’ needs.
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Year Ended December 31, | |||
2023 | 2022 | 2021 | |
(in thousands of tons) | |||
Domestic sales: | |||
Polyethylene(1) | 1,650 | 1,835 | 1,790 |
Polypropylene | 1,165 | 1,184 | 1,209 |
Total domestic sales | 2,815 | 3,019 | 2,998 |
Total export sales | 800 | 827 | 822 |
Total polyolefins sales | 3,615 | 3,846 | 3,820 |
(1) | Includes LDPE, LLDPE, HDPE, EVA and Green PE. |
The PVC product, part of our vinyls operations, is used primarily in the construction segment. The products for Specialties operations are used primarily in the manufacture, intermediate second-generation petrochemical products. Our operations also supply other second-generation producers use ethylenein each of the petrochemical complexes in which we operate, and propylene producedother companies located outside of these complexes, and renders services to those producers.
In 2023, based on sales volumes, we had an approximate 47.5% share of the Brazilian PVC market and 23.6% of market share of the Brazilian caustic soda market (excluding consumption of alumina by companies located in the North and Northeast of Brazil).
The following table sets forth a breakdown of the sales volume of our chemicalsvinyls operations that are part of our Brazil Segment to produce second generation products such as polyethylene, polypropylene and PVC. We also sell butadiene, a variety of aromatics, including BTX products, and intermediates, such as cumene, to third-party petrochemical producers for use as raw materials in the production of a variety of second generation products, including synthetic rubber, elastomers, resins, nylon fibers, ethyl benzene (which is used to make styrene monomer/polystyrene), linear alkyl benzene, purified terephthalic acid, dimethyl terephthalate, bisphenol A, a feedstockby product line for the production of polycarbonate resins, phthalic anhydride, plasticizers and paint.
The following table sets forth the sales volume of basic petrochemical products by our chemicals operations that are part of our Brazil Segment (excluding our intra-company sales) for the periodsyears indicated.
Year Ended December 31, | |||
2020 | 2019 | 2018 | |
(in thousands of tons) | |||
Domestic sales: | |||
Ethylene | 486.3 | 464.1 | 509.1 |
Propylene | 282.1 | 341.9 | 345.8 |
Cumene | 186.6 | 219.0 | 234.7 |
Butadiene | 122.9 | 161.0 | 192.0 |
BTX products(1) | 676.6 | 618.7 | 648.0 |
Gasoline | 953.9 | 1,007.3 | 942.9 |
Others | 430.6 | 443.8 | 492.0 |
Total domestic sales of Chemicals | 3,139.2 | 3,255.8 | 3,364.5 |
Total export sales of Chemicals | 785.1 | 1,060.9 | 1,028.9 |
Total sales of chemicals | 3,924.3 | 4,316.7 | 4,393.4 |
For the Year Ended December 31, | |||||
2023 | 2022 | 2021 | |||
(in thousands of tons) | |||||
Domestic sales: | |||||
PVC | 528 | 499 | 495 | ||
Caustic soda | 332 | 403 | 316 | ||
Other(1) | 30 | 24 | 22 | ||
Total domestic sales | 890 | 925 | 833 | ||
Total export sales | – | 1 | 9 | ||
Total vinyls sales | 890 | 926 | 842 |
(1) | Includes |
Production Facilities of Our Chemicals Operations that are Part of our Brazil Segment
Olefins Operations
We believe that the technological processes we use at plants in our chemicalsolefins operations that are part of our Brazil Segment are among the most advanced in the world. Our chemicalsolefins operations that are part of our Brazil Segment currently include owning and operating:
· | five major production facilities in the Northeastern Complex (two olefins units, two aromatics units and one utilities unit); |
· | five major production facilities in the Southern Complex (two olefins units, one green ethylene unit, one aromatics unit and one utilities unit); |
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· | three production facilities in the São Paulo Complex (one olefins unit, one aromatics unit and one utilities unit); and |
· | two production facilities in the Rio de Janeiro Complex (one olefins unit and one utilities unit). |
We define the term “unit” to mean several production lines that are linked together to produce olefins, aromatics, or utilities.
The table below sets forth the primary products of our chemicals operations that are part of our Brazil Segment, annual production capacity as of December 31, 20202023, and annual production for the years presented.
Annual Production | Production | Annual Production | Production | |||||
Primary Products | Capacity | 2020 | 2019 | 2018 | Capacity | 2023 | 2022 | 2021 |
(in tons) | (in thousands of tons) | |||||||
Olefins: | ||||||||
Ethylene | 3,952,000 | 3,027,070 | 3,185,203 | 3,399,610 | 3,752 | 2,653 | 2,912 | 3,027 |
Green ethylene | 260 | 165 | 191 | 202 | ||||
Propylene | 1,585,000 | 1,232,053 | 1,310,028 | 1,324,358 | 1,585 | 1,082 | 1,194 | 1,291 |
Butadiene | 480,000 | 339,487 | 397,762 | 394,998 | 480 | 290 | 351 | 381 |
Aromatics: | ||||||||
BTX products(1) | 1,367,000 | 893,097 | 825,253 | 841,485 | ||||
Benzene, Toluene and para-xylene | 1,367 | 699 | 814 | 913 |
Polyolefins Operations
As of December 31, 2023, our polyolefins operations owned 14 production plants, with five plants located in the Southern Complex, three plants located in the Northeastern Complex, four plants located in the São Paulo Complex and two plants located in the Rio de Janeiro Complex.
The table below sets forth our annual production capacity for each of our primary polyolefins products as of December 31, 2023, and annual production for the years presented.
Annual Production | Production | |||
Primary Products | Capacity | 2023 | 2022 | 2021 |
(in thousands of tons) | ||||
Polyethylene: | ||||
LDPE/EVA (1) | 795 | 569 | 611 | 586 |
HDPE/LLDPE/UHMWPE(2) | 2,260 | 1,637 | 1,841 | 1,859 |
Polypropylene (3) | 1,850 | 1,350 | 1,398 | 1,512 |
(1) Represents capacity and production at five production facilities, part of them with swing line capacity capable of producing two types of resins. (2) Represents capacity and production at seven production facilities, part of them with swing line capacity capable of producing two types of resins. Capacity varies depending on actual production demands. (3) Represents capacity and production at five plants.
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Vinyls and Specialties Operations
We own four vinyls production facilities. One of our facilities is in the Northeastern Complex, and three others are in the State of Alagoas.
In January 2020, Braskem announced the permanent shutdown of its chlor-alkali production facility located in Camaçari, in the State of Bahia, whose operations started in 1979 with annual production capacity of 79,000 tons of caustic soda and 64,000 tons of chlorine. The shutdown is explained by the end of the facility’s useful life and started in April 2020, following applicable safety standards and seeking to protect people, local communities and the environment.
The table below sets forth for each of our primary vinyls products, our annual production capacity as of December 31, 2023, and annual production for the years presented.
Annual Production | Production | |||
Primary Products | Capacity | 2023 | 2022 | 2021 |
(in thousands of tons) | ||||
PVC | 710 | 493 | 470 | 465 |
Caustic Soda | 460 | 303 | 242 | 187 |
Raw Materials of Our Chemicals Operations that are Part of our Brazil Segment
Naphtha
The main raw material that we use for chemical production is naphtha, with a total consumption capacity of up to10to 10 million tons per year. OneUp to one-and-a-half million tons of naphtha can be substituted by condensate, which has happened in recent years.years was about one million tons. Natural gasoline is also a feedstock that can be used as a replacement for naphtha. The cracker located in Rio de Janeiro uses ethane and propane, and its consumption is 0.4 million tons of each of these raw materials per year. The São Paulo cracker can also consume refinery off gas in a quantity equivalent to about 15% of the ethylene production capacity.
Naphtha
Naphtha isAs a reference, the main raw material that we use to produce our chemical products and represents the principal production and operating cost of our chemicals operations that are part of our Brazil Segment. We also use condensate as a raw material in the Southern Complex. The following table shows the average Amsterdam-Rotterdam-Antwerp, or the ARA price, of naphtha for the periods indicated.
2023 | 2022 | 2021 | |
(in US$/t) | |||
Average(1) | US$643 | US$770 | US$635 |
2020 | 2019 | 2018 | |
(in US$/t) | |||
Average(1) | US$354.68 | US$505.33 | US$601.26 |
Month ended: | |||
January | 527.23 | 459.16 | 592.23 |
February | 465.41 | 499.83 | 555.15 |
March | 246.70 | 533.15 | 571.44 |
April | 138.41 | 563.16 | 607.20 |
May | 228.91 | 544.57 | 666.82 |
June | 342.23 | 472.94 | 632.55 |
July | 380.85 | 503.46 | 642.73 |
August | 381.15 | 446.86 | 640.60 |
September | 366.74 | 479.46 | 676.13 |
October | 375.07 | 491.00 | 661.82 |
November | 370.74 | 529.99 | 505.59 |
December | 432.70 | 540.33 | 462.87 |
(1) | The information in the “Average” row represents the mean average monthly naphtha prices during each respective year. |
Source: Braskem Global Market Intelligence.
Supply Contracts and Pricing of the Chemicals Operations that are Part
As part of our Brazil Segment
Naphthastrategy to diversify our sources of supply of naphtha, we acquire naphtha and Condensatecondensate under annual supply arrangements with international suppliers. We also purchase naphtha on the spot market from time to time from foreign suppliers located in Africa, Europe, North America and Latin America. In addition to our supplies of naphtha, we purchase condensate on the spot market from time to time from foreign suppliers.
The following table shows the distribution of the naphtha plus condensate purchases by our chemicals operations that are part of our Brazil Segment for the periods indicated by geographic location of the suppliers.
Year Ended December 31, | Year Ended December 31, | |||||
2020 | 2019 | 2018 | 2023 | 2022 | 2021 | |
Brazil | 52% | 37% | 43% | 43% | 42% | 31% |
Algeria | 5% | 11% | 19% | |||
Europe | 12% | 16% | 14% | 12% | 18% | 23% |
South America | 4% | 10% | 8% | 2% | ||
North America | 16% | 16% | 5% | 15% | 20% | 30% |
West Africa | 6% | 4% | ||||
Africa | 21% | 20% | 15% | |||
Others | 4% | 6% | 5% | 1% | 0% | |
Total | 100% | 100% | 100% | 100% |
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Ethylene and Propylene
The most significant feedstock of our production of polyethylene and polypropylene are ethylene and propylene. In 2023, the ethylene consumption of our polyethylene operations were totally supplied by our olefins facilities and the propylene consumption of our polypropylene facilities were supplied by our olefins operations and by external sources.
Other Materials and Utilities
Our polyolefins operations that are part of our Brazil segment use butene, hexene, vinyl acetate and propane as raw materials in the production of HDPE, LDPE, EVA, UTEC, MTLPE and LLDPE. Butene is consumed from our olefins operations. We import hexene and vinyl acetate from many suppliers around the globe, and propane we buy from Brazilian suppliers. In our polypropylene operation we use butene as raw material in the production of terpolymer. Butene is supplied from our olefins operations.
Our polyethylene plants also use catalysts supplied by many suppliers around the globe. We also produce our own catalysts for our HDPE slurry plants in the Southern and Northeastern Complexes, and we purchase the inputs that we need to produce these catalysts from many suppliers at market prices. Our polypropylene plants also use catalysts supplied from a national and international supplier.
Additives are consumed in the extruder process to reach certain properties of the final product. Some examples are antioxidants, clarifiers, flow aids and neutralizers.
Ethylene
The most significant feedstock associated with the production of PVC is ethylene. Our olefins operations that are part of our Brazil Segment supply all the ethylene required by our vinyls operations.
Electricity
Electric power is a significant cost component in our production of chlorine and caustic soda. Our vinyls operations use electric power from various generators under long-term power purchase agreements (see “Brazil Segment— Supply Contracts with Petrobrasof Our Brazil Segment”).
On December 23, 2015,In 2023 we made some investments to improve energy and Petrobras entered intocost efficiency in the Alagoas site, changing the source of energy for steam in the PVC plant operation, from natural gas to biomass, focused on sustainable and cost efficiency gains (Veolia Project).
Salt
We consumed 510,037 tons of salt during 2023, which were all imported from Chile, dissolved in water to make brine, and then treated and sent for processing.
In 2023, we produced 285,190 tons and imported 34,679 tons of caustic soda to supply our customers. Also, we produced 353,753 tons and imported 77,069 tons of EDC (“Ethylene dichloride”) which is consumed in PVC production, to supply our PVC facilities located in the state of Alagoas and in the Northeastern Complex.
Salt mining operations at our mine were shut down in May 2019, as described in “Item 3. D Risk Factors—Risks Relating to Us and the Petrochemical Industry—Our business and operations are inherently subject to environmental, health and safety hazards. As a five-year result, our business is also subject to strict environmental and other regulations” and “Item 8. Financial Information—Legal Proceedings—Alagoas – Mining Activities.”
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Supply Contracts of Our Brazil Segment
Naphtha Purchase Agreement whose term expired on December 22, 2020.
Throughout 2020,2023, Braskem and Petrobras entered into four newhad naphtha supply contracts in effect to provide naphtha for our plants in the Southern Complex, the Northeastern Complex, and the São Paulo Complex. All fourcurrent contracts have a term of five years until the end of 2025.
Under the terms of these agreements:agreements:
· | Petrobras has agreed to sell and deliver naphtha, for a period of five years, to our |
· | we are required to purchase a minimum monthly volume of naphtha for each of our Complexes; |
· | we have the option to purchase additional volume for the São Paulo Complex and Petrobras has an option to sell us additional volume for our Northeastern and Southern Complexes; |
· | we may request volumes of naphtha that exceed a monthly firm commitment order, which Petrobras may supply at its discretion; |
· | the price we pay for naphtha is based on international price references; |
· | the contract could be terminated or amended in the event that unforeseen extraordinary events occur that cause a disruption in the economic-financial equilibrium of the contract; |
· | either party may terminate the contract, without prior notice, in the event of: (1) failure to cure any breach of the contract following a 30-day grace period; (2) a force majeure event that continues for more than 90 days; (3) transfer or offer as a guaranty all or part of either party’s rights and obligations under the contract to a third party without the other party’s consent; (4) an alteration of ownership or corporate purposes that conflicts with the purpose of the contract; (5) dissolution; or (6) failure to comply with the compliance obligations of the contract; and |
· | Petrobras may terminate the contract, without prior notice, in the event of our bankruptcy or liquidation. |
Other Supply Contracts
As partIn December 2021, ACELEN concluded the acquisition of our strategy to diversify our sources of supply of naphtha, we are acquiring naphtha under annual supply arrangements with international suppliers.
Spot Market Purchases of Naphtha
In addition to our supplies of feedstock under the agreements described above, we purchase naphtha on the spot market from time to time from foreign suppliersREFMAT, a refinery previously owned by Petrobras, located in Africa, Europe, North Americathe state of Bahia, and Latin America.one of the suppliers for our Northeastern Complex. As per the terms and conditions of the sale and purchase agreement, the supply agreement was assigned to ACELEN, which, as of December 2021, replaced Petrobras as Braskem’s supplier in connection with such refinery.
Spot Market Purchases of Condensate
In addition to our supplies of feedstock under the agreements described above, we purchase condensate on the spot market from time to time from foreign suppliers.
Ethane and Propane
Ethane and propane are the principalmain feedstocks that we use to produce our chemical products in the Rio de Janeiro Complex and represent the principal production and operating cost of the chemical operations that are part of our Brazil Segment in the Rio de Janeiro Complex. The price of ethane and propane that we purchase varies primarily based on changes in the U.S. dollar-based international price of these feedstocks.
In December 2020, we and Petrobras entered into a new ethane and propane supply agreement with a term of five years, from January 1, 2021 to December 31, 2025 as follows:
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Table of Contents | ||
· |
we are required to purchase, and Petrobras is required to deliver a minimum annual volume of ethane and/or propane; |
· | we agree to provide Petrobras with a firm commitment order for ethane and propane each month, together with an estimate of the volume of ethane and propane that we will purchase over the immediately succeeding four months; |
· | the prices for ethane and propane are based on international price references; and |
· | Petrobras may terminate the contract, without prior notice, in the event of: (1) our failure to cure any breach of the contract following a 60-day grace period; (2) a force majeure event that continues for more than 365 days; (3) we transfer or offer as a guaranty all or part of our rights and obligations under the contract to a third party without Petrobras’ consent; and (4) the dissolution, bankruptcy or liquidation of RioPol. |
Braskem also has an ethane supply contract with Enterprise Products Operating LLC, or Enterprise Products, to supply ethane from the United States to Brazil. This agreement will remain valid until 2027. The price of ethane is based on the Mont Belvieu ethane price plus a Terminal Fee, basis FOB USGC. The logistics to move the ethane to Brazil is managed by Braskem.
Since February 2017, Braskem has had the capability to receive imported ethane at the Rio de Janeiro Complex.
The imported ethane is marginal to domestic supply and the quantity imported in 20202023 was 30.917.7 ktons, in 2022 was 26.5 ktons and in 2019 it2021 was 35.330.9 ktons.
Since November 2017, Braskem has the capacity to consume ethane in the cracker in Bahia, partially replacing naphtha. Braskem has invested to create the flexibility to substitute naphtha for ethane in a ratio equivalent to 15% of the ethylene production of the site. 2018 was the first year in which we operated our cracker in Bahia using imported ethane as feedstock. Of the total ethylene produced by the cracker, 1.8%there was fromconsumption of 0.7% of ethane feedstock in 20202023, 0.4% of ethane feedstock in 2022 and 1.5%no consumption in 2019.2021.
Refinery Off Gas
In January 2005, we entered into an agreement with Petrobras for the purchase and sale of steam from refinery off gas, from which we separate ethylene and propylene. This agreement provides that wewas valid for a term of 15 years and Petrobras willcontained a provision requiring the parties to negotiate the renewal of this agreementits extension prior to its expiration in 2020 and that, in the event that2020. This agreement also contained a provision pursuant to which Petrobras does not intendwas required to renew this agreement, it must notify us at least two years prior to theits expiration of its intention to renew the agreement, and if Petrobras notified us of its intention not to renew it, then the agreement would remain valid under its original terms and conditions for eight additional years until 2028.
In December 2017, Petrobras informed us that they would not renew this agreement on the same terms and must performconditions. Therefore, the contract will remain valid under its original terms and conditions until 2028.
The impact of the new terms and conditions of thisa possible future agreement until 2028.after 2028 and any failure to successfully negotiate such terms with Petrobras could impair our ability to satisfy our refinery off gas needs.
Under the terms of this agreement, which represents 100% of our refinery off gas supply:
· | we are required to purchase a minimum daily volume of refinery off gas, and Petrobras is required to sell a minimum daily volume to us; |
· | the price for refinery off gas is based on a variety of market references; |
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· | the contract will be amended in the event that unforeseen extraordinary events occur that cause a disruption in the economic-financial equilibrium of the contract; |
· | Petrobras may terminate the contract, without prior notice, in the event of: (1) our failure to cure any breach of the contract following a 30-day grace period; (2) a force majeure event that prevents the execution of the contract; (3) a transfer or pledge by us, as a guarantee for indebtedness, of all or part of our rights, obligations and credits under this contract to a third party without Petrobras’ consent, unless the third party is a member of our economic group; (4) the dissolution or bankruptcy of Braskem S.A.; or (5) a change in business structure, merger, sale, spin-off or any other corporate reorganization of Braskem S.A. that conflicts with or impedes the execution of contract’s purpose. |
Propylene Contracts
We have entered into multiple propylene agreements, which had initial terms expiring at various dates between May 2021 and December 2029, some of which were automatically renewed for five additional years and are priced based on international references to assure competitiveness of feedstock.
In 2016, Braskem entered into an agreement with Petrobras for a five-year propylene supply contract with REFAP S.A., a subsidiary of Petrobras. This supply contract is priced based on international references. In October 2021, Petrobras and Braskem renewed for one year the propylene supply contract with REFAP. The contract lasted between November 2021 and October 2022 and had the same volume and pricing conditions as the previous contract.
In December 2017,2021, Petrobras informed usand Braskem entered into five new propylene contracts, to be supplied by REPLAN, REVAP, REPAR, REDUC and RECAP, which replaced the existing contracts. These contracts expire between 2026 and 2029 and are priced on international references to assure the competitiveness of feedstock.
Petrobras may terminate these contracts, without prior notice, in the event of: (1) our failure to cure any breach of the contract following a 30-day grace period; (2) a force majeure event occurs, although some of these contracts require that it would not renew this agreementthe force majeure event continues for more than 180 days; (3) we transfer or offer as a guaranty all or part of its rights and obligations under the contract to a third party without Petrobras’ consent; (4) an alteration of Braskem management or corporate purposes that conflicts with the purpose of the contract; (5) the dissolution, bankruptcy or liquidation of Braskem; and (6) a change of entity type, merger, sale, spin-off or any other corporate reconstruction of Braskem that conflicts with or impedes the execution of contract’s purpose.
Ethanol Supply Contracts
We buy ethanol from Brazilian producers to supply our facility that produces ethylene and ETBE, using sugar cane ethanol. We have two major ethanol supply agreements that expire in 2024. We also purchase ethanol on the same terms. The current contractspot market from time to time to supplement the contracted volumes. Under the contracts we have, we are or will remain valid and under the current conditions until 2028. The impactbe required to purchase an annual supply of ethanol sufficient to meet at least 90% of the new terms and conditionscapacity of a possible future agreement and any failurethis ethylene plant. The price we pay under these contracts is or will be determined by reference to successfully negotiate such terms with Petrobras could impair our ability to satisfy our refinery off gas needs.the price of combustible hydrated alcohol as published by the Center for Advanced Studies in Applied Economics of the Superior School of Agriculture (Centro de Estudos Avançados em Economia Aplicada da Escola Superior de Agricultura– CEPEA/ESALQ).
Electricity
To supply our industrial operations in Brazil, which represented 82 %79% of our global electric consumption in 2020,2023, we self-generated 52%25% of our electrical energy consumption. 28 %27% of our demand in 20202023 was supplied by Companhia Hidrelétrica do São Francisco, or CHESF, a Brazilian government-owned electric power generation company, pursuant to a power purchase agreement that will remain valid until 2037. The remaining energy is supplied primarily under long-term contracts with several suppliers in the free energy market (Mercado Livre de Energia).
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Out of the total amount of energy we consumed in 2023, 80% was from renewable sources, considering the purchase of renewable energy, including renewables certificates, renewables asset contracts and renewable percentage of the grid. This percentage was 9% higher than in 2022.
Natural Gas
Natural gas is supplied to our industrial operations in Brazil under long-term contracts in the regulated market by companies that have government licenses and exclusivity to deliver itgas in each state. The natural gas consumed by our operations in Brazil in 20202023 represented 61% of our consolidated consumption.
OthersSteam and Coal
Steam is essential to our industrial processes. Most of the industrial units generate their own steam from the burning of fuels. In the Southern Complexsome units, we also buy methanolpurchase steam from third parties under long-term contracts. In Brazil, national and imported coal are used to produce MTBE and ethanol to produce the “green polyethylene.” Methanol is imported and its price is based on international market quotations. Ethanol is boughtgenerate steam in our unit located in the domestic marketpetrochemical complex at Rio Grande do Sul. In 2023, coal represented 11.5% of the energy purchased globally.
Since September 2023, part of the steam used in our industrial unit located in the state of Alagoas, Brazil is generated from several producers. In the Bahia Complex, we also buy ethanol to produce ETBE.biomass, supplied by Veolia under a long-term contract.
Sales and Marketing of Our Chemicals Operations that are PartBrazil Segment
The focus of our Brazil Segment
We sell most of our chemical products in Brazilolefins and polyolefins operations is to third-party petrochemical producers. We sell the remainder of our chemical products to customers in the United States, Europe, South America and Asia.
Domestic Sales of Chemicals
As part of our commercial strategy, our chemicals operations that are part of our Brazil Segment focuses on developing long-term relationships with our customers and entering into long-term supply contracts that provide for minimum and maximum quantities to be purchased on a monthly basis. The domestic market pricing is based on international market references.
Export Sales of Chemicals
International market prices are also based on international market references, which usually vary according to the region to which the product is exported.
We are focused on maintainingmaintain our leading position in Brazil and South America through a continued local presence and regular product supply, reinforcing our commitment to the Brazilian market, whilechemical and plastic industry chain in the region, continuing to use our exports to optimize our operations and adjust the imbalances between demand and production. Since we export large volumes of certain products, we also develop long-term relationships with international customers through contracts that minimize our exposure to market conditions and mitigate risk.
CompetitionWe sell most of our olefins products in Brazil to third-party petrochemical producers. We sell the remainder of our products to customers in the United States, Europe, South America and Asia.
Through our polyolefins operations, we sell polyethylene and polypropylene products to 1,475 customers worldwide. We have a diversified product mix that allows us to serve a broad range of end users in several industries. The customers of our polyolefins operations generally are third generation petrochemical producers that manufacture a wide variety of plastic-based consumer and industrial goods.
There is a structural link between the PVC and caustic soda markets because caustic soda is a co-product of the production of chlorine required to produce PVC. Most of the time, when demand for PVC is strong, greater amounts of caustic soda are produced, leading to an increase in supply and a decrease in prices for caustic soda. Conversely, when demand for PVC is weak, prices for caustic soda tend to rise.
Domestic Sales of Olefins and Polyolefins operations
As part of our commercial strategy, we are focused on developing short and long-term relationships with our customers. Our olefins operations focuses entering into long-term supply contracts that provide for minimum and maximum quantities to be purchased on a monthly basis. The domestic market pricing is based on international market references.
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Given the cyclical nature of the markets for our polyolefins operations, we believe that we can strengthen customer loyalty during periods of reduced demand for polyethylene or polypropylene by providing a reliable source of supply to these customers during periods of high demand. We work closely with our customers to provide technical assistance and to coordinate the production and delivery of our products. Despite having a regular client basis in the domestic market, prices in such market are driven by monthly spot negotiations. Both sales volume per client and the types of products our clients purchase may vary on a monthly basis.
In addition to direct sales of polyolefins to our customers, through our polyolefins operations, we sell products in Brazil through exclusive independent distributors. Our polyolefins operations are served by five distributors, through which we distribute our products pursuant to formal agreements and spot market transactions. We have selected our distributors based on their ability to provide full service to their customers, and also based on their background. These distributors sell our polyethylene and polypropylene products to manufacturers with lower volume requirements and are able to aggregate multiple orders for delivery. They have a wide coverage network in Brazil and, as a result, expand the Braskem brand.
Furthermore, by providing customized services and serving smaller customers through a network of distributors, our account managers focus their efforts on delivering high quality service to a smaller number of large and medium direct customers.
Export Sales of Olefins and Polyolefins operations
Our chemicalvolume of polyolefins export sales has generally varied based upon the level of domestic demand and the total production availability for our products. Our polyolefins operations have commercial offices in Argentina, Chile, Peru and Colombia. These offices are used to consolidate our marketing efforts in South America, one of our key markets outside of Brazil. Our polyolefins operations may also use theour European, Mexican and U.S. sales force of our USA and Europe Segment and Mexico segment in order to improve the competitiveness of our export sales from Brazil Segment. In each of these regions, we have specific commercial strategies in connection with exports coming from Brazil, which complements our local product availability.
We have established a strategic position in the polyolefins business in South America, North America, Europe and Asia through regular direct sales, local distributors and agents who understand their respective markets. The strategy to increase our presence in these foreign markets is intended, among other things, to reduce our exposure to the cyclicality of the international spot market for polyolefins through the development of long-term relationships with customers in neighboring countries. Our local presence allows us to further enhance our position in those markets and sell our polyolefins operations that are part of our Brazil Segment’s products through our USA and Europe Segment.
Sales of Vinyls and Specialties operations
Most of our sales of PVC and caustic soda are sold to Brazilian customers and we use third-party distributors to serve smaller and/or specific caustic soda customers. To provide a better logistics support to our Brazilian PVC customers, we serve them through six distribution centers, on a contractual basis, located in: Piracicaba, Mauá e Sumaré, in the State of São Paulo; Joinville, in the State of Santa Catarina; Pouso Alegre, in the State of Minas Gerais; and Araucaria, in the State of Paraná. In addition, we operate 12 warehouse facilities for PVC, on a non-exclusive basis, and five terminal tank facilities (Aratu-BA; Vila Velha- ES; Rio de Janeiro- RJ; Santos – SP; Paranaguá – PR) for caustic soda strategically located along the Brazilian coast to enable us to deliver our products to our customers on a “just-in-time” basis. Our vinyls operations work in close collaboration with its customers, working together to improve existing products as well as to develop new applications for PVC. Our marketing and technical assistance groups also advise current customers and potential ones that are considering the installation of new manufacturing equipment for PVC downstream products.
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In addition, our vinyls operations supplies the Brazilian market with emulsion PVC and other copolymers with higher value through imports. Our primary customers operate in the laminated, shoe and automobile sectors. These products represented 1% of our consolidated sales volume in 2023.
The specialties business strategy focuses on maximizing the value of flows available in industrial units and on portfolio and geographic diversification, which in 2023 had more than 200 customers around the world, approximately 70% abroad. The Company works in close collaboration with its customers and carries out several studies to create new products and improve existing products.
Prices and Sales Terms
We determine the prices of our products in accordance with international pricing references. In addition, we consider segment, volume, and other information when we set our prices. Our customers in Brazil may pay in full on delivery or elect credit terms that require payment in full within three to 60 days following delivery. We charge interest based on prevailing market rates to our Brazilian customers that elect to pay on credit.
In addition, besides our strategic sales to South America, Europe, Mexico and the United States, our polyolefins operations that are part of our Brazil Segment generally conducts export sales to buyers in Asia and Africa through the international spot market. Our customer base in these markets consists primarily of trading houses and distributors.
The domestic price for PVC resins is based on the import parity of PVC imported by converters in Brazil, which generally reflects the Northeast Asian spot market price, plus exchange rate variation. Delivery time, quality and technical service also affect the levels of sales of PVC resins. We establish our domestic price for caustic soda based on North American spot market prices, plus exchange rate variation.
We establish our domestic price for specialties based on international spot market prices, plus exchange rate variation. The domestic price for specialties is based on the international reference, which generally reflects the spot market price, plus service margin and exchange rate variation. Delivery time, quality and technical service also affect the levels of sales of specialties products.
Competition
Olefins Operations
Our olefins customers, which are mostly second generationsecond-generation petrochemical producers with plants located in the Brazilian petrochemical complexes, would have difficulty obtaining their feedstocksthrough our competitive and reliable supply mitigates import interest from other sources at lower prices due to the high cost of transportation of these products, as well as other logistical difficulties.our customers. In addition, because Brazil produces sufficient quantities ofenough olefins to meet domestic demand, imports of these products are generally sporadic and usually related to scheduled plant maintenance shutdowns or to meet unsatisfied domestic demand.
During the past several years, as the relative cost of naphtha and gas as feedstock for petrochemical crackers has diverged, many crackers using gas as a feedstock have become low-cost producers in the global markets and have seen their margins improve as compared to naphtha crackers. Competition in the international markets for these products is primarily based on the price of delivered products and competition has increased since mid-2008 as the balance between supply and demand was disrupted due to the impact of the global economic downturn on consumers of these products. In the international markets for our Chemicalolefins products, we compete with a large number ofmany producers, some of which are substantially larger and have substantially greater financial, manufacturing, technological and marketing resources than us.
Polyolefins Operations that are Part of our Brazil Segment
As of December 31, 2020, our polyolefins production facilities had the largest annual production capacity of all second generation producers of polyolefins products in Latin America. Our polyolefins operations that are part of our Brazil Segment is comprised of the operations conducted by us at nine polyethylene plants and five polypropylene plants located in the Northeastern Complex, the Southern Complex, the São Paulo Complex and the Rio de Janeiro Complex.
Products of Our Polyolefins Operations that are Part of our Brazil Segment
Our polyolefins operations that are part of our Brazil Segment produce:
We manufacture a broad range of polyolefins for use in consumer and industrial applications, including:
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The following table sets forth a breakdown of the sales volume of our polyolefins operations that are part of our Brazil Segment by product and by market for the years indicated.
Year Ended December 31, | |||
2020 | 2019 | 2018 | |
(in thousands of tons) | |||
Domestic sales: | |||
Polyethylene(1) | 1,886.7 | 1,789.7 | 1,788.3 |
Polypropylene | 1,250.3 | 1,142.8 | 1,143.3 |
Total domestic sales | 3,137.0 | 2,932.5 | 2,931.7 |
Total export sales | 1,051.8 | 1,391.8 | 1,257.3 |
Total polyolefins sales | 4,188.8 | 4,324.3 | 4,189.0 |
We provide technical assistance to our customers to meet their specific needs by adapting and modifying our polyethylene and polypropylene products. We believe that the variety of technological processes at our polyolefins plants provides us with a competitive advantage in meeting our customers’ needs.
Production Facilities of Our Polyolefins Operations that are Part of our Brazil Segment
As of December 31, 2020, our polyolefins operations that are part of our Brazil Segment owned 14 production plants. Our polyolefins operations that are part of our Brazil Segment operates five plants located in the Southern Complex, three plants located in the Northeastern Complex, four plants located in the São Paulo Complex and two plants located in the Rio de Janeiro Complex.
The table below sets forth for each of our primary polyolefins products, our annual production capacity as of December 31, 2020 and annual production for the years presented.
Annual Production | Production | |||
Primary Products | Capacity | 2020 | 2019 | 2018 |
(in tons) | ||||
Polyethylene: | ||||
LDPE/EVA(1) | 795,000 | 644,747 | 675,075 | 663,285 |
HDPE/LLDPE/UHMWPE(2) | 2,260,000 | 1,927,512 | 1,935,752 | 2,009,389 |
Polypropylene(3) | 1,850,000 | 1,568,723 | 1,638,974 | 1,592,480 |
In September 2010, we commenced production of ethylene at a new plant located in the Southern Complex that produces “green” ethylene using sugar cane ethanol received through the Santa Clara Terminal as its primary raw material. This plant has an annual production capacity of 200,000 tons of ethylene.
Raw Materials of Our Polyolefins Operations that are Part of our Brazil Segment
Ethylene and Propylene
The most significant feedstock of our production of polyethylene and polypropylene are ethylene and propylene that are produced by our chemicals operations that are part of our Brazil Segment. In 2020, our polyolefins operations that are part of our Brazil Segment consumed all of the ethylene and part of the propylene produced by our chemicals operations that are part of our Brazil Segment.
Propylene Contracts with Petrobras and its Subsidiaries
We have entered into multiple propylene agreements, which have initial terms expiring at various dates between May 2021 and December 2029, and are priced based on international references to assure competitiveness of feedstock. In 2016, Braskem entered into an agreement with Petrobras for a five-year propylene supply contract with Refap S.A., a subsidiary of Petrobras. This supply contract is also priced based on international references.
Petrobras may terminate these contracts, without prior notice, in the event of: (1) our failure to cure any breach of the contract following a 30-day grace period; (2) a force majeure event occurs, although some of these contracts require that the force majeure event continues for more than 180 days; (3) we transfer or offer as a guaranty all or part of its rights and obligations under the contract to a third party without Petrobras’ consent; (4) an alteration of Braskem management or corporate purposes that conflicts with the purpose of the contract; (5) the dissolution, bankruptcy or liquidation of Braskem; and (6) a change of entity type, merger, sale, spin-off or any other corporate reconstruction of Braskem that conflicts with or impedes the execution of contract’s purpose.
Ethanol Supply Contracts
We buy ethanol from Brazilian producers to supply our facility that produces ethylene using sugar cane ethanol. Some agreements expire in July 2021 and others have no specific expiration date. We also purchase ethanol on the spot market from time to time to supplement the contracted volumes. Under the contracts we have, we are or will be required to purchase an annual supply of ethanol sufficient to meet at least 90% of the capacity of this ethylene plant. The price we pay under these contracts is or will be determined by reference to the price of combustible hydrated alcohol as published by the Center for Advanced Studies in Applied Economics of the Superior School of Agriculture (Centro de Estudos Avançados em Economia Aplicada da Escola Superior de Agricultura– CEPEA/ESALQ).“
Other Materials and Utilities
Our polyolefins operations that are part of our Brazil Segment use butene and n-hexane as raw materials in the production of HDPE and LLDPE. Butene is consumed from our chemicals operations that are part of our Brazil Segment, and we import n-hexane from suppliers located in U.S. Gulf Coast.
Our Unipol polyethylene plants in the Northeastern Complex and Rio de Janeiro Complex use catalysts supplied by Univation Technologies. Our HDPE plant in the São Paulo Complex uses catalysts supplied by W.R. Grace & Co. The catalysts for our swing line LLDPE/HDPE plants are purchased from Basell Poliolefine Italia S.R.L. and Equistar Chemicals, L.P, or, collectively, Basell. We produce our own catalysts for our HDPE slurry plants in the Southern and Northeastern Complexes, and we purchase the inputs that we need to produce these catalysts from various suppliers at market prices. Our polypropylene plants use catalysts primarily supplied by Basell, while we import certain catalysts from suppliers in the United States and Europe.
Sales and Marketing of Our Polyolefins Operations that are Part of our Brazil Segment
Through our polyolefins operations that are part of our Brazil Segment, we sell polyethylene and polypropylene products to more than 1,400 customers worldwide. We have a diversified product mix that allows us to serve a broad range of end users in several industries. The customers of our polyolefins operations that are part of our Brazil Segment generally are third generation petrochemical producers that manufacture a wide variety of plastic-based consumer and industrial goods.
Domestic Sales
We are focused on developing long-term relationships with our customers. Given the cyclical nature of the markets for our polyolefins products, we believe that we can strengthen customer loyalty during periods of reduced demand for polyethylene or polypropylene by providing a reliable source of supply to these customers during periods of high demand. We work closely with our customers to provide technical assistance and to coordinate the production and delivery of our products. Despite having a regular client basis in the domestic market, prices in such market are driven by monthly spot negotiations. Both sales volume per client and the types of products our clients purchase may vary on a monthly basis.
In addition to direct sales of polyolefins to our customers, through our polyolefins operations that are part of our Brazil Segment we sell products in Brazil through exclusive independent distributors. Our polyolefins operations that are part of our Brazil Segment is served by five distributors, through which we distribute our products pursuant to formal agreements and spot market transactions. We have selected our distributors based on their ability to provide full service to their customers, and also based on their background. These distributors sell our polyethylene and polypropylene products to manufacturers with lower volume requirements and are able to aggregate multiple orders for delivery. They have a wide coverage network in Brazil and, as a result, expand the Braskem brand.
Furthermore, by providing customized services and serving smaller customers through a network of distributors, our account managers focus their efforts on delivering high quality service to a smaller number of large and medium direct customers.
Export Sales
Our volume of polyolefins export sales has generally varied based upon the level of domestic demand and the total production availability for our products. Our polyolefins operations that are part of our Brazil Segment has sales office in Argentina, Chile, Peru and Colombia. These offices are used to consolidate our marketing efforts in South America, one of our key markets outside of Brazil for this business unit. Our polyolefins operations that are part of our Brazil Segment also uses our European, Mexican and U.S. sales force in order to improve the profitability of our sales. In each of these regions, we have specific commercial strategies in connection with exports coming from Brazil, which complements our local product availability.
We have established a strategic position in the polyolefins business in South America, North America, Europe and Asia through regular direct sales, local distributors and agents who understand their respective markets. Our strategy to increase our presence in these foreign markets is intended, among other things, to reduce our exposure to the cyclicality of the international spot market for polyolefins through the development of long-term relationships with customers in neighboring countries. Our local presence allows us to further enhance our position in those markets and sell our polyolefins operations that are part of our Brazil Segment’s products through our USA and Europe Segment.
The main focus of our polyolefins operations that are part of our Brazil Segment is to maintain our leading position in the Brazil and South America reinforcing our commitment to the plastic industry chain in the region, maintaining our position as a leader in polyolefins through a continued local presence and regular product supply.
Prices and Sales Terms
We determine the prices of our products in accordance with international pricing references. In addition, we take into account segment, volume, and other information when we set our prices. Our customers in Brazil may pay in full on delivery or elect credit terms that require payment in full within three to 60 days following delivery. We charge interest based on prevailing market rates to our Brazilian customers that elect to pay on credit.
In addition, besides our strategic sales to South America, Europe, Mexico and the United States, our polyolefins operations that are part of our Brazil Segment generally conducts export sales to buyers in Asia and Africa through the international spot market. Our customer base in these markets consists primarily of trading houses and distributors. Pricing is based on international spot market prices.
Competition
We are the only producer of polyethylene and polypropylene in Brazil. We compete with polyolefins producers worldwide. In 2020,2023, Brazilian polyethylene and polypropylene imports increased by 12%13.1% and represented 32%40.2% of Brazilian polyolefin consumption.
We compete for export sales of our polyolefins products in other countries in Latin America and in the North American, Asian and European markets. Similar to Braskem, those competitors also have a wide portfolio, ample research and development capabilities and sufficient production capacity. Our competitive position in the export markets that we serve is based on customer relationship, extensive product portfolio, product quality and customer service and support.
We are the only green polyethylene producer in the world, made by sugar cane that is 100% verified by ASTM D6866
Vinyls Operations that are Part of our Brazil Segment
We were the leading producer of PVC in Brazil, based on sales volumes and installed capacity in 2020. As of December 31, 2020, our PVC production facilities had the second largest annual production capacity in Latin America
Our PVC production is integrated through our production of chlorine, ethylene and other raw materials. The main use of PVC is for pipes and fittings and other products related to the civil construction market. Our vinyls operations that are part of our Brazil Segment also manufacture caustic soda, which is mainly used by producers of alumina, pulp and paper, and in the soap industry.
In 2020, we had an approximate 50% share of the Brazilian PVC market and 11% of market share of the Brazilian caustic soda market (excluding consumption of alumina by companies located in the North and Northeast of Brazil), based on sales volumes of our vinyls operations that are part of our Brazil Segment.
Products of Our Vinyls Operations that are Part of our Brazil Segment
The following table sets forth a breakdown of the sales volume of our vinyls operations that are part of our Brazil Segment by product line for the years indicated.
For the Year Ended December 31, | |||
2020 | 2019 | 2018 | |
(in thousands of tons) | |||
PVC | 525.7 | 491.3 | 490.1 |
Caustic soda | 150.6 | 243.2 | 344.2 |
Other(1) | 34.4 | 72.1 | 85.9 |
Total domestic sales | 710.7 | 806.7 | 920.2 |
Total export sales | 21.7 | 22.2 | 49.4 |
Total vinyls sales | 732.4 | 828.8 | 969.6 |
Production Facilities of Our Vinyls Operations that are Part of our Brazil Segment
We own four vinyls production facilities. One of our facilities is located in the Northeastern Complex, and three others are located in the State of Alagoas.
In January 2020, Braskem announced the permanent shutdown of its chlor-alkali production facility located in Camaçari, in the State of Bahia, whose operations started in 1979 with annual production capacity of 79,000 tons of caustic soda and 64,000 tons of chlorine. The shutdown is explained by the end of the facility’s useful life and started in April 2020, following applicable safety standards and seeking to protect people, local communities and the environment.
The table below sets forth for each of our primary vinyls products, our annual production capacity as of December 31, 2020 and annual production for the years presented.
Annual Production | Production | ||||
Primary Products | Capacity | 2020 | 2019 | 2018 | |
(in thousands of tons) | |||||
PVC | 710.0 | 448.5 | 461.1 | 533.2 | |
Caustic Soda | 460.0 | 9.0 | 123.2 | 317.8 |
Raw Materials of the Vinyls Operations that are Part of our Brazil Segment
Ethylene
The most significant feedstock associated with the production of PVC is ethylene. Our chemicals operations that are part of our Brazil Segment supply all of the ethylene required by our vinyls operations that are part of our Brazil Segment.
Electricity
Electric power is a significant cost component in our production of chlorine and caustic soda. Our vinyls operations that are part of our Brazil Segment obtains its electric power requirements from various generators under long-term power purchase agreements (see “Chemicals Operations that are Part of our Brazil Segment—Supply Contracts and Pricing of the Chemicals Operations that are Part of our Brazil Segment—Electricity”).
Salt
We used 5,289.4 tons of salt during 2020.
However, salt mining operations at our mine were halted in May 2019, as described in “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—Our business and operations are inherently subject to environmental, health and safety hazards. As a result, our business is also subject to stringent environmental and other regulations” and “Item 8. Financial Information—Legal Proceedings—Alagoas – Mining Activities.” Production of caustic soda and ethylene dichloride at our chlor-alkali facility located in the state of Alagoas was also interrupted due to the lack of salt. Ethylene dichloride, or EDC, is consumed in PVC production. Because of the interruption, we needed to import 139,000 tons of caustic soda to supply our customers and 295,000 tons of EDC to supply our PVC facilities located in the state of Alagoas and in the Northeastern Complex.
Seeking to resume our chlor-alkali operations, we launched a project to modify the feedstock base of our chlor-alkali plants by acquiring sea salt from third parties in Brazil or abroad. The product was stocked, dissolved in water to make brine and then treated and sent for processing. After concluding the commissioning process in accordance with applicable safety standards, we started production of chlor-alkali and dichloroethane at our unit located in the Pontal da Barra district of Maceió, in the state of Alagoas, which had been idled since May 2019.The cost of the project was R$67.7 million, of which R$21.2 million had been already disbursed in 2019, R$43.9 million was disbursed in 2020 and the remaining R$2.6 million will be disbursed in 2021. See “Item 5. Operating and financial review and prospects—Other Investments—Technology change at our chlor-alkali facility in Alagoas.”
Sales and Marketing of Our Vinyls Operations that are Part of our Brazil Segment
There is a structural link between the PVC and caustic soda markets because caustic soda is a co-product of the production of chlorine required to produce PVC. Most of the time, when demand for PVC is high, greater amounts of caustic soda are produced, leading to an increase in supply and generally lower prices for caustic soda. Conversely, when demand for PVC is low, prices for caustic soda tend to rise.
We make most of our sales of PVC and caustic soda directly to Brazilian customers, but we use third-party distributors to serve smaller caustic soda customers. However, our vinyls operations that are part of our Brazil Segment maintain contractual relationships through five distribution centers that provide logistical support, located in Paulínia and Barueri, both in the State of São Paulo, Joinville, in the State of Santa Catarina, Extrema, in the State of Minas Gerais, and Araucaria, in the State of Paraná. In addition, we operate twelve warehouse facilities for PVC, on a non-exclusive basis, and five terminal tank facilities for caustic soda strategically located along the Brazilian coast to enable us to deliver our products to our customers on a “just-in-time” basis. Our vinyls operations that are part of our Brazil Segment develops its business through close collaboration with its customers, working together to improve existing products as well as to develop new applications for PVC. Our marketing and technical assistance groups also advise current customers and potential customers that are considering the installation of manufacturing equipment for PVC downstream products.
In addition, our vinyls operations that are part of our Brazil Segment supplies the Brazilian market with emulsion PVC and other copolymers with higher value by imports from Colombia under a contract with Mexichem. Our primary customers operate in the laminated, shoe and automobile sectors. These products represented 2% of our consolidated sales volume in 2020.
Prices and Sales Terms
The domestic price for PVC resins is based on the import parity of PVC imported by converters in Brazil, which generally reflects the Northeast Asian spot market price, plus exchange rate variation. Delivery time, quality and technical service also affect the levels of sales of PVC resins. We establish our domestic price for caustic soda based on North American spot market prices, plus exchange rate variation.
Competition
PVC
Unipar Indupa (formerly Carbocloro and Solvay), or Unipar, and Braskem are the only two PVC producers of PVC in Brazil. Unipar’s total Brazilian installed annual production capacity is 300,000 tons, compared to our annual production capacity of 710,000 tons. Unipar’s Brazilian production facilities are located in São Paulo, which is closer to the primary PVC market in Brazil, thanwhereas our facilities.facilities are located in the Northeast of Brazil. However, we believe that our vertically integrated production capabilities, our strong relationship with our customers and our technical assistance programs enable us to effectively compete with Unipar and to make up for any competitive disadvantage due to geographical distance and compete effectively with Unipar.from the market.
BraskemIn addition to its Brazilian facilities, Unipar also competes with Unipar’s Argentina production facilities and other importers of PVC. Unipar has a PVC plant in Argentina in addition to its plants in Brazil.that, together with other PVC importers, compete with Braskem. Imports from all regions accounted for 32%13.8% of Brazilian PVC consumption in 2020.2023. Most of the imported volume comes from Colombia (Mexichem) that, due to a bilateral agreement with Brazil, can import products without import taxes. Domestically produced PVC is currently competitively priced with imported PVC, considering that our price is based on the international market.
In addition, Braskem competes with other producers of thermoplastics that manufacture the same PVC products or substitutes for products in our PVC product line. Thermoplastic resins, principallymainly polyethylene and polypropylene, are usedthat can replace PVC in certain applications as substitutes for PVC.applications. Wood, glass, and metals also are used in some cases as substitutes for PVC.
Caustic Soda
According to IHSCMA and Abiclor (Associaç(Associação Brasileira da Indústria de Álcalis, Cloro e Derivados)Derivados), the three largest Brazilian producers of caustic soda, including Braskem, accounted for 89%91% of capacity in Brazil in 2020. Most domestic producers operate on a local or regional basis, with the exception of Braskem and another producer located in the Northeast region of Brazil that operate in the whole country through terminal tanks located on the Brazilian coast. Imports accounted for 47% of2023.
In 2023 Brazil’s total caustic soda consumption in 2020, excluding Braskem imports. Duewas 1,405,632 tons, 32.5% of this consumption is attributed to the mining event in Alagoas, our chlor-alkali plant was idled in 2019 and we have been importingimported caustic soda, from various sourceswhich includes Braskem own imports to keep supplying customers in Brazil since then.supply part of the market (34,679 tons).
Our principalmain competitors in the caustic soda market elsewhere in South America are other international petrochemical companies operating in Brazil and producers located onin the U.S. Gulf Coast.
Specialties
Our main competitors in the specialties market are national and international petrochemical companies operating in Brazil, national and international refinery companies and producers located in the U.S. Gulf Coast.
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USA and Europe Segment
Our USA and Europe Segment includes:
· | the operations of Braskem America, which consist of five polypropylene plants in the United States and one Ultra High Molecular Weight Polyethylene – the |
· | the operations of two polypropylene plants in Germany. |
As of December 31, 2020,2023, our USA and Europe Segment’s facilities had the largest annual polypropylene production capacity in the United States.States, according to CMA. Our USA and Europe Segment generated net revenue of R$14,638.717,507 million during 2020,2023, or 24.6%24% of the net revenue of all reportable segments, including inter-segment sales.
In June 2014, we announced the construction of an UHMWPE production line in our La Porte, Texas site, which began producing UTEC® in the first quarter of 2017. We believe that the production of specialized UHMWPE at this new line complements our existing portfolio of products and will enable us to access new markets and to develop close relationships with new and existing clients.segments.
In June 2017, we announced the construction of a Polypropylene Unit (“Delta”) at our La Porte, Texas site. Aligned with the strategy to diversify the raw materials matrix and geographic expansion in the Americas, this is a new world-class PP production facility with an annual polypropylene production capacity of 450,000 tons. In September 2020, we announced that after completing the commissioning phase, we have started commercial production of PP at this new plant. We believe that this investment reinforces our PP leadership position in the region, as it will enable us to replace imported PP volumes in the North American domestic market and also scale up our exports supporting structural global demand with existing global clients.
In September 2023, a decision was made to hibernate one of the two polypropylene lines at the Marcus Hook plant in Pennsylvania. The hibernation of this line was implemented to ensure the long-term resilience of Braskem’s United States polypropylene business amid continuing global economic uncertainty and a trough in the chemical industry business cycle.
Products of Our USA and Europe Segment
Our USA and Europe Segment produces polypropylene. The sales volume of polypropylene by this unit was 1,968,1462,109,679 tons in 2020, 1,920,4342023, 2,096,884 tons in 20192022 and 1,923,2272,217,055 tons in 2018.2021. For a description of the uses of our polypropylene products, see “—Polyolefins Operations that are PartProducts of ourOur Brazil Segment.”
Production Facilities of our USA and Europe Segment
The table below sets forth the annual production capacity as of December 31, 20202023, of the USA and Europe Segment’s polypropylene plants in the United States and Germany and the annual production for the years presented.
Annual Production | Production | Annual Production Capacity | Production | |||||
Plant | Capacity | 2020 | 2019 | 2018 | 2023 | 2022 | 2021 | |
(in tons) | (in thousands of tons) | |||||||
United States | 2,020,400 | 1,446,066 | 1,435,298 | 1,388,600 | 2,021 | 1,643 | 1,604 | 1,729 |
Germany | 625,000 | 493,304 | 494,241 | 523,797 | 625 | 494 | 504 | 570 |
Raw Materials of Our USA and Europe Segment
Propylene
The most significant direct cost associated with the production of polypropylene by our USA and Europe Segment is the cost of purchasing propylene.
We acquire propylene for our polypropylene plants in the Unites States under a variety of long-term supply agreements and through the spot market. As of December 31, 2020, we had 14 supply agreements with multiple suppliers. The pricing formulas for propylene under these supply agreements are generally based on international market prices.
As a result of rising natural gas production and related production of natural gas liquids, several companies have announced plans to build propane dehydrogenation, or PDH plants, which would produce on-purpose propylene. We have secured a long-term propylene agreement of 15 years with one such company, Enterprise Products, which completed construction of a PDH plant in Texas in 2017 with an annual capacity of 750,000 tons. We expect this agreement with an established producer to provide us with a competitive, long-term supply of propylene, using shale gas and other nontraditional sources as its feedstock. This plant has commenced operations by the end ofin 2017. Under this arrangement, the pricing of these contracts will be based on market prices for propane and other market costs.
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Supply Contracts of Our USA and Europe Segment
We acquire propylene for our polypropylene plants in the Unites States under a variety of long-term supply agreements and through the spot market. As of December 31, 2023, we had 19 propylene supply agreements and two ethylene supply agreements. The pricing formulas for propylene under these supply agreements are generally based on international market prices.
We acquire propylene for our polypropylene plants in Germany under long-term supply agreements that provide for the supply of 91%around 90% of the propylene requirements of these plants. We have two main supply agreements in Germany. One will expire in September 2021 and will be replaced by a new five-year agreement effective as of October 1, 2021 with a term until September 30, 2026, and thereafter will automatically be renewable for consecutive one-year terms, unless terminated by one of the parties The other agreement expires in December 2024, and thereafter will also be automatically renewable for consecutive one-year terms, unless terminated by one of the parties. We have entered into a third contract that will expire at the end of 2022, increasing the supply of our plants to 94% of the propylene required. The pricing formulaprice quotation for propylene under these longer supply agreements is based on market prices. We purchaseare related to the propylene used in our Europe plants based on monthly contract price for propylene for Europe (as reported by ICIS-LOR).
, varying their discounts and/or formula rationale according to each supplier.
SalesSales and Marketing of Our USA and Europe Segment
Our USA and Europe Segment sells polypropylene products to approximately 391444 customers. We have a diversified product mix that allows us to serve a broad range of end users in several industries. The customers of our USA and Europe Segment generally are third generation petrochemical producers that manufacture a wide variety of plastic-based consumer and industrial goods.
The following table sets forth our net revenue derived from sales of our USA and Europe Segment for the years indicated:
For the Year Ended December 31, | For the Year Ended December 31, | |||||
2020 | 2019 | 2018 | 2023 | 2022 | 2021 | |
(in millions of reais) | (in millions of reais) | |||||
Net revenue: | ||||||
USA and Europe | 14,638.7 | 10,044.3 | 11,725.6 | 17,507 | 23,421 | 32,404 |
56% of the sales of polypropylene byIn the USA and Europe Segment, are made under long-termcontracts or general supply agreements with our customers. These supply contracts generally have an initial two-year term and are automatically renewableclients account for one-year periods unless one party notifies the other75% of its intention not to renew.polypropylene sales. These contracts also provide fortypically last one year and have the option of being renewed at the end of the term. Additionally, these agreements specify required minimum and maximum purchase quantities to be purchased andas well as monthly deliveries.
The remainder of the polypropylene production of the USA and Europe Segment is sold through (1) our direct sales force that seeks to establish supply relationships with customers; (2) a select number of distributors authorized to represent the Braskem brand in the U.S. and European markets; (3) resellers that trade these products under private labels in the North American and European markets; and (4) traders that resell these products in the export markets.
Prices and Sales Terms
The domestic price for PP resins in the USA and Europe Segment reflects the market price, considering the differences between contract and spot prices, or propylene plus pricing. Delivery time, quality and technical service also affect the levels of sales of resins and usually export prices for PP are based on spot market references.
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Competition
The USA and Europe Segment is largely a commodities business and competes with local, regional, national, and international companies, some of which have greater financial, research and development, production and other resources than us. Although competitive factors may vary among product lines, our competitive position is primarily based on raw material and production costs, selling prices, product quality, product technology, manufacturing technology, access to new markets, proximity to the market and customer service and support.
Our primary competitors for sales in the polypropylene industry in North America and Europe are other large international petrochemical companies. In general, demand is a function of economic growth in North America, and elsewhere in the world.
Our primary competitors for sales in the polypropylene industry in Europe are other large international petrochemical companies. In general, demand is a function of economic growth in Europe and elsewhere in the world.
Mexico Segment
Braskem and Idesa, one of Mexico’s leading petrochemical groups, formed Braskem Idesa S.A.P.I. in April 2010, with Braskem holding 75% of the total share capital and Idesa holding the remaining 25%, to develop, construct and operate the Mexico Complex, located in the Mexican state of Veracruz. During April 2016, Braskem Idesa commenced commercial operations of the Mexico Complex. As a result of the commencement of operations of the Mexico Complex, we commenced recording the results of our Mexico business unit as a separate segment in our financial statements as of dates and for periods ended after January 1, 2017.
As of December 31, 2020,2023, our Mexico Segment had the largest annual polyethylene production capacity in Mexico.Mexico, according to CMA. Our Mexico Segment generated net revenue of R$4,000.84,449 million during 2020,2023, or 6.7%6% of the net revenue of all of our reportable segments, including inter-segment sales.segments.
Products of Our Mexico Segment
Our Mexico business unit produces ethylene, HDPE and LDPE at our Mexico Complex. We use all of the ethylene produced by our Mexico Complex as raw material for the production of polyethylene by this complex. The sales volume of polyethylene by this unit was 843,532803,110.2 tons in 2020.2023. Our Mexico Complex manufactures a broad range of polyethylene grades for use in consumer and industrial applications, including plastic films for food and industrial packaging, bottles, shopping bags and other consumer goods containers, automotive parts, and household appliances. Braskem Idesa remains focused on the growth of the PCR market, especially on product development and marketing capacity through partnerships and strategic alliances.
Technologies selected for the Mexico Segment are proven and considered stated of the art with excellent track records in the petrochemical market and we believe it provides a competitive advantage in serving our customers to meet their specific needs by adapting and modifying our polyethylene products.
Production Facilities of Our Mexico Segment
Our Mexico Segment operates four plants located in the Mexico Complex, consisting of:
· | an ethylene cracker, with an annual production capacity of 1,050,000 tons of ethylene, which commenced operations in March 2016; |
· | two |
· | a |
Annual Production | Production | |||
Plant | Capacity | 2020 | 2019 | 2018 |
(in tons) | ||||
Mexico (Polyethylene) | 1,050,000 | 780,176 | 800,783 | 808,388 |
· | a 175-megawatt power generation plant consisting of one gas turbine and two steam turbines; and |
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· | an effluents treatment plant and a water treatment plant, which return water to the community in a condition that exceeds the applicable regulatory requirements. |
· | A logistic platform and distribution network consisting in 20,000 m2 of warehouse, more than 30,000 m2 of open space capacity, 21 silos (1,050 m3 each one), 14 loading docks and 14 km of rail tracks. |
Annual Production | Production | |||||
Plant | Capacity | 2023 | 2022 | 2021 | ||
(in thousands of tons) | ||||||
Mexico (Polyethylene) | 1,050,000 | 808,308 | 765,314 | 696,142 | ||
Raw Materials of Our Mexico Segment
The principal raw material used in our Mexico Complex is ethane, in addition to other raw materials such as hexane,hexene, propylene and polyaldehyde (PAL). Other chemicals, catalyzers, additives and utilities such as natural gas, electricity and nitrogen are used to produce polyethylene in the Mexico Complex.
Ethane
Ethane is the principal raw material that we use to produce ethylene in the Mexico Complex and representrepresents the principal production and operating cost of the Mexico Complex. The price of ethane that we purchase varies based on changes in the U.S. dollar-based U.S. reference price of these feedstocks. We currently source mostethane, from two main sources. Approximately 60% to 70% of our supply oftotal ethane whichneeds is sourced under the primary feedstock used in our polyethylene production process, fromEthane Supply Agreement with Pemex TRI, a state-owned Mexican entity, while the remaining is complemented with imported ethane coming from the United States and delivered to our Complex through freight trucks that transport cryogenic isocontainers as part of the Fast Track Solution.
Braskem Idesa is building an Ethane Import Terminal, a long-term alternative source of imported ethane, and a pipeline that will connect the terminal directly to our Complex, through its subsidiary Terminal Química Puerto Mexico, S.A.P.I. (“TQPM”), which is a subsidiaryas of Pemex, the state-owned Mexican oil and gas company,December 31, 2023 was 52% complete pursuant to anthe project’s progress. The expected ethane supply agreement.capacity of the Ethane Import Terminal would be enough to fulfill the total ethane needs for the Mexico Complex. This terminal would provide the capacity to import more ethane than we currently require. As a result, our Mexico Segment will be able to source its total needs towards increasing our polyethylene production and taking advantage of the forecasted demand for polyethylene products in North America and globally.
The estimated cost of the Ethane Import Terminal and related infrastructure investment was revised to R$2,087.1 million (US$446 million) excluding VAT, after the conclusion of several activities related to licenses, purchase of land and easement contracts, and a review of project and implementation costs for the new company.
On June 13, 2022, Braskem Idesa and TQPM entered into a stock purchase agreement with Advario, a carve-out of Oiltanking GmbH for a 50% equity stake in TQPM, subject to certain conditions precedent. The Mexican Antitrust agency (COFECE) approved such purchase on October 3, 2022.
On March 1, 2023, Braskem Idesa met the conditions precedent receiving the payment of R$316 million (US$56 million) (including VAT) referring to the capital contribution disbursed, which was equivalent to 50% interest in TQPM’s capital by Braskem Idesa until the respective date, totaling R$584 million (US$112 million) (including VAT). The Ethane Import Terminal is expected to be completed by the end of 2024 and to reach full capacity by the first half of 2025, but there may be delays.
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On October 2023, with the support of its shareholders, Braskem Idesa and Advario, TQPM secured the financing of R$1,975 million (US$408 million) Senior Loan by INBURSA, ING KFW-IPEX, Credit Agricole, Mizuho, and DEG. It is a syndicated project finance loan, a five-year mini-perm deal with standard guarantees for a transaction of this type. The capital structure of the project is expected to be 30% equity and 70% debt of the total investment. In November 2023, TQPM made first disbursement of the syndicated project finance loan in the amount of R$760 million (US$157 million).
For additional information, see “Item 3. D Risk Factors— Risks Relating to Us and the Petrochemical Industry — We depend on ethane supplied by Pemex TRI in Mexico,” and “—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof.”
Ethylene
All of the ethylene produced by our Mexico Complex is used by the polyethylene plants in our Mexico Complex.
Other Materials and Utilities
Our Mexico Segment uses natural gas as the main fuel for its production process, which is supplied mainly by PEMEX and other private suppliers using the pipelines that are the property of the Centro Nacional de Control del Gas Natural (“Cenagas”).
In early December 2020, Braskem Idesa received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency responsible for all natural gas pipelines and transportation in Mexico, related to the unilateral termination of the service of natural gas transportation, an essential energy input for the production of PE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities. Later in January 2021, Braskem Idesa partially resumed its operations based on an experimental business model to produce PE. Braskem Idesa has taken legal measures pursuant to the ethane supply agreement entered into with Pemex. Braskem Netherlands B.V, which is Braskem Idesa’s direct shareholder, and has also taken legal measures under applicable international investment protection standards to protect the interests of Braskem Idesa and its parent company with regard to their investment in Mexico. Such measures include a negotiation period to attempt to resolve the dispute between the parties.
In the first quarter of 2021, Braskem Idesa entered into the following agreements under a strict reservation of all rights: (i) a memorandum of understanding with Pemex TRI setting out certain understandings regarding potential amendments to the ethane supply agreement and the development of an ethane import terminal, subject to further negotiation, a definitive agreement and approval by Braskem Idesa’s shareholders and creditors; and (ii) a natural gas transport service agreement with Cenagas for a term of 15 years, which is conditioned upon the execution of the definitive agreement referenced in item (i) above. Following the execution of these agreements by Braskem Idesa, it resumed receiving natural gas transportation services from Cenagas, which had unilaterally terminated gas supply to Braskem Idesa in December 2020. The existing ethane supply agreement between Braskem Idesa and Pemex TRI has not been modified and remains in full force and effect. At this time, Braskem Idesa is unable to predict the outcome of ongoing discussions with Pemex TRI, its shareholders and creditors.
For additional information, see “Item 3. Key Information—3.D Risk Factors—Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico,” “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—“—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof” and “Item 3. Key Information—Risk Factors— Risks Relating to Us“—Political and the Petrochemical Industry—We depend on ethane supplied byeconomic conditions and government policies in Mexico, including political interferences in state-owned companies such as Pemex TRI in Mexico.and Cenagas, and elsewhere may have a material impact on our operations.”
Our Mexico Segment uses hexene as a raw materialsmaterial in the production of HDPE. We import hexene for the Mexico Complex from suppliers located in the United States.
Our Mexico Segment uses catalysts supplied by Ineos Europe Limited.
Supply Contracts of the Mexico Segment
Ethane
The primary feedstock in our polyethylene production process is ethane. Braskem Idesa currently sources ethane from two main sources: (i) locally, pursuant to the Ethane Supply Agreement with Pemex TRI, a state-owned Mexican entity; and (ii) imports from the United States and delivered to our Complex through freight trucks that transport cryogenic isocontainers as part of the Fast Track Solution. As of the years ended December 31, 2023, 2022 and 2021, ethane supply from Pemex TRI was 87%, 60% and 65% respectively and 13%, 40% and 35% respectively, from the Fast Track Solution.
Ethane Supply Agreement (Pemex TRI)
Braskem Idesa is party to an ethane supply agreement with Pemex TRI, a subsidiary of Pemex, dated February 19, 2010, pursuant to which Pemex TRI is obligated to provide, and Braskem Idesa is required to purchase, 66,000 barrels per day of ethane for the Mexico Complex for a period of 20 years at prices based on commercial conditions (“BI’s Ethane Supply Agreement”).
On September 27, 2021, we signed the highest reference between Mont Belvieu purity ethane or Henry Hub Natural Gas reference U.S. dollar-based international reference pricethird amendment to the BI’s Ethane Supply Agreement (the “Amended ESA”). Upon effectiveness, the Amended ESA modified certain terms of these feedstocks. Under this agreement, any daily volume rejected by Braskem Idesa could be purchased in installments in subsequent deliveries until the deficit has been resolved. This contract commenced in June 2015, will initially expire in 2035, and is renewable for three consecutive five-year periods if prior notice to renew is given be either party at least two years before it expires.BI’s Ethane Supply Agreement, including:
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If Pemex TRI (i) delivers less than an average of 70% of the 66,000 barrels of ethane per day over a six-month period, (ii) reaches the annual limit in respect of shortfall penalties
· | with respect to our Mexico Segment, we agreed to reduce the contractual volume to be purchased on a deliver or pay basis from 66,000 to 30,000 barrels of ethane per day (“Contractual Volume”), until February 2025, provided that, if we suffer delays in obtaining licenses and permits to operate the Ethane Import Terminal attributable to Mexican governmental authorities or Pemex, Pemex TRI will deliver the contractual volume after February 2025 for the time caused by these delays, on a day-by-day basis. Currently, Pemex TRI and Braskem Idesa have entered into a semi-annual agreement to extend the contractual volume until May 31, 2025. In the event of any extension concerning the supply period of the Contractual Volume or non-achievement of the commencement of the Ethane Import Terminal’s commercial operations due to the longstop date under the Amended ESA (the “Contractual Volume Longstop Date”), then Pemex TRI will supply, for an additional period of up to 12 months, 15,000 barrels per day of ethane to Braskem Idesa during the period from the Contractual Volume Longstop Date (or such later date) until the Ethane Import Terminal COD (the “Extended Volume”); |
· | with respect to our Mexico segment, we have a right of first refusal to acquire ethane that Pemex TRI and its affiliates do not consume for their own processes or for the production of ethylene and derivative products, in a daily volume of up to: (i) for as long as Pemex TRI must supply the Contractual Volume, 1,625,576 cubic meters (approximately 36,000 barrels per day); and (ii) after Pemex TRI no longer should supply the Contractual Volume, 2,980,220 cubic meters (approximately 66,000 barrels per day) |
· | the ethane purchase price under the Amended ESA is based on commercial conditions at prices that reference the Mont Belvieu purity ethane price, a U.S. dollar-based international reference price, plus logistics and other applicable costs. The conditions set out in the Amended ESA will have retroactive effects to February 26, 2021. If Pemex TRI fails to deliver an average daily volume of ethane below the Contractual Volume during any quarterly period, it will compensate us by providing additional volumes of ethane over the following two quarterly periods; provided that we will not have the obligation to take ethane above the contractual maximum daily volume. If Pemex TRI does not compensate for such supply shortfall during mentioned cure period, it will pay us liquidated damages at a rate equal to 50% of the volume that Pemex TRI failed to deliver and did not compensate. The cap on such liquidated damages is R$1,563 million (US$300 million) during any given year. We may terminate the Amended ESA and exercise the put option thereunder if Pemex TRI fails to deliver at least 75% of the Contractual Volume for 180 consecutive days. |
· | if Braskem Idesa fails to take an average daily volume of ethane at least equal to the Contractual Volume during any quarterly period, Braskem Idesa will compensate Pemex TRI by purchasing additional volumes of ethane over the succeeding two quarterly periods (not exceeding the contractual maximum daily volume). If our Mexico Segment does not purchase such additional volumes of ethane during such a cure period, Braskem Idesa will pay Pemex TRI liquidated damages at a rate equal to 50% of the average price of the volume that we failed to purchase and did not compensate. The cap on such liquidated damages is R$1,565 million (US$300 million) during any given year. |
· | as stated under the Amended ESA, the revised term is 20 years starting from the commencement date of supply under the BI’s Equity Supply Agreement, which occurred in June 2015, with three periods of extension of ten years each, being the first extension period mandatory for Pemex TRI and Braskem Idesa. |
· | Pemex TRI may terminate the Amended ESA in the event of (i) our failure to pay that continues for more than six months after notice; or (ii) an emergency stoppage in operations or force majeure event due to which our insurers consider the complex to be a total loss, or after which we cannot or do not resume operations for 48 months. If Pemex TRI (i) delivers less than an average of 75% of the 30,000 barrels of ethane per day over six months, (ii) reaches the annual limit in respect of liquidated damages owed by Pemex TRI to us and such limit is not waived by Pemex TRI or (iii) materially breaches any of its obligations related to the supply of ethane thereunder and such breach continues for more than six months after notice, Braskem Idesa has the right to terminate the Amended ESA, require Pemex TRI to repay certain of our outstanding debt and under termination scenarios provide compensation for equity investments according to an agreed valuation formula. |
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Ethane Supply Agreement (Fast Track)
On February 25, 2020, Braskem Idesa entered into an open order quantity agreement with Braskem Netherlands for the supply of liquid ethane thereunder;with a minimum purity level of 95% in effect until 2021, the BNL Ethane Supply Agreement. (the “BI-BNL Ethane Supply Agreement”).
On October 9, 2021, January 24, 2022, September 27, 2022, April 2023 and November 7, 2023 we entered into several amendments to the BI-BNL Ethane Supply Agreement (the “BI-BNL Ethane Supply Agreement Amendments”) in order to enhance the alternate ethane supply provided to us by the Fast-Track Solution. The purpose of the BI-BNL Ethane Supply Agreement Amendment is the additional acquisition of the supply volume of liquid ethane above the maximum amount of the BI-BNL Ethane Supply Agreement loaded from February 2021 to December 31, 2023.
On December 18, 2023 we entered into a term agreement for the sale of ethane with Braskem Idesa has the rightNetherlands, B.V. in effect until March 2033 using Mont Belvieu price reference, in order to notify Pemex TRI trough a noticeimport: (i) additional capacity of breach and if such breach continues for more than six months after notice, or an extended period if the parties agree, Braskem Idesa has the rightethane to terminate the ethane supply agreement and require Pemex TRI to repay certain outstanding debt and compensate Braskem and Idesa according to an agreed valuation formula including the repayment of certain of our debt.
The ethane supply agreement contains a volume delivery long-term performance covenant that requires Pemex TRI to meet a volume delivery of ethane over a six-month period averaging 70% of the agreed-upon volume under the ethane supply agreement (the “Long-Term Performance Test”). As of November 2020, Pemex TRI volume deliveries under the Long-Term Performance Test remained close but above the 70% threshold. In the event that Pemex TRI fails to meet the Long-Term Performance Test, in addition to the direct negative impact on the production volumes of our Mexico Complex, it may (i) render us unable to generate sufficient cash to service our indebtedness with creditors under the Braskem Idesa Financing, (ii) cause such creditors to accelerate this indebtedness, and/or (iii) require Braskem Idesa to exercise a termination and put option against Pemex TRI that would force Pemex TRI to purchase the Mexico Complex from us. For further information, see “Item 3. Key Information—Risks Relating to Us and the Petrochemical Industry—We depend on ethanecurrently supplied by Pemex TRI in Mexico”before Ethane Import Terminal becomes fully operational; and “Item 5. Operating (ii) all ethane requirements of Braskem Idesa after Ethane Import Terminal become operational.
Electricity and Financial Review and Prospects—Capital Expenditures—Joint Venture—Mexico Complex.”
ElectricityWater
The Mexico Complex has its own power generation plant consisting of one gas turbine and two steam turbines, which can generate more than 100% of the Mexico Complex’s energy consumption. In addition, the Mexico Complex is also connected to the high-voltage power grid of Comisión Federal de Electricidad (the Mexican government-owned electricity company) as an alternative power source and to sell excess power on the spot market.source. The Mexico complex generates all of its requirements of steam and its water requirements are supplied by the Comisión Nacional del Agua (the Mexican government-owned water commission) pursuant to an agreement that expires in 20222029 and is subject to renewal.
In general, we believe that there are sufficient alternative sources available at reasonable prices for each of these other inputs used in our polyethylene production process such that the loss of any single supplier would not have a material adverse effect on our operations.
The main feedstock used for power generation is natural gas, which is mainly supplied by private suppliers and Pemex through Cenagas, but also by other natural gas suppliers in Mexico. In December 2020, we received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency solely responsible for the natural gas pipelines and transportation in Mexico, related to the unilateral non-renewal of the service of natural gas transportation, an essential energy input for the production of PE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities, which may have a material adverse effect on our operating or financial results, depending on the timing of the stoppage. Later in January 2021,Braskem Idesa partially resumed its operating activities based on an experimental business model to produce polyethylene. Braskem Idesa also initiated legal measures to enforce its legal and contractual rights.Cenagas. For additional information, see “Risk Factor - “Item 3.D Risk Factors—Risks Relating to Mexico—Political and economic conditions and government policies in Mexico, including political interferences in state-owned companies such as Pemex TRI and Cenagas, and elsewhere may have a material impact on our operations.”
Sales and Marketing of Our Mexico Segment
OurAs of December 31, 2023, our Mexico Segment sellssold polyethylene products to over 200213 customers in the Mexican market. We have a diversified product mix that allows us to serve a broad range of end users in several industries. The customers of our Mexico Segment generally are third generation petrochemical producers that manufacture a wide variety of plastic-based consumer and industrial goods.
Domestic Mexican Sales
In the first full year operationThe following table sets forth our net revenue derived from sales of our Mexico Complex since its start-up, we were focused onSegment for the domestic market and obtaining the customer approval of our products. years indicated:
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For the Year Ended December 31, | |||
2023 | 2022 | 2021 | |
(in millions of reais) | |||
Net revenue: | |||
Mexico | 4,449 | 5,834 | 6,506 |
Domestic Mexican Sales
One of our priorities has been to develop long-term relationships with our customers and, given the cyclical nature of the markets for our polyethylene products, we believe that we can strengthen customer loyalty during periods of reduced demand for polyethylene by providing a reliable source of supply to these customers during periods of high demand. We work closely with our customers to determine their needs, to provide technical assistance and to coordinate the production and delivery of our products.
Considering our Mexico Complex’s logistical infrastructure and logistics centers in different regions, we are able to projectforecast and respond faster to customer demand by region. Thus, we can anticipate and plan our production and logistics in order to make the products available on time and at the points of shipment. As our products portfolio can adjust to the nature of the demand of the Mexican market, we have greater flexibility to adapt and better serve the market.
In addition to direct sales of polyethylene to our customers, our Mexico Segment sells products in Mexico through independent distributors. Our Mexico Segment is served by distributors through which we distribute our products pursuant to formal agreements and spot market transactions.
We have selected our distributors based on their ability to provide full service to their customers, including the ability to prepare our products on a customized basis. These distributors sell our polyethylene products to manufacturers with lower volume requirements and are able to aggregate multiple orders for delivery to customers that would otherwise be uneconomical for us to serve. Furthermore, by serving smaller customers through a network of distributors, our account managers focus their efforts on delivering high quality service to a smaller number of large, direct customers.
Export Sales
The main focus of our Mexico Segment is to maintain our leading position in the Mexican market while continuing to export in order to manage the relationship between our production capacity and domestic demand for our products. We believe that our continued presence in export markets is essential to help manage any overcapacity in the Mexican market. The excess volume is exported to several regions such North and South America, Asia, and Europe, using our existing sales force and complementing our portfolio in those regions, together with products exported from Brazil. Inin order to use the already established Braskem sales channels in the United States and Europe (also in South America and traders in Asia), the strategy of exports of the Mexico Segment production, for these regions, is to develop and retain customers, in order to seek a greater added value in exports, especially considering the competitive logistics for serving the United States. This new polyethylene complex reinforces our position with polyethylene customers worldwide, which enhances our position in North America.
Prices and Sales Terms
We determine the Mexican domestic prices for polyethylene by reference to North American export prices. Our customers in Mexico may pay in full on delivery or elect credit terms that require payment in full within 60 days, on average, following delivery for most customers.
Our Mexico Segment’s export sales consist of volumes to South America, Asia, Europe and the United States through traders and distributors. Pricing is based on international market price references. As discussed under “—Export Sales” above, since the beginning of 2017, the Mexico Segment has been focused on export sales directly to customers in the United States, Europe, Central America and Europe,the Caribbean and South America, so the netback price in the local of the sale, excluding the logistics costs to move the product until that place and the other variable costs, ex-raw material, of exports has been increasing.
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Competition
We have the largest annual production capacity of polyethylene in Mexico.Mexico, according to CMA. We compete in Mexico with a subsidiary of Pemex and with importers of polyethylene, primarily producers located in the United States and Canada. We compete for export sales of our polyethylene products with producers from other countries in Latin America and in markets in the United States, AsiaLatin America and Europe. Our export business is a commodity business, and we compete with a variety of resin producers, some of which have greater financial, research and development, production and other resources than us. Our competitive position in the export markets that we serve is primarily based on raw material costs, selling prices, product quality and customer service and support.
Technology, Research and Development
Research and Development
Research and development (“R&D is&D”) are key to developing differentiated offers for oura sustainable portfolio of solutions that address competitiveness, differentiation, carbon emission reductions and circularity. Our main priority markets and enablingis to enable growth through product portfolio upgrade and the development of new technologies in catalysis and process. One of our priorities is to support the recently announced goals towards carbon neutrality and plastic waste reduction by delivering sustainable solutions. To ensure business perpetuity, the Innovation & Technology area also works to leverage disruptive technologies.perpetuity. A close relationship with innovation eco-system, customers and market amplifies our ability to understand the current needs and anticipate future opportunities.
We develop technologynew technologies at our research and development centers: (1) Innovation and Technology Center in Triunfo, Rio Grande do Sul, Brazil; (2) Innovation and Technology Center in Pittsburgh, Pennsylvania, United States; (3) Renewable Chemicals Research CenterBraskem Laboratory for Biotechnology Development in Campinas, São Paulo, Brazil; (4) Process Technology Development Center in Mauá, São Paulo, Brazil; (5) European Technical Center in Wesseling, North Rhein Westphalia, Germany; and (6) Mexican Technical Center in Nanchital, Vera Cruz, Mexico, (7) Braskem Renewable Innovation Center, in Lexington, USA, where we develop new processes, technologies, products and applications for many market segments. As of December 31, 2020,2023, we had 292366 employees dedicated to R&D. Through these centers, we coordinate and conduct our research and development activities that include scale-up (pilot plants operation), analytical testing, catalyst development and testing, advanced materials characterization, process technology development and research capabilities on renewable sources and biotechnology.
TheIn 2023, we invested R$181 million (US$36 million) in innovation and technology CAPEX, which includes the construction of a new catalysis laboratoriesrenewable research center in PittsburghLexington, United States, that will be focused on the early-stage development of renewable technologies (biotechnology and catalytic routes) that will advance our carbon neutrality objectives.
The R&D portfolio has 82% of the projects with a positive sustainability score. That means we are developing products and technologies that have a positive impact in the environment. The positive impacts of these initiatives are related to reductions in water and/or energy consumption, chemical safety, greenhouse gas emissions, and circularity.
In 2023, we had relevant upgrades in our portfolio. For PP, we managed to significantly evolve in our impact copolymer grades in Europe and USA, addressing high-value segments, such as automotive and specialties (hygiene), and promoting higher flexibility in terms of production in our assets. For PE, we were able to advance in our green PE grades regarding the additive package, which should enable us to reach more restricted markets around the world. Moreover, our post-consumer resin (PCR) portfolio kept expanding in all regions, with several new grades launched. Finally, several developments were completed to reduce supplier vulnerability and improve the competitiveness of chemicals, additives, and catalysts.
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In 2023, the Company signed a cooperation agreement with Coolbrook, for the implementation of a project to electrify pyrolysis furnaces using the RotoDynamic Reactor technology (RDR) owned by Coolbrook, which carries out reactions through a rotary reactor powered by electricity. In 2023, the demonstration stage of naphtha cracking using steam generated by electricity from RDR technology was completed this year, totalizing investments of approximately US$10.0 million,at a pilot plant in the Netherlands.
Additionally, we established an important partnership with the goalCountless consortium in Europe, which has 13 partners led by Vito NV. The main project of supporting research focusedthe partnership is the technical-economic evaluation of the first continuous catalytic hydrogenolysis of lignin on our businesses.
Recent product portfolio updates includea demonstration-scale. Project partners will process the development of high performance film grades for packaging, resinslignin-based chemical to provide soft touch on personal care high-end applications, high performance grades for agrochemicals packaging, new specialty grades with differentiated sealing performance applied to high-speed packaging, new proprietary catalysts for |polyolefin productiondemonstrate its applicability and several process technology upgrades.
We continue our efforts to develop sustainable solutions through internal projectscost-effectiveness. In addition, major advances have been achieved in biotechnology and collaborations and partnerships with several third parties, as follows: (i) advance in biotechnologycatalytic research, with a focus on the proof of concept of routesnew pathways to renewable energy.
Another partnership signed in 2023 that contributes to this avenue is with Lallemand Biofuels & Distilled Spirits (LBDS), for the development of renewable chemicals. The objective is to establish a technological and commercial approach to the research, development and commercialization of cutting-edge renewable alternatives to chemicals made from fossil raw materials. Using LBDS technology, the partnership will explore development for the solvents segment.
On recycling growth avenue, we launched several grades that contributed to the expansion of Braskem's portfolio of post-consumer resins, such as high-density polyethylene, made from landfill waste for use in lubricating oil packaging, and polypropylene, also from landfills, developed for injection modeling. Another portfolio development was the conversion of used raffia bags into new bags of the same material, through the reverse logistics program.
Regarding chemical recycling, we have made significant progress in developing a new catalytic depolymerization technology to produce solvents and plastics of renewable origin; (ii) a partnership between the Companybasic chemicals (monomers) from plastic waste, which are then used to produce new circular plastics. We achieved bench test results, and the Danish-based Haldor-Topsoe, which is world leader in catalysis and surface science; in 2020, it achieved the first-ever demo-scale production of bio-based monoethylene glycol (bio-MEG), reinforcing our commitment to expand our portfolio of renewable products; (iii) a partnership with The University of Illinois at Chicago (UIC) to advance a new route for producing raw materials used to make thermoplastic resins; this route will use carbon capture and utilization technology to remove CO2 emissions from existing industrial processes and convert it to ethylene; (iv) a partnership with Compact Membrane Systems, Inc. to deploy a pilot plant based on their olefin/paraffin separation technology; and (v) collaborationsis expected to develop new technologies using process intensification conceptsstart in conjunction2025, with SENAI CETIQT, UFRJ and some others prominent Brazilian universities.
We increased our efforts with respect to recycling solutions to provide sustainable pathways for plastic waste reduction and strengthen our reputation as a sustainability leader.technology commercially available in 2030. The portfoliomain advantages of recycled resins has been upgraded with the launches of 16 new PP and PE post-consumer resin (PCR) grades. The recycling platform coordinates all efforts relating to advanced recycling and mechanical recycling of plastic waste and aims to convert post-consumer plastic into high quality recycled resins. Our focus is to expand certified recycled resins in our portfolio. In this regard, several partnerships were established last year, for example: (i) Agilyx to exploring the development and construction of an advanced recycling project in North America; and (ii) the Federal University of Rio de Janeiro (UFRJ) and National Industrial Learning Service (SENAI), to develop catalysts for pyrolysis technologies.
The increasing effort on additive manufacturing opportunities through 3D-Printing technology continues to be one of the transformative innovation priorities, with recent additions to product portfolio of filaments, powder and pellets for commercial applicationsare its lower carbon footprint and the new investments on research capabilities in Triunfo (Brazil) and Pittsburgh (USA).
ability to use various plastic raw materials.
Maintenance
Most of our maintenance is performed by third-party service providers. For example, we have contracts with Novonor, formerly called Odebrecht S.A., aTenenge – Montagem e Manutenção Ltda. (a subsidiary of our controlling shareholder OSP InvestimentosNovonor S.A.), or OSP Inv, Asea Brown Boveri Ltd.,Ltd, Rip Serviços Industriais S.A., Sulzer Ltda.S.A, In Haus Industrial and other service providers to perform maintenance for our basic petrochemical plants in the Northeastern Complex and in the Southern Complex.other units. We also perform some of our ordinary course maintenance with our small team of maintenance technicians, which also coordinate the planning and execution of maintenance services performed by third parties.
Chemicals Plants
Regular chemicals plant maintenance requires complete plant shutdowns from time to time, and these shutdowns usually take 30 to 45 days to complete. We occasionally undertake brief shutdowns of the chemical operations at our basic petrochemical plants that do not materially affect our production output, primarily for maintenance purposes, catalyst regeneration and equipment cleaning. In addition, because we have two independent olefins units and two independent aromatics units at the Northeastern Complex and two independent olefins units at the Southern Complex, we may continue production of chemicals at these complexes without interruption, even while we perform certain maintenance services.
The next scheduled general maintenance shutdown of:
· | the |
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· | the Rio de Janeiro complex’s olefins unit is scheduled to take place in 2025; |
· | the Southern complex’s olefins (Olefins II) and aromatics unit are scheduled to take place in 2026; and |
· | the Southeast complex’s aromatics and olefins unit is scheduled to take place in 2027. |
Plants of Our Brazil, and USA and Europe Segment
We have a regular maintenance program for each of our polyolefin plants. Production at each of our polyolefin plants generally is shut down for 715 to 2030 days every 23 to 36 years to allow for regular inspection and maintenance. In addition, we undertake other brief shutdowns for maintenance purposes that do not materially affect our production of polyolefins. We coordinate the maintenance cycles of our polyolefin plants with those of our basic petrochemicals plants. While our chemicals facilities must be shut down for up to 3045 days every 6 to 8 years for maintenance, our polyolefins facilities may be shut down for shorter periods because these facilities are less complex to operate and maintain than our chemicals plants. Similarly, plants of our USA and Europe Segment attempt to coordinate their maintenance cycles with the routines of their largest suppliers.
We have a regular maintenance program for each of our vinyls plants. Our Northeast PVC plants are generally shut down for 15 to 2035 days every two or three years to allow for regular inspection and maintenance. Our caustic soda and chlorine plant in Alagoas shuts down once a year for threetwenty days of maintenance in different parts of the plant.
Environmental Regulation
We, like other petrochemical producers, are subject to stringent federal, state and local environmental laws and regulations concerning human health, the handling and disposal of solid and hazardous wastes and discharges of pollutants into the air, water and soil, among others. Petrochemical producers are sometimes subject to unfavorable market perceptions as a result of the environmental impact of their business, which can have an adverse effect on their results of operations.
Our consolidated annual expenditures on environmental control were R$537.9 million in 2020, R$369.8 million in 2019 and R$329.3 million in 2018, which included investments, waste and wastewater treatment, emissions management, environment licenses, environmental liabilities and other environmental expenditures.
Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and will depend on the timing of the promulgation and enforcement of specific standards which impose the requirements.
Compliance with Environmental Laws in Brazil
The Brazilian government enacted an Environmental Crimes Law in 1998 that imposes criminal penalties on corporations and individuals causing environmental damage. Corporations found to be polluting can be fined up to R$50.0 million, have their operations suspended, be prohibited from government contracting, be required to repair damage that they cause and lose certain tax benefits and incentives. Executive officers, directors and other individuals may be imprisoned for up to five years for environmental violations.
We make all reasonable efforts to ensure that our operations are in compliance in all material respects with applicable Brazilian environmental laws and regulations currently in effect. Our internal audit processes and our management system in place aim to ensure that the permits that will expire be renewed in a timely manner. However, changes to applicable laws and regulations may require us to revise our standards, which may take time to implement. Some environmental studies that we have commissioned have indicated instances of environmental contamination at certain of our plants. In addition, we and certain of our executive officers have received notices from time to time related to minor environmental violations and are or have been subject to investigations or legal proceedings with respect to certain alleged environmental violations. These environmental issues, and any future environmental issues that may arise, could subject us to fines or other civil or criminal penalties imposed by Brazilian authorities.
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Operating Permits
Under Brazilian federal and state environmental laws and regulations, we are required to obtain operating permits for our manufacturing facilities. If any of our environmental licenses and permits lapse or are not renewed or if we fail to obtain any required environmental licenses and permits, we may be subject to fines ranging from R$500 to R$50.050 million, and the Brazilian government may partially or totally suspend our activities and impose civil and criminal sanctions on us.
Each State in which we operate has its own environmental standards and state authorities in each state have issued operating permits that must be renewed periodically. Additionally, all projects for the installation and operation of industrial facilities in the Northeastern Complex, Southern Complex, São Paulo Complex, Rio de Janeiro Complex and Alagoas plants are subject to approval by various environmental protection agencies, which must approve installed projects prior to their commencement of operations and must renew such approval periodically thereafter. State authorities have issued operating permits for all of our plants, as follows: the Northeastern Complex (State of Bahia); Southern Complex (State of Rio Grande do Sul), São Paulo Complex and Cubatão, Santo André, Mauá and Paulínia plants (State of São Paulo), Rio de Janeiro Complex (State of Rio de Janeiro) and our Alagoas plants (State of Alagoas). We make all reasonable efforts to ensure that our operations in Brazil are in compliance in all material respects with applicable Brazilian federal, state, and local environmental laws and regulations currently in effect, and we have an internal audit process and a management system in place assuring that the permits that will expire be renewed in a timely manner.
Industrial Waste
Companhia Riograndense de Saneamento, or Corsan, a state-owned sanitation company, operates an integrated system for liquid effluents treatment, or Sitel, in the Southern Complex. Sitel treats wastewater generated by us and the other petrochemical producers at the Southern Complex at a liquid effluents treatment station located in the Southern Complex. This treatment station also includes a system for the collection of contaminated wastewater and disposal after treatment. We treat wastewater generated by us at the Rio de Janeiro Complex at a liquid effluentseffluent treatment station located in the Rio de Janeiro Complex. This treatment station also includes a system for the collection and disposal of contaminated wastewater. Hazardous solid waste is co-processed in cement kilns or incinerated and other kinds of solid waste are disposed of in landfills at facilities approved by us.landfills.
We treat wastewater generated by us at the São Paulo Complex at a liquid effluentseffluent treatment station located in the São Paulo Complex. This treatment station also includes a system for the collection and disposal of contaminated wastewater. Hazardous waste generated at the São Paulo Complex is incineratedco-processed in cement kilns or incinerated and other kinds of solid waste are disposed of in landfills.
In our Bahia facilities, all wastewater is transported to our wastewater treatment facility at Cetrel. Hazardous liquid and solid waste are incinerated at high temperatures and non-hazardous solid waste is coprocessedco-processed and sent to cement customers to be used as energy in cement kilns. Other kinds of solid waste are disposed of in landfills.
In our Alagoas plants, organochlorines waste is incinerated, producing steam and wastewater. All wastewater is treated at a treatment station located in the complex. Solid waste is separated and disposed of in landfills.
Additionally, we have a series of recycling programs that include recycling of solid waste and wastewater. We recycleAs of December 31, 2023, we recycled or reuse 55.5%reused 58% of the solid waste generated by our facilities and 25.8%19% of the water used in our production processes.
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Mercury
As of December 31, 2019, Braskem had aApril 8, 2020, our chlor-alkali plant in Bahia based on mercury cell technology. On April 8, 2020, our chlor-alkali plant in Bahiatechnology shut down following the end of the facility’s useful life, and it has been decommissioned. The decommissioning strategy involves equipment’s decontamination/dismantling, and appropriate waste destination.
Currently, the Company is ongoing, we are currently proceeding withdismantling the disassemblyentire Unit (except the areas of the cell house, appropriatelydemercurization of effluents and solid waste), disposing of theits properly decontaminated waste, as well as planning the most appropriate strategies for diagnosis and remediation of potentialpotentially contaminated areas, which should be implemented as soon afteras the disassembly is complete.of the Unit and demolition of the Cell House shed are completed.
Compliance with Environmental Laws in the United States
Our operations in the United States are subject to federal, state and local laws and regulations governing the discharge of effluents and emissions into the environment; the generation, storage, handling, management, transportation and disposal of hazardous waste, industrial waste and other types of waste; the use, storage, and handling of various types of products and materials; and the protection of human health, safety and the environment. In many instances, specificSuch laws include but are not limited to, the Clean Air Act, the Clean Water Act of 1970, the Toxic Substances Control Act (“TSCA”), the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), and the Resource Conservation and Recovery Act (“RCRA”), and their implementing regulations. Specific permits must be obtained for particularto authorize certain types of operations, emissions or discharges. For example, our facilities in Texas, Pennsylvania, and West Virginia are required to maintain various permits relating to air quality and treatment of industrial wastewater, and to comply with regulatory requirements relating to waste management. WeOur operations in United States are in possession of necessary permits to operate our facilities. We makecompliance in all reasonable efforts to ensure that our operations in the United States complymaterial respects with applicable U.S.United States federal, state and local environmental laws and regulations.regulations currently in effect.
As with the U.S. petrochemical industry generally, costs associated with compliance with existing and anticipated laws and regulations increases the overall cost of operating our U.S. plants, including operating costs and capital costs to construct, maintain, and upgrade equipment and facilities. These laws and regulations have required, and are expected to continue to require, us to make, expenditures of both a capital and an expense nature.
The Clean Air Act, which was last amended in 1990, requires the United States Environmental Protection Agency, or the EPA, to set National Ambient Air Quality Standards or the NAAQS,(“NAAQS”) for pollutants considered harmful to public health and the environment. The Clean Air Act requires periodic review of the science upon which the standards are based and of the standards themselves. NAAQS for ozone and fine particulate matter (referred to as PM2.5), promulgated by the EPA have resulted in identification of nonattainment areas throughout the country, including certain areas within Texas, Pennsylvania, and West Virginia, where Braskem America operates facilities. As a result of these nonattainment designations by the EPA, state or local air pollution control agencies are required to apply permitting and/or control requirements intended to reduce emissions of ozone precursors (nitrogen oxides and volatile organic compounds), and fine particles (including PM2.5 precursors), in order to demonstrate attainment with the applicable NAAQS. Such requirements may include imposition of offset requirements and could result in enhanced emission control standards. In addition, on August 24, 2016,
The last time EPA reviewed the NAAQS for ozone was in 2020. At that time, EPA finalized requirements for state and local agencies charged withdetermined to retain the current PM2.5 NAAQS. These requirements could in turn translate into additional state-specific requirements to further reduce allowable emission rates for PM2.5 or its precursor pollutants. In October 2015, the EPA lowered the primary and secondary NAAQS for ozone of ..070 ppm. On February 7, 2024, EPA announced that it was significantly lowering the primary (health-based) annual NAAQS for PM2.5 from 0.075 ppm12.0 µg/m3 to 0.070 ppm.9.0 µg/m3. Any states in nonattainment with the new standard will be required to revise implementation plans to demonstrate what steps they will take to further reduce the concentration of PM2.5 in the ambient air to come into attainment, including through regulating PM2.5’s precursor pollutants. Such state-specific requirements would become applicable, if at all, following a multi-year process. Regulationsprocess, because the plans require EPA approval. In turn, state regulations implementing this changechanges consistent with the states’ revised implementation plans will likely not be promulgated for several years.
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In addition to permitting and/or control requirements that may result from the implementation of the NAAQS at the state or local level, the EPA may promulgate new or revised federal New Source Performance Standards or National Emission Standards for Hazardous Air Pollutants that would apply directly to certain facility operations and may require the installation or upgrade of control equipment in order to satisfy applicable emission limits and/or operating standards under these regulatory programs. The EPA’s proposed regulations in this area would not specifically apply to Braskem America’s operations.
Additionally, there are various legislative and regulatory measures to address greenhouse gas emissions from coal-fired energy plants which are in various stages of review, discussion or implementation by Congress and the EPA. In October 2015, the EPA finalized new regulations (known as the Clean Power Plan) aimed at lowering greenhouse gas emissions from existing, new and reconstructed coal-fired electric generating units. InHowever, in February 2016, the Supreme Court stayed implementation of the Clean Power Plan pending judicial review. On October 16, 2017,review as to whether it exceeded the EPA’s authority, but EPA proposed repealinglater repealed the rule before it went before the Supreme Court. At the same time, EPA promulgated a replacement for the Clean Power Plan but this proposal has not been finalized. On August 21, 2018, the EPA proposed a replacement to the Clean Power Plan,called the Affordable Clean Energy Rule.Rule (“ACER”). On January 19, 2021, the D.C. Circuit vacated ACER. Parties appealed to the U.S. Supreme Court and petitions for certiorari were granted. The Supreme Court reversed the D.C. Circuit on other grounds, and in response, the D.C. Circuit reinstated ACER, but held the case in abeyance while EPA undertook a new rulemaking to replace ACER with a new rule governing greenhouse gas emissions from existing fossil-fuel-fired power plants. Because ACER was technically vacated when its original deadline for states to submit implementation plans passed, EPA extended the deadline for state plan submittal to April 15, 2024. On May 23, 2023, EPA proposed to repeal ACER and simultaneously establish revised New Source Performance Standards for new fossil fuel-fired stationary combustion turbine EGUs and certain modified fossil fuel-fired steam generating units. EPA also proposed emission guidelines for greenhouse gas emissions from existing fossil fuel-fired steam generating EGUs, which include both coal-fired and oil/gas-fired steam generating EGUs, and from the largest, most frequently operating existing stationary combustion turbines. On March 26, 2024, EPA signaled its intention to re-propose the emission guidelines for existing electric generating unit combustion turbines based on stakeholder input. While it is currently not possible to predict the final impact, if any, that these regulations may have on Braskem America or the U.S. petrochemical industry in general, they could result in increased utility costs to operate our facilities in the United States. The EPA’s proposed regulations in this area do not specifically apply to Braskem America’s operations but could have a collateral effect. In addition, future regulations limiting greenhouse gas emissions of carbon content of products, which target specific industries such as petrochemical manufacturing could adversely affect our ability to conduct Braskem America’s business and also may reduce demand for its products. The EPA’s proposed regulations in this area would not specifically apply to Braskem America’s operations.
Compliance with Environmental Laws in Mexico
Braskem IDESAIdesa in Mexico is subject to federal, state and local laws and regulations that govern the discharge of effluents and emissions to the environment; the generation, storage, handling, management, transportation and disposal of hazardous waste, industrial waste and other types of waste; the use, storage and handling of various types of products and materials; and the protection of human health, safety and the environment. Specific permits may be required for certain types of operations.
Ethylene and Aromatic Hydrocarbons Mixture production require permission of the Secretary of Energy and Federal Commission for Sanitary Risks (COFEPRIS) related to risk management and public health, The Mexican legislation regulates the emission of particles, ozone, fixed sources and everything related to GHGs. There are regulations on water, effluent treatments and specific conditions for discharge of the effluent. We make all reasonable efforts to ensure that ourOur operations in Mexico are in compliance in all material respects with applicable Mexican federal, state and local environmental laws and regulations currently in effect.
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In Mexico, the Federal Attorney’s Office for Federal Environmental Protection (PROFEPA) verifies compliance with the Mexican Regulation and Permits through audits.
Failure to comply with Mexican regulations may lead to economic and administrative penalties, including Operations shutdown in certain cases.
Compliance with Environmental Laws in Germany and the European Union
Our operations in Germany are subject to German federal, state and local laws and regulations governing the discharge of effluents and emissions into the environment and the handling and disposal of industrial waste and otherwise relating to the protection of the environment and waste management. Our operations in Germany are in compliance in all material respects with applicable German federal, state and local environmental laws and regulations currently in effect.
As with the petrochemical industry in the European Union generally, compliance with existing and anticipated German laws and regulations increases the overall cost of operating our European business, including operating costs and capital costs to construct, maintain and upgrade equipment and facilities. These laws and regulations have required and are expected to continue to require us to make expenditures of both a capital and an expense nature.
At our Schkopau and Wesseling facilities in Germany, we are required to maintain air, radiation, waste water and waste management permits. We are in possession of all necessary permits.
Furthermore, our Wesseling and Schkopau facilities in Germany are subject to existing European GHG regulations and a cap and tradecap-and-trade program relating to emissions. We have purchased sufficient carbon dioxide emissions permits for our operations until 2022,2023, provided it operates under normal business conditions. We will purchase any additional permits that may be required on the emission trade market. We are not aware of any new environmental regulations that would materially affect our European operations. Accordingly, we cannot estimate the potential financial impact of any future European Union or German environmental regulations.
Sustainability
In April 2018, our board of directors approved our policy on global sustainable development. Its objective is to encourage economic growth, environmental preservation and social justice by developing sustainable solutions related to chemical and plastic production. In connection with these goals, we have developed a three-pronged approach: (1) seek and develop sustainable sources and operations, (2) develop and deliver a portfolio of sustainable products and services, and (3) work with our clients to offer sustainable solutions that benefit society as a whole.
Circular Economy
Consistent with our purpose of contributing to the transition from a linear economy into a circular economy, effectively demonstrating our commitment to sustainable development, we announced in 2018 our global positioning statement titled “Braskem’s Positioning in the Circular Economy.”
In the statement, we announced eight key global initiatives, which are: (i) partnerships with clients and value chain to develop new products that increase efficiency, recycling and reuse; (ii) more investments in renewable products; (iii) development and support of new technologies and the recycling chain; (iv) programs to engage consumers in conscientious consumerism, proper disposal and recycling; (v) use of science tools to select the most sustainable options; (vi) adoption of recycling indicators for plastic packaging; (vii) partnerships to understand, prevent and solve the problem of marine debris; and (viii) incentives for policies to improve solid waste management.
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Property, Plant and Equipment
Our properties consist primarily of petrochemical production facilities in:
· | Camaçari, in the State of Bahia; |
· | Triunfo, in the State of Rio Grande do Sul; |
· | Duque de Caxias, in the State of Rio de Janeiro; |
· | São Paulo, Paulínia, Cubatão, Santo André and Mauá, in the State of São Paulo; |
· | Maceió and Marechal Deodoro, in the State of Alagoas; |
· | the United States, in La Porte, Freeport and Seadrift, Texas; Marcus Hook, in Pennsylvania; Neal and West Virginia; |
· | Germany, in Schkopau and Wesseling; and |
· | Coatzacoalcos, in Mexico. |
For more information, see note 12 to our audited consolidated financial statements included elsewhere in this annual report.
Our principal executive offices are located in São Paulo, in the State of São Paulo, and we have an administrative support office in the City of Salvador, in the State of Bahia.Bahia, Brazil, in Philadelphia, in the State of Pennsylvania, in the United States, and in Rotterdam, in Netherlands. We also have equity interests in investments located in other parts of the country. We own all of our production facilities, but we generally rentlease our administrative offices.
The following table sets forth our properties as of December 31, 20202023, by location of facilities, products produced and size of plant.
Type of Product or Service | Location of Facilities | Size of Plant |
(in hectares)(1) | ||
Chemicals | Triunfo | 152.8 |
Chemicals | Santo André | 74.1 |
Chemicals | Camaçari | 65.5 |
Chemicals | Duque de Caxias | 53.0 |
Chemicals | Mexico | 23.6 |
Polypropylene | Paulínia | 39.7 |
Polyethylene | Triunfo | 30.5 |
Polyethylene | Camaçari | 24.5 |
Polyethylene | Cubatão | 17.6 |
Polyethylene | Santo André | 15.8 |
Polyethylene | Duque de Caxias | 15.0 |
Polyethylene | Mexico | 14.9 |
Polypropylene | La Porte, Texas | 87.0 |
Polypropylene | Neal, West Virginia | 27.1 |
Polypropylene | Mauá | 15.8 |
Polypropylene | Duque de Caxias | 15.0 |
Polypropylene | Camaçari | 13.2 |
Polypropylene | Triunfo | 10.0 |
Polypropylene | Marcus Hook, Pennsylvania | 6.9 |
Polypropylene | Freeport, Texas | 8.9 |
Polypropylene | Seadrift, Texas | 2.5 |
Polypropylene | Schkopau, Germany | 3.7 |
Polypropylene | Wesseling, Germany | 26.0 |
Caustic soda/chlorine | Maceió | 15.0 |
PVC/caustic soda(2)/chlorine(2) | Camaçari | 12.6 |
PVC | Marechal Deodoro | 186.7 |
Distribution Center | Vila Prudente/Capuava | 3.2 |
(1) | One hectare equals 10,000 square meters. |
(2) | In January 2020, Braskem announced the permanent shutdown of its chlor-alkali production facility located in Camaçari, in the State of Bahia. The shutdown is explained by the end of the facility’s useful life and started in April 2020, following the applicable safety standards and seeking to protect people, local communities and the environment. |
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We believe that all of our operating facilities are in good operating condition. As of December 31, 2020,2023, the consolidated net book value of our property, plant and equipment was R$35,929.138,405 million.
The following properties are mortgaged or pledged to secure certain of our financial transactions: (1) our chemicals plant our polypropylene plant and our polyethylene plant located in the Southern Complex;Northeastern Complex (2) our chlor-alkali plant and PVC plant located in the Northeastern Complex; (3) our chemicals plant, polypropylene plant and polyethylene plant located in the State of São Paulo; (4)(3) our chlor-alkali plant and PVC plant located in the State of Alagoas; (5)(4) our chemicals plant, our polyethylene plant and our polypropylene plant located in the Rio de Janeiro Complex; and (6)(5) our chemical plant and our polyethylene plants located in Mexico.
Insurance
In addition to the policies described below for our Brazilian and international operations, we maintain other insurance policies for specific risks, including general and product liability, directors and officers liability, workers’ compensation, marine cargo and charterer’scharterers’ liability insurance, among others.
We believe that our insurance coverage is reasonable in amount and consistent with industry standards applicable to chemical companies operating globally.
Operations in Brazil, Mexico, the United States and Germany
We carry insurance for all our plants against material damage and consequent business interruption through comprehensive “all risk” insurance policies.
The “all risks” insurance program for our plants provides for a total replacement value of US$36.4 billion for property damage. This insurance program is underwritten through separate policies in Brazil, Mexico, the United States and Germany by large insurance companies. The leading insurers are Mapfre (rating S&P BBB+), HDI (rating S&P AA-A-), Inbursa (rating S&P AAA) and Great Lakes (rating S&P AA-). These policies are valid until October 2021.2024.
Set forth is a table with additional information related to our all riskall-risk insurance policies.
Policy / Region | Value at risk — | Combined Property Damage and Business Interruption Limit | Comments |
Brazil | 28.0 | 3.5 | — |
Mexico(1) | 5.7 | 2.7 | — |
USA and Germany | 2.7 | 0.65 | Limit increased from US$500 million to US$655 million after Delta inception |
Policy / Region | Value at risk — | Indemnity Limit PD + BI (1) |
Brazil | 28.5 | 3.3 |
Mexico(2) | 5.7 | 2.2 |
USA and Germany(2) | 4.5 | 1.1 |
(1) | PD = Property Damage; BI = Business Interruption. | |
(2) | Includes coverage for acts of |
Our policies provide coverage for losses that arise from accidents caused by or resulting from fire, explosion, and machinery breakdown, among others, and consequential business interruption, with maximum indemnity periods ranging from 12 to 34 months, depending on the plant and/or coverage.
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As part of our program, we also havecontract other insurance policies to cover specific risks, including general civil liability, the civil liability of directors and productsoffices (“D&O”), environmental liability, insurances for ourdomestic and international credit operations, which cover losses for damages to third parties caused by our operations and products. Additionally, Braskem has coverage for environmental liabilities and remediation activities such as clean-up costs. These policies are capped at US$50 million for Mexico, US$50 million for Brazil and US$25 million for the United States and Germany (coverage is included in the general and umbrellacharterers’ liability, policies).marine cargo, etc.
New projects can be covered for construction/erection all risks under the existing Property policies or through a standalone project-specific policy.
We have relevant exposure to operational risks, and our insurance policy requires coverage to be contracted through a complex insurance program involving multiple insurers and reinsurers in the commercial market, which have limited and variable capacity to offer insurance policies over time. In order to seek alternatives for the composition of hedges, the possibility of transferring operational risks through the mutual insurer “OIL”“Everen” was identified. OILEveren is thea global leader in the energy sector, including oil and gas, refining, chemical and petrochemicals, electric power and mining and holds a total of US$3 trillion in insured assets and has a portfolio of selected participants. In addition to providing a stable capacity to Braskem, OILEveren has a structure in which there is reciprocal cooperation among the insured companies participating in a known risk environment, in addition to a lower administrative cost compared to the commercial insurance market, providing less volatile and potentially more competitive insurance premiums.
Compliance
We have adopted a Code of Conduct, a Compliance System Policy and an Anti-corruption Policy, and several internal directives designed to guide our management, employees and counterparties and to reinforce our principles and rules for ethical behavior and professional conduct. We maintain an Ethics Line managed by a third party available for employees and non-employees. Every whistleblower complaint is impartially investigated by the compliance team and submitted for evaluation by ouran independent team. The Ethics Committee and/or ourand the Statutory Compliance Committee.
As of December 31, 2020, we identified ineffective information technology controls (GITCs) overand Audit Committee are notified on the scale systems that generate the weighted quantities of product sold for certain sales that resulted in a material weakness. These ineffective controls were due to an insufficient complement of resources to timely complete an effective risk assessment processresults and implement controls.
The material weakness did not result in a misstatement of the consolidated financial statements.
See “Item 15. Controls and Procedures.” Our management is actively engaged in the development and implementation of remediation efforts to address the material weakness described above.upcoming plans.
In addition to the above, the company has normative documents in place that rule and/or establish standards concerning, among others, risk management, purchases, sales, internal controls, internal audit, corporate credit card, delegation of authority, due diligence, conflicts of interest, business courtesies, investigations, sponsorships and donations, travels, interactions with public agents, transactions with related parties.
We have also put into practice specific compliance goals for our leadership and formal engagement with certain initiatives, such as the UN Global Compact and the Business Pact for Integrity and Against Corruption established by the Ethos Institute in Brazil. In 2023, we have implemented and improved procedures and control activities across all areasalso committed to Transparency 100%, an initiative of the Company, which allowedUN Global Compact to promote corporate transparency in Brazil.
In March 2020, based on the certification report issued by the independent monitors who have monitored us to resolve mostfor three years, Brazil’s Federal Prosecutor’s Office (Ministério Público Federal), or the MPF confirmed the monitoring conclusion, the effectiveness of our compliance program and compliance with the obligations of the material weaknesses described in our 2019 annual reportMPF Agreement. Later, on Form 20-F. InMay 13, 2020, the following actions were performed to addressDoJ and the material weaknesses describedSEC confirmed the end of the monitoring provided for in our 2019 annual report:
the agreements with such authorities. In addition, the Brazilian General Controller`s Office (Controladoria Geral da União - CGU) has concluded the monitoring of the Compliance Program on August 14, 2023.
The internal control department hired experienced resources and redesigned its structure to provide more focus and coverage over the internal control environment. Management performed and documented an extensive risk assessment overIn 2021, the Company and its processes. This activity provided a better perspective on wherewas granted the Company should focus on designing and implementing controls, training the involved teams and addressing process improvements. The implementation of these activities resulted in the remediation of the material weakness in these overall components reported in our 2019 annual report except for the material weakness noted above.
Our IT department leveraged the risk assessment executed over Company processes and systems to design and implement the necessary set of controls to provide an adequate coverage level of the risks related to these ancillary systems. Controls over user access, change management and IT operations are being executed and monitoredcertification ISO 37001 – Anti-bribery Management Systems, published by the IT team. These controls were tested and foundInternational Organization for Standardization (ISO), attesting that our anti-bribery management system complies with the rule’s standards developed by ISO.
This certification is granted by an external auditor certified by INMETRO. QMS Certification was the external auditor responsible to be effective during our management assessment cycle completedcertify Braskem in 2020.2021-2023 cycle.
Our management also implemented controls to assess the key reports extracted from the ERP system, excluding the scales system, used to perform the control activities. Controls over the accuracy and completeness of each report were implemented and successfully tested by our management.
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Our management hired new employees with expertise and skills to design, implement and execute controls focused on financial reporting, non-routine transactions and consolidation process that provide a higher standard over the preparation and quality of the Company’s financial statements. Also, the Shared Services group designed and implemented a process and controls to ensure that manual journal entries were being correctly recorded, supported and tracked by management. These controls were tested by management and operating effectively at December 31, 2020.
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ITEM 4.A UNRESOLVED STAFF COMMENTS
The Legal team improved its controls focused on the legal contingency confirmation process. The implemented procedures, controls and the documentation ensure the completeness of the assessment and the quality of the results obtained from the confirmation process.
The Procurement and Legal teams worked together during 2020 to redesign the process of sourcing of legal services. This process is now executed by the procurement team as is executed for other services categories. This action provided adequate segregation of duties between procurement and payment activities.
Therefore, as of December 31, 2020, we concluded that the material weaknesses described in our annual report on Form 20-F for the year ended December 31, 2019 has been remediated. See “Item 15. Controls and Procedures.”
Not Applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements as of December 31, 20202023, and 20192022 and for the three years ended December 31, 2020,2023, included in this annual report, as well as with the information presented under “Presentation of Financial and Other Information” and “Item 3. Key Information—Selected Financial and Other Information.”
For a discussion of our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, please see “Item 5. Operating and Financial Review and Prospects—A. Operating Results— Statement of Profit or Loss —Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021” on pages 126-149 of our annual report on Form 20-F for the year ended December 31, 2022.
The following discussion contains forward-looking statements that involve risks and uncertainties in particular with respect to the COVID-19 pandemic and related impacts on our historical and future results of operations and financial condition. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in “Cautionary Statement with Respect to Forward-Looking Statements” and “Item 3. Key Information—Risk Factors.”
Overview
Our results of operations for the years ended December 31, 2020, 20192023, 2022 and 20182021 have been influenced, and our results of operations will continue to be influenced, by a variety of factors, including:
· | GDP growth in the regions where we operate, including as follows: |
o | Brazil’s GDP, which |
o | the U.S. GDP, which |
o | Europe’s GDP, which |
o | Mexico’s GDP, which |
o | according to the IMF, |
· | the expansion or contraction of global production capacity for the products that we sell and the growth rate of the global economy; |
· | the international market price of naphtha, one of our |
· | the international market price of propylene in the Unites States, one of our main raw materials, expressed in U.S. dollars, which has a significant impact on the cost of producing our products and which experienced a high level of volatility during the year ended December 31, 2023, fluctuating in a range between US$ |
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· | the average |
· | our crackers’ average capacity utilization rates, which |
· | government industrial |
· | changes in the |
· | the level of our outstanding indebtedness and fluctuations in benchmark interest rates in Brazil, which affect our interest expenses on our |
· | the inflation rate in Brazil, which was |
· |
Our financial condition and liquidity isare influenced by various factors, including:
· | our ability to generate cash flows from our |
· | prevailing Brazilian and international interest rates and movements in exchange rates, which affect our debt service requirements; |
· | our ability to continue to be able to borrow funds from international and Brazilian financial institutions and to sell our debt securities in the international and Brazilian securities markets, which is influenced by a number of factors discussed below, including the adverse effect of |
· | our capital expenditure requirements, which consist primarily of maintenance of our operating facilities, expansion of our production capacity and research and development activities; and |
· | the requirement under Brazilian |
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Recent Developments
Geological EventPaulista Agreement
The State of São Paulo Attorney General’s Office (“PGE”) published, on February 7, 2024, Resolution No. 6/24 that regulates the program “Paulista Agreement”, created with the enactment of Law No. 17,843, which allows the regularization of ICMS debts with a discount on the amount of interest, fines, and attorney fees. On March 17, 2024, PGE accepted the Company’s request to include two legal proceedings with a provision on December 31, 2023, in this program, reducing the amount to be paid from R$346 million to R$66 million and authorizing its payment in 120 monthly installments from April 2023 to March 2034. On December 31, 2023, the related provisions with respect to these claims was R$346 million.
Alagoas State Public Defender’s Office filed a Public-interest civil action against the Company
In March 2024, we were informed of the Public-interest Civil Action filed by DPE against us, seeking, among other requests, to challenge clause 69 of the Agreement for Socio-environmental Reparation (payment of R$ 150 million for collective moral damages) alleging that there were facts subsequent to the date of the agreement that would give rise to additional damages.
DPE sustains that: (i) the waiver set forth in the Agreement for Socio-environmental Reparation would not cover future damages; (ii) the transfer of the property of the PCF to Braskem would violate constitutional principles; (iii) the damage caused should be fairly compensated; (iv) collective existential damages should be compensated; and (v) we should be condemned for illicit profit, yet to be liquidated.
Based on such allegations, it requests, as a preliminary measure: (i) the suspension of clause 58, second paragraph, of the Agreement for Socio-environmental Reparation, in order to rule out the possibility of reversion of the area to the benefit of us; (ii) the imposition of inalienability to the PCF area until the final and unappealable decision on the merits of the claim, considering the need for the assets acquired by the Financial Compensation Program not to be subject to any disposal, nor subject to seizure.
On the merits, it requests, among others: (i) the loss of all properties subject to the PCF, with the possibility of reverting the area to the victims or to public domain, in addition to the conviction of us to the payment, as collective and social moral damages, to the same amount spent by us for material damages; (ii) the conviction of us, as existential damages, for the loss of all properties subject to the PCF; (iii) the conviction of us for illicit profit, with the loss of the PCF properties, in addition to the payment of the amounts the Company obtained due to its alleged illicit conduct (to be determined in a liquidation proceeding); (iv) subpoena to the Investor Relations Officer, for the purposes of regulatory obligations, with publication of a relevant fact. The value of the case attributed by the DPE is R$150 million. Management, supported by the opinion of external legal advisors, classifies the probability of loss in this case as possible.
Classification of investment in Cetrel as non-current asset held for sale
In March 2024, the Company met the criteria to classify its investment in the subsidiary Cetrel as a non-current asset held for sale. Cetrel provides environmental solutions in water, effluents and reuse, incineration of hazardous industrial waste, management and remediation of contaminated areas, environmental monitoring, and environmental data management. Management is evaluating to sell part of its shares in Cetrel, aiming to enhance its potential growth as long the operational safety conditions of the Petrochemical Complex in Camaçari - Bahia are maintained. The carrying amount of Cetrel in December 2023 is R$383 million.
Braskem Idesa waiver extension
On January 6, 2021, settlements were ratified by Court with the terminationMarch 28, 2024 Braskem Idesa obtained a new extension of the public-interest civil actionswaiver related to a leverage ratio covenant until March 30, 2025.
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Prepayment of debentures
In April 2024, the compensation of the residents (“ACP of Residents”) and to the socio-environmental remediation (“ACP Socio-environmental”), regarding the Company. As provided fordebenture issued in the settlement agreement to dismiss the ACP Socio-environmental, the Alagoas State Prosecutor’s Office (Ministério Público do Estado de Alagoas) dismissed, on January 21, 2021, the Investigation Proceedings related to urban damages, with the consequent filing of an administrative procedure to monitor and supervise the compliance with said settlement agreement.
In February 2021, the Brazilian Company of Urban Trains (Companhia Brasileira de Trens Urbanos, or “CBTU”) filed a claim against Braskem seeking the payment of damagesAugust 2022, in the amount of R$222.1 750 million and the imposition of other obligations, including the construction of a new rail line to substitute the stretch that passes through the vacated area. CBTU attributes to the claim the approximate amount of R$1.3 billion. For more information, “Item 8. Financial Information—Legal Proceedings—Alagoas – Mining Activities.” In February 2021, ANM accepted our motion requesting that ANM reconsider its order directing the implementation of additional measures for the mine closure plan proposed by the Company.
Exclusion of ICMS from PIS and COFINS calculation base
In February 2021, a final and unappealable decision was issued in connection with lawsuits of the Company involving the exclusion of ICMS tax from the PIS/COFINS tax calculation base, which represents the approximate amount of R$1.1 billion to be recognized in the first quarter of 2021, as federal tax credits. For further information, see “Item 8. Key Information—Tax Proceeding—Exclusion of ICMS from PIS and COFINS calculation base.”
Redemption of the perpetual bonds
Due to our strong cash position and with the purpose of reducing our gross debt, weplus interests, were fully redeemed our 7.375% Perpetual Bonds in March 2021 in the outstanding principal amount of US$500.0 million.
Braskem Idesa
In the first quarter of 2021, Braskem Idesa entered into the following agreements under a strict reservation of all rights: (i) a memorandum of understanding with Pemex TRI setting out certain understandings regarding potential amendments to the ethane supply agreement and the development of an ethane import terminal, subject to further negotiation, a definitive agreement and approval by Braskem Idesa’s shareholders and creditors; and (ii) a natural gas transport service agreement with Cenagas for a term of 15 years, which is conditioned upon the execution of the definitive agreement referenced in item (i) above. Following the execution of these agreements by Braskem Idesa, it resumed receiving natural gas transportation services from Cenagas, which had unilaterally terminated gas supply to Braskem Idesa in December 2020. The existing ethane supply agreement between Braskem Idesa and Pemex TRI has not been modified and remains in full force and effect. At this time, Braskem Idesa is unable to predict the outcome of ongoing discussions with Pemex TRI, its shareholders and creditors.
For further information, see “Item 3. Key Information—Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico” and “Item 3. Key Information—Risks Relating to Us and the Petrochemical Industry—We depend on services and products supplied by Mexican state-owned company.”
Impact of the Novel Coronavirus (COVID-19) on our Business and Results of Operations
We have closely monitored the effects of the COVID-19 pandemic on our business and the communities in the regions in which we operate.
On March 20, 2020, we formed a crisis committee to establish procedures focusing on the health and safety of our employees and the continuity of our operations. To that end, we adopted the following measures: (i) ordered all of our employees and contractors who were most vulnerable to COVID-19 to work remotely until criteria for a safe return to their worksite were met; (ii) ordered all of our employees and contractors who were not directly related to the safe continuity of our operations to work remotely until criteria for a safe return to their worksite were met; (iii) reduced the number of employees and contractors working at our industrial plants and prioritized operations with fewer people, while ensuring that all rules relating to ensuring personal safety and operational reliability were followed; (iv) restricted visits by non-routine third parties and suppliers to our facilities; (v) created agendas jointly with our customers and local communities to assess whether products on our portfolio could be used to help fight the COVID-19 pandemic; and (vi) created, implemented and monitored the indicators of the Plan for Safe Return to Braskem plants and offices.
Also, in line with our core safety value, we started to operate our industrial plants with reduced teams. The reduction of approximately 50% in the number of industrial team members and contractors allowed us to keep teams safe while maintaining the reliability of our operations.
During the second quarter of 2020, the capacity utilization rates of our plants in Brazil and the United States were temporarily reduced to 70% and 90%, respectively, to adjust to the weaker demand for our products and to the destocking trend in the petrochemical and plastics production chains. The capacity utilization rates followed market demand and export opportunities that arose in other regions, especially with the restart of economies in Asia, which occurred before other regions of the world.
During the third quarter of 2020, there was strong recovery in demand for resins in Brazil and in the United States that led the capacity utilization rates of the petrochemical plants to return to normal levels. In the fourth quarter of 2020, the demand for resins remained strong and the capacity utilization rates in Brazil and the United States remained at levels similar to those of the previous quarter.
In Europe and Mexico, the capacity utilization rates returned to their normal levels in the second quarter of 2020, following the gradual recovery in demand, resulting in capacity utilization rates of 83% and 80%, respectively. With regard to the fourth quarter of 2020, despite the recovery in demand that began in the previous quarter, the capacity utilization rate in Europe was 64% due to the scheduled shutdown of our European plant.
We have also taken a series of measures to preserve liquidity in order to maintain our financial strength and business resilience, such as:
We also took the following actions with respect to our clients and business partner companies: (i) transformed chemicals and plastic resins into essential items to combat the novel coronavirus (COVID-19), especially surgical masks, packaging for liquid and gel alcohol, bleach, and 3D printing of rods for protection masks; (ii) donated LPG (cooking gas) to field hospitals; (iii) took action to support clients and supply chains, especially small and midsized companies; and (iv) donated hygiene kits and basic food baskets to affected communities around our plants.
During periods in which the Brazilian real depreciates significantly against the U.S. dollar, we are subject to an adverse effect from exchange variation on our debt, a part of which we recognize in our results for the period and a part of which is incorporated into our equity through the hedge accounting mechanism. In 2020, the Brazilian real depreciated 28.9% against the U.S. dollar.
Due to the uncertainties arising from the COVID-19 pandemic, we are unable to accurately predict its impacts on our financial position and results of operations and those of our subsidiaries. Following the recovery in demand for resins, we do not currently expect to make any additional provisions for impairment testing of our assets in the near future arising from a scenario of demand constraints.
See “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—Global or regional health pandemics or epidemics, including the novel coronavirus (COVID-19), could negatively impact our business, financial condition and results of operations.”prepaid.
Financial Presentation and Accounting Policies
Presentation of Financial Statements
We have prepared our audited consolidated financial statements as of December 31, 20202023, and 20192022 and for each of the years ended December 31, 2020, 20192023, 2022 and 20182021 in accordance with IFRS, as issued by the IASB.
Operating Segments and Presentation of Segment Financial Data
We made changesAs of December 31, 2023, our business operations were organized into three segments, which corresponded to our organizational structure with a view to capturing synergies in all regions in which we operate for a more integrated operating performance. As a result of these changes, our management revised the structure of our internal reporting with a focus on our petrochemical operational expansionprincipal production processes, products and internationalization with a view to simplifying and streamlining the work and decision-making processes, which led us to adopt a new structure for petrochemical reportingservices. Our reportable segments by region. As from January 1, 2020, our three reporting segments arewere as follows:
· | our Brazil Segment, which includes: |
(i) |
(ii) | supply of electricity and other inputs produced |
(iii) |
(iv) | our production and sale of PVC, caustic soda and |
The Brazil Segment accounted for net revenue of R$49,512 million, including exports from Brazil, or 69.3% of our consolidated net revenue of all reportable segments;
· |
our USA and Europe Segment, which includes our production, operations and sale of polypropylene in the United States and Germany. This segment accounted for net revenue of R$ |
· | our Mexico Segment, which includes our production, operations and sale of ethylene, HDPE (high-density polyethylene) and LDPE (low-density polyethylene) in Mexico. This segment accounted for net revenue of R$ |
Significant Accounting Policies
The presentationIn 2023, 2022 and 2021, 56.7%, 58.2% and 52.9% of our financial conditionnet revenue, respectively, related to sales performed in Brazil, and results of operations in conformity with IFRS requires us to make certain judgments43.3%, 41.8% and estimates regarding the effects of matters that are inherently uncertain and that impact the carrying value47.1% of our assetsnet revenue in 2023, 2022 and liabilities. Actual results could differ2021 was derived from these estimates. In order to provide an understanding about how we form our judgments and estimates about certain future events, including the variables and assumptions underlying the estimates, and the sensitivity of those judgments to different variables and conditions, we have included comments related to the following significant accounting policies under IFRS:international operations.
As of December 31, 2020, assets were grouped according to the following CGUs:
Brazil:
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United States and Europe:
Mexico:
On December 31, 2020, the Company tested the balances of goodwill shown in the table below for impairment:
The determination of value in use involves judgments and assumptions to determine the discounted cash flow as described in note 3.2.2(b) to our audited consolidated financial statements. The WACC used was 9.99% p.a. and the inflation rate considered for perpetuity was 2.76%.
Given the potential impact on cash flows of the “discount rate” and “perpetuity,” the Company conducted a sensitivity analysis based on changes in these variables, considering +0.5% on discount rate and –0.5% on perpetuity. Based on the analyses conducted by our management, there was no need to record impairment losses for the balances of these assets in the year ended December 31, 2020.
| +0.5% on | –0.5% on |
(in thousands of reais) | ||
CGU | ||
Southern petrochemical complex | 30,218,367 | 31,168,593 |
Northeastern petrochemical complex | 13,745,276 | 14,209,808 |
Vinyls operations | 1,930,200 | 2,029,886 |
The main assumptions used for projecting cash flows are related to the projection of macroeconomic indicators, international prices and global and local demand in the countries where Braskem has operational production plants.
Macroeconomic indicators include items such as: exchange, inflation and interest rates, among others.
Prices for key petrochemical products are obtained from projections made by IHS. However, final prices take into consideration meetings of specific internal committees and the knowledge of our experts in preparing the benchmarks for each market. In most cases, for a projected period, the internally projected prices go through a review in relation to those originally projected by the international consulting firm.
Similar to prices, global demand also is contracted from a specific consulting firm and, in the markets where we operate more directly, they consider additional variables for the composition of local demand.
We did not record any impairment charges in the years ended December 31, 2020, 2019 and 2018.
Provisions are recorded when there is a present obligation (legal or constructive) as a result of a past event, and it is more likely than not that an outflow of resources will be required to settle the obligation. Contingent liabilities are mainly related to discussions in judicial and administrative proceedings arising primarily from labor, corporate, civil and tax claims.
Our management, based on its assessment and the opinion of external legal advisors, classifies these proceedings based on the probability of loss, as follows:
The provisions for labor, corporate, civil and tax lawsuits correspond to the value of the claims plus charges in the amount of the estimated value of probable losses. Pursuant to IFRS 3, on the acquisition date in business combination operations, a contingent liability is recorded when it represents a present obligation.
Our management believes that the estimates related to the outcome of the proceedings and the possibility of future disbursements may change in view of the following: (i) higher courts may decide a similar case involving another company, adopting a final interpretation of the matter and, consequently, advancing the termination of the proceeding involving us, without any disbursement or without the need for any financial settlement of the proceeding; and (ii) programs encouraging the payment of the debts in Brazil at the federal and state levels, in favorable conditions that may lead to a disbursement that is lower than the one that is recognized in the provision or lower than the value of the matter.
New or revised pronouncements
New accounting standards currently in force:
There was no significant impacts on our financial statements due to such amendments.
A series of new standards are effective for annual periods beginning after January 1, 2020. We did not adopt these standards early in the preparation of our financial statements. The following new or amended standards are not expected to have a significant impact on our financial statements:
The amendments address issues that might affect financial reporting as a result of the reform of an interbank offered rate (IBORs), including the effects of changes to contractual cash flows or hedging relationships arising from the replacement of an interest rate benchmark with an alternative benchmark rate. The amendments provide practical relief for certain requirements in IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16 relating to: (i) changes in the basis for determining contractual cash flows of financial assets, financial liabilities, and lease liabilities; and (ii) hedge accounting.
(i) change in the basis for determining contractual cash flows: The amendments will require an entity to account for a change in the basis for determining the contractual cash flows of a financial asset or financial liability that is required by interest rate benchmark reform by updating the effective interest rate of the financial asset or financial liability. As of December 31, 2020, the Company had loans whose interest rates are based on LIBOR, as disclosed in Note 16 to our financial, and will be subject to IBOR reform. We expect that the benchmark interest rate of these loans will be changed to Security Overnight Financing Rate (SOFR”) until 2023.
(ii) Hedge accounting
The amendments provide exceptions to the hedge accounting requirements in the following areas:
- Allow amendment of the designation of a hedging relationship to reflect the changes required by the reform.
- When a hedged item in a cash flow hedge is amended to reflect the changes required by the reform, the amount accumulated in the cash flow hedge reserve is deemed to be based on the alternative benchmark interest rate applied to the hedged item.
As of December 31, 2020, we had cash flow hedges based on the LIBOR. We expect that indexation of the hedged items and hedging instruments to sterling LIBOR will be replaced by Sterling Overnight Interbank Average Rate (“SONIA”) in 2021 (please see to note 4.1 to our financial statements). Whenever the replacement occurs, we expect to apply the amendments relating to hedge accounting. However, there are uncertainties as to how and when a replacement may occur. We do not expect the amounts accumulated in the cash flow hedge reserve will be reclassified immediately to the profit or loss due to the transition to IBOR.
(iii) Disclosures
The amendments will require the Company us to disclose additional information on the entity’s exposure to risks arising from the interest rate benchmark reform and the related risk management activities.
(iv) Transition
We plan to apply the amendments from January 1, 2021. The adoption will not affect the amounts reported for 2020 or prior periods.
Principal Factors Affecting Our Results of Operations
Growth of the GDP ofMacroeconomic Environment in the Countries in which we Operate and Domestic Demand for Our Products in Brazil
Our sales in Brazil and exports from Brazil represented 55.3%69% of our net revenue including inter-segment sales,of all of our reportable segments in the year ended on December 31, 2020.2023. We are significantly affected by economic conditions in Brazil and in the other countries in which we operate, and our results of operations and financial condition have been, and will continue to be, affected by the growth rateor contraction rates of the GDP of Brazil, the United States, Europe and Mexico.Mexico, and by global growth or contraction rates.
The following table sets forthshows the growthGDP (growth/reduction), inflation, interest rates and exchange rate data for Brazil as of Brazilian GDP and domestic apparent consumption for polyethylene, polypropylene and PVC for the periods presented.indicated.
December 31, | |||||
2020 | 2019 | 2018 | 2017 | 2016 | |
Brazilian GDP | (4.1)% | 1.1% | 1.1% | 1.0% | (3.6)% |
Brazilian apparent consumption of polyethylene | 9.1% | 2.5% | 3.2% | 4.8% | (1.3)% |
Brazilian apparent consumption of polypropylene | 7.5% | 2.2% | 1.9% | 5.9% | 1.1% |
Brazilian apparent consumption of PVC | 3.8% | 1.4% | 1.4% | (1.9)% | (2.3)% |
December 31, | |||||||
2023 | 2022 | 2021 | 2020 | 2019 | |||
GDP growth / reduction(1) | 3.1% | 2.9% | 5.0% | (4.1)% | 1.1% | ||
Inflation (IGP-M)(2) | (3.2)% | 5.5% | 17.8% | 23.1% | 7.3% | ||
Inflation (IPCA)(3) | 4.6% | 5.8% | 10.1% | 4.5% | 4.3% | ||
CDI rate(4) | 11.9% | 13.7% | 8.8% | 1.9% | 4.6% | ||
(Appreciation) depreciation of the real vs. U.S. dollar | (7.2)% | (6.5)% | 7.4% | 28.9% | 4.0% | ||
Period-end exchange rate—US$1.00 | R$4.8413 | R$5.2177 | R$5.5805 | R$5.1967 | R$4.0307 | ||
Sources: | Fundação Getúlio Vargas, the Brazilian Central Bank and Bloomberg. | ||||||||||
(1) | Brazilian GDP measured according to Sistema IBGE de Recuperação Automática SIDRA. | ||||||||||
(2) | Inflation measured according to the general market price index (Índice Geral de Preços-Mercado) (IGP-M) by Fundação Getúlio Vargas. | ||||||||||
(3) | Inflation measured according to the national broad consumer price index (Índice Nacional de Preços ao Consumidor Amplo) (IPCA) by the IBGE. | ||||||||||
(4) | The CDI rate is average of inter-bank overnight rates in Brazil (as of the last date of the respective period). |
Source: Brazilian government and Tendências Consultoria.
Brazilian GDP growth has fluctuated significantly, and we anticipatebelieve that it will likely continue to do so. Our management believes that the impact on growth in Brazil will positively affect our future net revenue and results of operations, and a continued recession or low growth in Brazil would likely reduce our future net revenue and have a negative effect on our results of operations.
In 2018, Brazil experienced a recovery in economic indicators and, as a result of stronger economic activity, Brazilian consumption volumes of thermoplastic resins increased by 1.9% for polypropylene and by 3.2% for polyethylene. The PVC market grew by 1.4% for the first time after four years of contraction.
In 2019, Brazil’s economy continued to recover and, as a result, Brazilian consumption volumes of thermoplastic resins increased by 2.2% for polypropylene and by 2.5% for polyethylene. The PVC market remained stable in relation to 2018.
In 2020, Brazil’s economy contracted because of the adverse effects of the COVID-19 pandemic. However the demand for certain products such as packaging, consumers goods and in the construction sector increased due to the restocking effect of the supply chains and, as a result, demand for Brazilian thermoplastic resins increased by 7.5% for polypropylene, 9.1% for polyethylene and 3.8% for PVC.
According to the IMF, because of the adverse effects ofglobal economy is resilient and continues to gradually recover from the COVID-19 pandemic, onRussia-Ukraine war and the economy of several countries, thecost-of-living crisis. The world’s GDP expanded 6.1% in 2021, 3.5% in 2022 and the GDP of Brazil, the United States, Europeit is expected to reach 3.1% in 2023 and Mexico shrank significantly3.1% in 2020, leading to an economic contraction and a recession in these countries or regions.2024.
Brazil’s Macroeconomic Environment
The following table shows data inflation, interest rates and the U.S. dollar exchange rate for and as of the periods indicated.
December 31, | |||||
2020 | 2019 | 2018 | 2017 | 2016 | |
GDP growth / Reduction(1) | (4.1)% | 1.1% | 1.1% | 1.0% | (3.6)% |
Inflation (IGP-M)(2) | 23.1% | 7.3% | 7.5% | (0.42)% | 7.2% |
Inflation (IPCA)(3) | 4.5% | 4.3% | 3.7% | 2.9% | 6.2% |
CDI rate(4) | 1.9% | 4.6% | 6.40% | 6.99% | 13.6% |
Appreciation (depreciation) of the real vs. U.S. dollar | 28.9% | 4.0% | 17.1% | 1.5% | 4.3% |
Period-end exchange rate—US$1.00 | R$5.1967 | R$4.0307 | R$3.8748 | R$3.3080 | R$3.2591 |
Sources: Fundação Getúlio Vargas, the Central Bank and Bloomberg
Effects of Fluctuations in Exchange Rates between the Real and the U.S. Dollar
Our results of operations and financial condition have been, and will continue to be, affected by the rate of depreciation or appreciation of the real against the U.S. dollar because:
· | a substantial portion of our net revenue is denominated in or linked to U.S. dollars; |
· | our costs for |
· | we have operating expenses, and make other expenditures, that are denominated in or linked to U.S. dollars; and |
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· | we have significant amounts of U.S. dollar-denominated liabilities that require us to make principal and interest payments in U.S. dollars. |
Virtually, all of our sales are of petrochemical products for which there are international market prices expressed in U.S. dollars. We generally attempt to set prices that take into accountconsider (1) the international market prices for our petrochemical products, and (2) in Brazil, variations in the real/U.S. dollar exchange rate. As a result, although a significant portion of our net revenue is denominated in reais, substantially all of our products are sold at prices that are based on international market prices that are quoted in U.S. dollars.
Fluctuations in the real will affect the cost of naphtha, ethylene, propane, propylene and other U.S. dollar-linked or imported raw materials. The priceprices of naphtha israw materials that are under all of Petrobras’ contracts are linked to the U.S. dollar. The pricing formula included in the contract with Petrobras under which we purchase naphtha for our basic petrochemical plants in the Northeastern Complex and in the Southern Complex includes a factor that adjusts the price to reflect the real/U.S. dollar exchange rate.rate variations.
The depreciation of the real against the U.S. dollar generally increases the production cost for our products and we generally attempt to increase the Brazilian prices for our products in reais (to the extent possible in light of then-prevailing market conditions in Brazil), which may result in reduced sales volumes of our products. To the extent that our price increases are not sufficient to cover the increased costs for raw materials, our operating margingross profit decreases. Conversely, the appreciation of the real against the U.S. dollar generally decreases the production cost for our products and we generally decrease the Brazilian prices for our products in reais, which may result in increased sales volumes of our products. In periods when the real/U.S. dollar exchange rate is highly volatile, there is usually a lag between the time when the U.S. dollar appreciates or depreciates and the time when we are able to pass on increased costs, or are required to pass on reduced costs, in reais to our customers in Brazil. These pricing discrepancies decrease when the real/U.S. dollar exchange rate is less volatile.
Braskem can enter into financial derivatives transactions to mitigate exchange rate risk associated with exposure to costs in reais. Those operations can include call and put options and related strategies. For example, Braskem may apply a hedging strategy referred to as collar, which is composed of the purchase of a put option associated with the simultaneous sale of a call option, where both options having the same maturity. In this case, if the real depreciates and the strike price of the call exceeds the exchange rate of the option’s exercise date, we may incur significant financial losses. However, since those strategies will be implemented only for non-speculative purposes (in accordance with our financial policy), potential losses on derivatives transactions should be offset by more competitive fixed costs in reais.
Our consolidated U.S. dollar-denominated indebtedness represented 96.8%90.5% of our outstanding indebtedness as of December 31, 2020,2023, including the securedour debt related to Braskem Idesa. Excluding it, our Mexico Complex. Without the latter, ourconsolidated U.S. dollar-denominated indebtedness represented 95.9%88.0% of our outstanding indebtedness.indebtedness as of December 31, 2023.
As a result, when the real depreciates against the U.S. dollar:
· | the interest costs on our U.S. dollar-denominated indebtedness increase in reais, which adversely affects our results of operations in reais; |
· | the amount of our U.S. dollar-denominated indebtedness increases in reais, and our total liabilities and debt service obligations in reais increase; and |
· | our financial expenses tend to increase as a result of foreign exchange losses that we must record, mitigated by our decision to designate, on May 1, 2013, October 10, 2017, February 2, 2019, May 2, 2019, November 1, 2019, December 31, 2019, January 2, 2020, March 1, 2021, September 1, 2022, and |
Appreciation of the real against the U.S. dollar has the converse effects.
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Export sales and sales by our USA and Europe Segment, which enable us to generate receivables payable in foreign currencies, tend to provide a hedge against a portion of our U.S. dollar-denominated debt service obligations, but they do not fully match them. To further mitigate our exposure to exchange rate risk, we try, where possible, to enter into trade finance loans for our working capital needs, which funding is generally available at a lower cost because it is linked to U.S. dollar exports.
The real/U.S. dollar exchange rate varied significantly over time. The real depreciated against the U.S. dollar from mid-2011 to early 2016, and again from early 2018 to 2020. In particular, during 2015, due to the poor economic conditions in Brazil, including as a result of political instability, the real depreciated at a rate that was much higher than in previous years, and a similar trend occurred during 2018 and 2019. On March 31, 2020, the real fell to the lowest level since the introduction of the currency, at R$5.1987 per US$1.00. Overall, in 2016, the real fluctuated significantly, primarily as a result of Brazil’s political instability, appreciating 16.5%, to R$3.2591 per US$1.00 on December 31, 2016. In 2017, the real depreciated 1.5% against the U.S. dollar, ending the year at an exchange rate of R$3.3080 per US$1.00. In 2018, the real depreciated 14.6 % against the U.S. dollar, ending the year at an exchange rate of R$3.8748 per US$1.00, primarily as a result of lower interest rates in Brazil, which reduced the volume of foreign currency deposited in Brazil in the “carry trade,” as well as uncertainty regarding the Brazilian presidential elections held in October 2018. As of December 31, 2019, the real/U.S. dollar exchange rate reported by the Central Bank was R$4.0307 per US$1.00 and, as of December 31, 2020, the real/U.S. dollar exchange rate reported by the Central Bank was R$5.1967 per US$1.00, as of December 31, 2021, the real/U.S. dollar exchange rate reported by the Central Bank was R$5.5805 to US$1.00, as of December 31, 2022, the real/U.S. dollar exchange rate reported by the Central Bank was R$5.2177 to US$1.00 and as of December 31, 2023, the real/U.S. dollar exchange rate reported by the Central Bank was R$4.8413 to US$1.00. There can be no assurance that the real will not depreciate or appreciate further against the U.S. dollar.
Effects of Brazilian Inflation
Brazilian inflation affects our financial performance by increasing some of our operating expenses denominated in reais (and not linked to the U.S. dollar). A significant portion of our cost of products sold, however, are denominated in or linked to the U.S. dollar and are not substantially affected by the Brazilian inflation rate. Some of our real-denominated debt is indexed to take into account the effects of inflation. Under this debt, the principal amount generally is adjusted with reference to the General Price Index—Market (Índice Geral de Preços—Mercado), an inflation index, so that inflation results in increases in our financial expenses and debt service obligations. In addition, a significant portion of our real-denominated debt bears interest at the TLP or the CDI rate, which are partially adjusted for inflation.
Effect of Sales outside Brazil on Our Financial Performance
We have significant production capacity located outside of Brazil from our plants located in the United States, Germany, and Mexico.
During the year ended December 31, 2020, 44.7%2023, 42% of our net revenue was derived from sales of our products outside Brazil as compared to 45.5%42% during 20192022 and 45.2%47% during 2018. Net revenue derived from sales outside Brazil increased by 10.0% during 2020, compared to 9.1% during 2019, and 13.4% during 2018.
During the year ended December 31, 2020, sales to customers in countries in the Americas (other than Brazil) accounted for 65.8% of our sales outside Brazil. During the year ended December 31, 2020, sales to customers in Europe accounted for 18.8% of our sales outside Brazil, and sales to customers in East Asia and Other accounted for 15.5% of our sales outside Brazil.2021.
Sales outside Brazil are important to us for diversification purposes in relation to regional supply and demand balance, macroeconomic factors, and the political environment. In line with our strategy, sales outside Brazil affect our financial performance by hedging our operations against risks linked to Brazil.
AccordingIn 2021, the worldwide economy continued to be affected by the adverse effects caused by the COVID-19 pandemic and in the last quarter of 2021, according to the IMF, because of the adverse effects of Omicron variant led to increased mobility restrictions and greater financial market volatility.
In 2022 and 2023, the COVID-19 pandemic onworldwide economy continued to be affected by geopolitical uncertainties, the economy of several countries, the world’s GDPconflict between Russia and Ukraine and/or Israel and Hammas, increasing inflation rates worldwide and the GDP“zero-COVID” policy implemented by China during 2022. The combination of these factors caused reduction or suspension of production, directly affecting the United States, Europemarket for petrochemical products and Mexico shrank significantly in 2020,other products around the world.
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Petrochemical Cycles and Disruptive Scenarios
Historically, the global petrochemical market has experienced alternating periods of limited supply, leading to an economic contraction and a recession in these countries or regions. As a result, our sales outside Brazil are expected to be adversely affected.
Cyclicality Affecting the Petrochemical Industry
Global consumptionincrease of petrochemical products has increased significantly over the past 30 years. Due to this growth in consumption, producers have experienced periods of insufficient capacity for these products. Periods of insufficient capacity, including some due to raw material shortages, have usually resulted in increased capacity utilization rates and international market prices for our products, leading to increased domesticglobal prices and operating margins. These periods have often beenprofit margins, followed by periods of capacity additions, which puts downward pressure on utilization rates, global prices, and consequently operating margins, until demand catches up again, with new levels of product availability. This economic scenario is known as the petrochemical cycle.
Sales of petrochemicals and chemical products are linked to the global demand and production levels (supply x demand), which may be affected by macroeconomic factors, such as interest rates, oil prices, shifts to alternative products, innovation, consumer trends, regulatory and legislative oversight requirements, trade agreements, as well as disruptions, pandemics, or other global events. Therefore, our results are influenced not only by our activities but also by the industry and macroeconomic scenarios, over which we have no control, and which may adversely affect our results of operations.
However, sometimes new opportunities emerge from externalities, such as the shift in consumer behavior. An example derived from COVID-19 is that, from 2020 to 2022, a large part of the population shifted to home-office working, and therefore, increased the demand for several segments, such as packaging, healthcare, and construction. We believe that this outcome resulted in declining capacity utilization rates and international selling prices, leading to declining domestic prices and operating margins.a less pronounced downward movement in the petrochemical industry.
We expect that theseThese cyclical trends in international selling prices and operating margins, relating to global capacity shortfalls and additions, will likely persist, principallymostly due to the continuing impactcontinuity of four general factors:
· |
· |
· |
· |
Several petrochemical companies have announced plans to build significant additional ethylene production capacity in the coming years, of which 62.6% is expected to be concentrated in Northeast Asia. According to external consulting firms such as IHS and other, 37.1 million tons of annual global ethylene capacity is scheduled to be commissioned between 2021 and 2025, including 18.9 million tons of annual capacity in China. According to IHS, the majority of the new capacity in China will be based on flexible feedstock, with naphtha as the main raw material but also with the option to crack natural gas liquids, gas oil and others. Additionally, expansions of ethylene capacity are frequently subject to delays, and we cannot predict when the planned additional capacity will be commissioned, if at all.
In 2020, the COVID-19 pandemic has significantly impacted economic activity and markets around the world, and its severity, magnitude and duration are highly uncertain, rapidly changing and difficult to predict. According to the IMF, because of the adverse effects of the COVID-19 pandemic on the economy of several countries, the world’s GDP and the GDP of Brazil, the United States, Europe and Mexico shrank significantly in 2020, leading to an economic contraction and a recession in these countries or regions.
In the long-term, the trend is for the down cycle to soften and eventually revertturn into an upcycle again, as the industry waits to make decisions on new investments while global trade rebalances, and the world demand absorbs new capacity. Additionally, projects that are announced to start up further into the future have a greater chance of being postponed or cancelled, as the scenario may change, feedstocks may become more or less advantaged,advantageous, and cash cost curves may shift.
The year 20202023 was marked by atypical uncertaintiesvolatile for the petrochemical industry expectations. On the demand side, in January, China finally ended its Covid-zero policy, a long-awaited decision that put the market into a frenzy, with price and volatilities and impacted mainly by extraordinary external factors, such as: the global spread of COVID-19, the lower global demand for fuels, impacting oil pricesspreads hikes in the international market andmajority of commodities. However by the elections in the Unites States. Regarding the global petrochemical scenario, the dynamics observed were more positive than initially expected by external consultants in early 2020, with healthier spreads of thermoplastic resins in the international market in all regions where Braskem has productive capacity. In Brazil, the sharp drop in the price of naphtha during the monthsend of March and April, influenced byit started to become clearer that China was losing momentum as the fall in the pricemain engine of oil in the international market, was not accompanied byglobal growth (despite services sector having presented a similar decrease in resins prices, due to the rapid recovery of demand in the second half of 2020, driven mainly by demand from the packaging, construction, and hygiene and personal care sectors.
growth). In 2019, the world economy slowed to its slowest pace since the financial crisis of 2008. During the year, the impact from the trade war between the United States, the consistent high inflation impacted the cost of goods, reducing demand, and China;pushing commodities prices down as well. On the slowdownsupply side, is expected by CMA that China will continue to add capacity in PE and PP in the Chinese economy; the contraction in Europe’s automotive industry, especially in Germany; the uncertainties associated with Brexit; and the political instability in key emerging markets, such as Brazil and Mexico, adversely affected investment and demand for consumer goods, leading to slower growth in the industrial sector and in international trade. In this scenario, the growth in global demand for chemicals and thermoplastic resins in 2019 was below the initial expectations of petrochemical industry players and external consulting firms, such as IHS. Combined with this weaker demand, new shale gas-based integrated polyethylene capacities in the United States and new refineries in Asia expanded the global supply of polyolefins and chemicals, pressuring the international spreads of these products. The exception was the PP market in the United States, which still presented healthy spreads supported by U.S. economic growth and the high supply of the material.
In 2018, much of the capacity additions that had been delayed in priorcoming years, finally became available in the United States. The new plants benefit from a lower cost due to their use of ethane, and therefore have the ability to produce products at a lower price than most of their peers in the global market, which caused international price references to fall throughout the year. On the other hand, oil and naphtha prices were at high levels for most of the year, mainly due to OPEC production cuts and United States sanctions on Iran, which caused spreads to decrease. Additionally, trade disputes between the two largest economies in the world, China and the United States forced American companiescrossed the line from net importer to finda “timid” net exporter of PP, according to external consultancies the new regionsadditions of PE reached 7,060 kton (an increase of 4.9% in 2023 compared to market their products, therefore2022) and PP another 6,950 kton (an increase of 6.9% in 2023 compared to 2022). Commodities volatility that began in 2022 was also present in 2023, even though Russian and Ukraine conflict being sort of “normalized”, the aversion to risk (supply disruption) remained quite influent, as well as OPEC+ interventions in the production (and prices), waning demand counterbalanced the effects though, holding back crude prices.
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During the first few months of 2022, the global economy shifted from hoping for the end of COVID-19 restrictions to the fear of a world war, following the conflict between Russia and Ukraine. The conflict between Russia and Ukraine caused a shock in commodities prices, with oil prices reaching US$140 per barrel, given the relevance of Russia as a key supplier of oil and gas. Severe trade sanctions were imposed on Russia, which also affected the global economy, especially Europe, because of its dependency on Russian oil and gas. The conflict also prompted a rise in global inflation, which reached levels not seen since the 1980s. Meanwhile, China struggled significantly with COVID-19 restrictions in 2022, and its harsh “COVID-zero” policy challenged the economy of the most important price maker for petrochemicals. Demand started to slow down in the second quarter of 2022 with central banks around the world significantly increasing interest rates in an attempt to control rising inflation. The second half of 2022 was marked by the pressurebeginning of a new down cycle for the petrochemicals industry, as significant new capacity additions, which had been postponed since 2020, became operational, and further increased capacity was expected in 2023 and is expected for 2024, which may lead to further reduced spreads for the period.
In 2020-21, the world suffered significant impacts on global supply chains, as Covid lockdowns created a shortage of containers availability to move materials across different countries, also strikes in rail and road transportation globally emerged claiming for better work conditions. These logistic constraints led to increased freight rates, which, helped domestic markets (protecting those exposed to China imports), but fueled inflation as well. Also, disruptions began to occur more often, in special, those weather related, such as winter storms, droughts and hurricanes. These events led to improved prices and spreads, as supply became short for some time in these regions.the affected area.
Effects of Fluctuations in Naphtha, Ethane, Propane and Propylene Prices
Fluctuations in the international market price of naphtha have significant effects on our costs of goods sold and the prices that we are able to charge our customers for our first and second generationsecond-generation products. Political instability in the Middle East or similar events that may occur, including the military conflict between Russia and Ukraine and, more recently, Israel and Hammas in the futureGaza Strip, may lead to unpredictable effects on the global economy or the economies of the affected regions. These events have had and may continue to have negative effectsimpacts on oil production and price volatility, consequently driving naphtha and petrochemical prices higher worldwide.
The price of ethane and propane in the Mont Belvieu region in Texas and Henry Hub in the United States isare used as a reference for our costs of feedstock.feedstock costs. Any future developments that affect the U.S. supply/demand balance for natural gas may adversely affect the Mont Belvieu and Henry Hub price of natural gas (including(and thus ethane, propane and butane) and increase our production costs or decrease the price of petrochemical products. External factors and natural disastersevents such as hurricanes, harsh winters or industry developments, such as shale gas exploration, may disrupt the supply of natural gas, thereby increasing the cost, which may materially adversely affect our cost of products sold and results of operations.
The price of propylene is based on the US reference and is determined by three different processes: (i) refineries production (FCC – Fluidized Catalytic Cracking), steam cracking, and on-purpose production (PDH – Propane Dehydrogenation), since refineries are the major source of propylene in the United States; however, (ii) refineries can use propylene to make a few different products. Their desire to sell propylene on the open market depends on demand and price for gasoline along with a few other chemicals. For the steam cracker process, propylene is a co-product derived from the ethane, propane, and butane cracking processes, whose price dynamics correlate to the price of crude oil; and/or (iii) natural gas, as explained above. Steam cracker feedstock choice has a significant effect on propylene supply to the market since its volume production is different for each feedstock. During the last few years, ethane has been the main feedstock, due to its lower price and to the high polyethylene demand. For the PDH process, propane prices play an important role in propylene pricing, but it mostly sets the price floor, not the ceiling. This is because PDHs are the marginal propylene producer. The price ceiling is determined by the ability to sell propylene products, domestically and internationally.
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Effects on Cost of Products Sold
Naphtha is the principal raw material used by our chemicals operations that are part of our Brazil Segment. Naphtha and condensate accounted for 35.1%35.6% of our direct and indirect consolidated cost of products sold during 2020.2023.
The cost of naphtha varies in accordance with international market prices, which fluctuate depending upon the supply and demand for oil and other refined petroleum products. We purchase naphtha under a long-term supply contract with Petrobras and Acelen, and we import naphtha from other suppliers through our terminal at Aratú, in the State of Bahia and Petrobras’ terminal at Osório, in the State of Rio Grande do Sul. The prices that we pay for naphtha under these arrangements, other than our supply contract with Petrobras, are based on the Amsterdam-Rotterdam-Antwerp (ARA) market price for naphtha. As a result, fluctuations in the ARA market price for naphtha have had a direct impact on the cost of our first generationfirst-generation products.
Our contracts with Petrobras and Acelen provide for naphtha prices based on ARA quotations. The volatility of the quotation of this product in the international market, the real/U.S. dollar exchange rate, and the level of carbon disulfide, a contaminant of the naphtha that is delivered, also influence the price of naphtha that we purchase from Petrobras. We believe that these contracts have reduced the exposure of the cost of our first generationfirst-generation products to fluctuations in the ARA market price for naphtha.
The international price of naphtha has fluctuated significantly in the past, and we expect that it will continue to do so in the future. Significant increases in the price of naphtha and, consequently, the cost of producing our products, generally reduce our gross margins and our results of operations to the extent that we are unable to pass all of these increased costs on to our customers and may result in reduced sales volumes of our products. Conversely, significant decreases in the price of naphtha and, consequently, the cost of producing our products, generally increase our gross margins and our results of operations and may result in increased sales volumes if this lower cost leads us to lower our prices. In periods of high volatility in the U.S. dollar price of naphtha, there is usually a lag between the time that the U.S. dollar price increases or decreases and the time that we are able to pass on increased, or required to pass on reduced, costs to our customers in Brazil. These pricing discrepancies decrease when the U.S. dollar price of naphtha is less volatile.
We do not currently hedge our exposure to changes in the prices of naphtha because a portion of our sales are exports payable in foreign currencies and linked to the international market prices of naphtha and also because the prices of our polyethylene, polypropylene and PVC products sold in Brazil generally reflect changes in the international market prices of these products.
Effects on Prices of Our Products
TheIn Brazil, the prices that we charge for many of our basic petrochemicalchemical products and thermoplastic resins in general are determined by referenceinternational references linked to the European contract prices for these products. Because European producers of basic petrochemicalPrices for second-generation products primarily use naphtha as a raw material, changesexported from Brazil are generally based on international spot market prices. We set the prices for products sold in the European contract prices are strongly influenced by fluctuations in international market prices for naphtha. To the extent that our prices areUnited States and Europe based on market pricing in such regions. The price for PE in Mexico is based on prices in the European contract prices for our products, the prices that we charge for these products are significantly influenced by international market prices for naphtha.U.S. Gulf Coast region.
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We negotiate the prices in reais for part of our products, principally polyethylene, polypropylene and PVC, on a monthly basis with our domestic customers. We attempt to revise our prices to reflect (1) changes in the international market prices of these products, which tend to fluctuate in tandem with naphtha prices, especially for polyethylene, and (2) the appreciation or depreciation of the real against the U.S. dollar. However, during periods of high volatility in international market prices or exchange rates, we are sometimes unable to fully reflect these changes in our prices in a prompt manner.
The international market prices of our petrochemical products have fluctuated significantly, and we believe that they will continue to do so. Volatility of the price of naphtha and the price of petroleum have effects on the price competitiveness of our naphtha-based crackers and our resins. Because pricing trends for naphtha and ethane have diverged in recent years to a greater extent than has been the case historically, producers of ethylene and resin products derived from ethane generally have experienced lower unit raw material costs than naphtha-based producers of these products. As a consequence, significant increases in the pricing differential between naphtha and gas, as a consequence of higher oil prices, increases the competitiveness of products derived from ethane and may result in an effect on our results of operations to the extent that we are able to maintain our operating margins and increased prices do not reduce pressure in the international markets.
Significant increases in the international market prices of our petrochemical products and, consequently, the prices that we are able to charge, generally increase our net revenue and our results of operations due to increased sales volumes of our products. Conversely, significant decreases in the international prices of our petrochemical products, and, consequently, the prices that we charge, generally reduce our net revenue and our results of operations if we are unable to increase our operating margins or these reduced prices do not result in increased sales volumes of our products.
Capacity Utilization
Our operations are capital intensive.capital-intensive. Accordingly, to obtain lower unit production costs and maintain adequate operating margins, we seek to maintain a high capacity utilization rate at all of our production facilities.
The table below sets forth capacity utilization rates with respect to the production facilities for some of our principal products for the periods presented.
Year Ended December 31, | |||
2020 | 2019 | 2018 | |
Ethylene | 81% | 85% | 91% |
Polyethylene | 84% | 85% | 88% |
Polypropylene | 85% | 89% | 87% |
PVC | 63% | 65% | 76% |
Polypropylene USA and Europe | 89% | 89% | 87% |
PE Mexico | 74% | 76% | 77% |
Year Ended December 31, | |||
2023 | 2022 | 2021 | |
Ethylene Brazil | 71% | 78% | 81% |
PE Brazil | 72% | 80% | 80% |
PP Brazil | 73% | 76% | 82% |
PVC Brazil | 70% | 66% | 65% |
PP USA and Europe | 81% | 80% | 87% |
PE Mexico | 77% | 73% | 66% |
In 2020,2023, the average utilization rate of petrochemical crackers in Brazil was impacted by: (i) production adjustments due to weaker global demand for our products; and (ii) the scheduled maintenance shutdown at the petrochemical complex in Bahia. In Mexico, the utilization rate was higher by 4pp compared to 2022, as a result of increased volume of ethane supplied by PEMEX, which reached 32.2 thousand barrels per day on average for the year, representing an increase of 16% compared to 2022.
In 2022, the average ethylene capacity utilization was mainly affected by (i)lower spreads in the international market due to lower demand. Additionally, the average utilization rate of petrochemical crackers in Brazil was impacted by: (i) the crackerscheduled maintenance shutdown at the petrochemical complex in Rio Grande do Sul for 47 days and the scheduled maintenance shutdown at the PVC plant in Alagoas for 37 days, impacting the utilization rate of the petrochemical complex in Bahia; and (ii) the feedstock shortage at the petrochemical complexes of Rio de Janeiro and ABC, in the State of São Paulo, due to unscheduledthe lower supply given the scheduled maintenance shutdowns atof a supplier. In Mexico, the PE integrated unit in the first quarter of 2020; and (ii) weaker demand for resins and main chemicalsutilization rate was higher by 7.0% compared to 2021, as a result of the COVID-19 pandemic significantly impacted economic activityexpansion of the Fast Track solution for importing ethane, which reached 18,500 barrels per day on average for the year, representing an increase of 20.4% compared to 2021 and markets around the world.
In 2019, average capacity utilization was affected by the: (i) lower ethylenea 74% utilization rate of the cracker in Bahia resulting from thethis solution.
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Average polypropylene capacity utilization decreased due to a scheduled shutdown of the chlor-alkali and dichloroethane plants in Alagoas; (ii) scheduled turnaround of one of our ethylene production lines at the Bahia crackerthat occurred in the fourthsecond quarter of 2019; (iii) lower ethylene utilization rate at the crackers2022 in our petrochemical complex in Rio Grande do Sul, due to logistics problems; and (iv) drop in the marginal profitability of our export of resins.
In 2018, average capacity utilization was affected by the truckers’ strike that took place in Brazil in May of 2018; the incident involving the chlor-alkali plant in Alagoas; the blackout that affected Brazil’s Northeast plants in March; and lower demand in the fourth quarterperiod. Average PVC capacity utilization increased due to better industrial performance in the period. With respect to polypropylene in USA and Europe, average capacity utilization decreased due to: (i) weaker demand in such regions; and (ii) minor unscheduled shutdowns at PP plants in the period.
In 2021, average ethylene capacity utilization was mainly affected due to a scheduled general maintenance turnaround carried out at our petrochemical complex in ABC, São Paulo In the United States and Europe, the Company continued to operate above the industry average and ended the year with a utilization rate of 2018.87%, considering the average of the two regions. In Mexico, Braskem Idesa ended the year with a utilization rate of 66%, and the main focus was to increase the availability of raw materials through the Fast Track, which represents 35% of the total ethane supply in the year.
Effects of Brazilian Industrial Policy
The Brazilian government has a significant influence in some sectors of the domestic economy, including the petrochemical sector in which we operate. The Brazilian government has adopted, or is considering adopting, measures to boost the competitiveness of domestic companies, as described below.
SUDENE – Income Tax Reduction
Since 2015, Braskem obtained favorable decisions in administrative proceedings and lawsuits claiminga tax benefit with the reductioneffect of reducing 75% of CIT on income from the following industrial units: (i) PVC and chlor-alkali (cloro soda)(cloro soda) units, established in the state of Alagoas; and (ii) Chemicals, PE, PVC and chlor-alkali units, established in the city of Camaçari (BA). It benefits legal entities with projects for the implementation, modernization, or expansion of industrial enterprises. The realizationbenefit can be used for a period is 10of ten years. We are working to renew the tax benefit for an additional ten-year period. In 2020,2023, the operations in Brazil recorded tax losses, therefore itthe benefit was not possible to claim any deductions as tax incentives.available for use.
PRODESIN – ICMS Tax Incentive
Braskem has ICMS tax incentives byin the state of Alagoas, through the state of Alagoas Integrated Development Program, or PRODESIN, which aimed at implementing and expanding a plant in that state. This incentive is considered an offsetting entry to sales taxes. In 2020,2023, the amount was R$68.958.2 million (R$67.887.4 million in 2019)2022). As PRODESIN is considered an investment subsidy, it was allocated to our tax incentive reserve, pursuant to the Brazilian Corporate Law.
REIQ – PIS/COFINS Tax Incentive
TheIn 2013, the Brazilian chemical and petrochemical sector enjoyed an important achievement in 2013. The government in response to one of the proposals elaborated by the Chemical Industry Competitiveness Council, approved thea PIS and COFINS tax rates relief on raw material purchases by firstfirst-generation and second generationsecond-generation producers which serve various sectors ofin the economy.chemical industry referred to as REIQ. The measure aimed to restore some of the industry’sindustry’s competitiveness, which was weakened by factors related to infrastructure, productivity, feedstock, and energy costs, and the exchange rate that pressured the chemical industry’sindustry’s trade deficit, according to ABIQUIM, which ended 20202023 at approximately R$158.0226 billion (US$30.447 billion). By 2020, we had
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Between 2013 and 2015, the REIQ credit rate was set at 8.25%, and after a tax rebatefew decreases, it would remain at 3.65% for an indefinite period.
Since 2021, however, the Federal Government abruptly revoked the REIQ, without any prior business planning. Thus, demonstrating the importance of 3.65% (PISthe chemical industry for Brazil's socio-economic development, the sector, and COFINS) on the acquisitionCongress ensured that the REIQ was back in force at descending rates until the end of petrochemical raw materials.2027. In 2023 the credit rate was set at 1.46%, for 2024 the credit rate is 0.73% and it should so remain until the end of the regime.
Reintegra
In December 2011, the Brazilian government implemented the “Reintegra” program, which is designed to improve the competitiveness of Brazilian manufacturers in the export markets by refunding the federal taxes levied on their export sales. As a result of this incentive, exports of third generation products by Brazilian companies have increased. The original program ended on December 31, 2013. In August 2014, the Brazilian government permanently reinstated Reintegra on a permanent basis, and with variable rates that could vary by up to 5% ofhowever over the revenue ofyears the companies with exports.rate was changed. The refund tax rate was set at 0.1% in August 2014. In October 2014, the Brazilian government restored the rate to 3.0% until the end of 2015. However, in March 2015, the Brazilian federal government again decreased the rate to 1.0% for 2015 and 2016. In October 2015, according to the Decree No. 8,543, the Brazilian federal government decreased the refund rate to 0.1% as of December 1, 2015, which remained in effect until December 31, 2016. On August 28, 2017, pursuant to Decree No. 9,148 that amended the Decree No. 8,543, the Reintegra rate increased to 2% effective, as of January 1, 2017 until December 31, 2018. However, on May 30, 2018, the Brazilian government issued Decree No. 9,393, decreasing the refund rate to 0.1%, effective June 1, 2018, for an undefined term.
Import Tariffs at Local Ports
Historically, tariffs on imports have been set by the Brazilian federal government. However, in recent years, some Brazilian states have established tax incentives to attract imports to local ports in order to increase revenue and develop the local infrastructure of such ports, mainly through the granting of discounts on the ICMS tax rates that would be due to such states. Industry leaders and labor associations allege that such laws create subsidies for imported products, which would harm the Brazilian market.
On January 1, 2013, the legislation came into force that reduces the maximum rate of ICMS to be charged by the states from 12.0% to 4.0% on interstate sales of raw materials and other imported goods or that have a share of imports greater than 40.0%. With limited exceptions, the rate of 4.0% is not applicable to imported goods without a domestic equivalent, to goods produced in accordance with the basic production processes and to operations that send gas imported from abroad to other states. As a result, the current tax incentives offered by some Brazilian states to attract imports of products in the form of a discount on the ICMS tax rates that would otherwise be due have become less attractive.
Pricing and Tariffs
We set prices for ethylene, the principal first generation petrochemical product that we sell to third-party second generationsecond-generation producers, by reference to international market prices. See “Item 4. Information on the Company—Chemicals Operations that are Part of our Brazil Segment—Sales and Marketing of Our Chemicals Operations that are Part of our Brazil Segment.” Prices paid by second generation producers for imported first generation petrochemical products partly reflect transportation and tariff costs. We establish the prices of ethylene by-products, such as butadiene, by reference to several market factors, including the prices paid by second generation producers for imported products. Prices paid for such imports also reflect transportation and tariff costs.
Second generation producers, including us, generally set prices for their petrochemical products by reference to several market factors, including the prices paid by third generation producers for imported products. Prices paid for such imports also reflect transportation and tariff costs.
The Brazilian government has used import tariffs to implement economic policies. As a result, import tariffs imposed on petrochemical products have varied in the past and may vary in the future. Tariffs on imports of first generation petrochemical products are between 0% and 4%, and tariffs on polyethylene, polypropylene and PVC resins are 14.0%. In December 2020, the Brazilian federal government temporarily reduced to 4%, for an initial period of three months, and a quota of 160,000 tons, the import tariffs levied on imports of PVC resins from countries that do not benefit from preferential import rates in Brazil. This reduction was later extended in April 2021 for an additional three-month period and an additional quota of 160,000 tons. In that same month, the Brazilian federal government temporarily reduced to 0% during a three-month period and applied a quota of 77,000 tons of the import tariffs levied on imports of PP resins.
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Until November 2021, tariffs on imports of first-generation petrochemical products varied between 0% and 4%, and tariffs on polyethylene, polypropylene and PVC resins were 14.0%. In November 2021, the Brazilian government unilaterally reduced by 10%, the import tariff rates of almost 87% of internationally commercialized goods. In May 2022, upon the enactment of Resolution No. 353/2023, Brazil unilaterally and temporarily reduced tariffs for consumer goods by an additional 10% until December 31, 2023. Accordingly, the import tax on resins from Braskem went from 12.6% to 11.2%.
In August 2022, the Brazilian government also enacted Resolutions Nos. 369 and 381, approving an additional temporary reduction in the import tax, by inclusion in the List of Exceptions to the Mercosur Common External Tariff (“Letec”) of the following of our products: (i) ethylene and alpha-olefin copolymers with density lower than 0.94, from 11.2% to 3.3%; (ii) S-PVC resin obtained from the suspension process, from 11.2% to 4.4%; (iii) PP (propylene copolymer) resin, from 11.2% to 4.4%; and (iv) PP (propylene homopolymer), from 11.2% to 6.5%. This reduction was initially valid for one year.
In November 2023, the Executive Committee of the Chamber of Foreign Trade (GECEX/CAMEX) decided to reestablish the import tariffs on 73 chemical products that were included in Resolution 353/2022 (TEC unilateral reduction of 10%). The measure was taken to reverse the negative impacts caused to domestic industry, especially those related to the increase in imports and the strong variation in prices, which led to a 10% reduction in import tax. Therefore, as of November 28, 2023, the import tax applied to Braskem resins returned indefinitely to the TEC level of 12.6%.
Measures applied in 2023 – New Brazilian Government
On March, 21, 2023, the Executive Management Committee (“Gecex”) of the Foreign Trade Chamber (“Camex”) decided to exclude the following products from the Letec, establishing, from April 1, the import tax rate that had been reduced as follows: ethylene and alpha-olefin copolymers, with a density of less than 0.94, from 3.3% to 11.2%; PVC-S resin, obtained by a suspension process, from 4.4% to 11.2%; and Resin PP “cup” (propylene copolymer) from 4.4% to 11.2%. The PP (propylene homopolymer) remained in Letec until July 31, 2023, when its import duties were reestablished to 11.2%.
On November 10, 2023, the Executive Committee of the Chamber of Foreign Trade (GECEX/CAMEX) decided to reestablish the import tariffs on 73 chemical products that were included in Resolution 353/2022 (the second unilateral reduction of 10% of the TEC). The measure was taken with the aim of reversing the negative impacts caused to the national industry, especially related to the surge in imports and the strong price variation that resulted from the 10% reduction in import tax. Therefore, as of November 28, 2023, the import tax applied to Braskem resins returned to the TEC level, being 12.6% permanently.
Adjustments of tariffs could lead to increased competition from imports and cause us to lower our domestic prices and impact the demand for our products, which would likely result in lower net revenue and could negatively affect our overall financial performance. Additionally, the products we export to the United States and Europe are subject to tariffs in the amount of 6.5% in each jurisdiction, subject to certain preferences. These tariffs generally balance the level of competition of our products produced locally and any future adjustments to these tariff structures could negatively impact our sales in these jurisdictions. Future trade agreements entered into by Brazil, the Mercosur, the United States or the European Union could also lead to increased competition from imports and lower domestic prices.
Imports and exports within the free trade area in South America (Mercado Comum do Sul)(Southern Common Market), or Mercosur, which is composed of Argentina, Brazil, Paraguay, and Uruguay, have not been subject to tariffs since December 2001. Imports of suspension PVC from Bolivia, Chile, Colombia, Cuba, Ecuador, Israel, Peru, and Venezuela are not subject to tariffs, due to a number of trade agreements. Imports of suspension PVC from Mexico and Egypt are subject to reduced tariffs of 11.2% and 7%, respectively,80% of MFN, due to trade agreements.
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Also, since the 1990s, imports of suspension PVC from the United States and Mexico have been subject to anti-dumping duties of 16.0% and 18.0%, respectively, that were imposed by the Brazilian Foreign Trade Chamber (Câ(Câmara de Comércio Exterior)Exterior, or CAMEX.“CAMEX”). Since 2008, imports of suspension PVC from China have also been subject to antidumpinganti-dumping duties of 21.6%. Such duties havehad been temporarily suspended sincein August 2020.2020 but were reinstated in September 2021. Imports of suspension PVC from South Korea were subject to antidumpinganti-dumping duties ranging between 0% and 18.9%, depending on the producer, between 2008 and August 2020, when they were terminated. The duties imposed on imports from the United States and Mexico are scheduledwere revised in 2022 by the Brazilian government, which decided to expire in November 2021,extend until 2027 the application of anti-dumping duties for imports from the United States with an ad valorem rate reduced to 8.2%, and from Mexico at the rate of 13.6%, but with an immediate suspension of the application of anti-dumping duties for imports from Mexico, while the duties imposed on imports from China will expire in 2025.
Additionally, in December 2010, CAMEX imposed an anti-dumping duty of 10.6% on polypropylenePP imports from the United States, which was extended in November 2016. In August 2014, the Brazilian government imposed anti-dumping duties on polypropylenePP imports from South Africa, India and South Korea of 16.0%, 6.4% to 9.9%, and 2.4% to 6.3%, respectively. The duties imposed on imports of polypropylenePP from the United States are scheduledwere revised by the Brazilian government, which decided to expire in September 2021.extend until 2027 the application of anti-dumping duties from the United States with at an ad valorem rate of 10.6%, but with an immediate suspension of the application of the anti-dumping duties. In December 2020, the Brazilian government extended the anti-dumping duties imposed on polypropylenePP imports from India, reduced the anti-dumping duties for South Africa to a range from 4.6% to 16% and terminated the duties applied against South Korea. The current anti-dumping duties applied on imports from South Africa and India are set to expire in December 2025.
In 2018, 25% of Brazilian polyethylene, polypropylene and PVC resins were imported products, which reflected a 12.3% annual increase in the volume of resins imported, due to higher availability of products from plants that recently started to operate.
In 2019, 31% of Brazilian polyethylene, polypropylene and PVC resins were imported products, which reflected an 8.5% annual increase in the volume of resins imported.
In 2020, 32% of Brazilian polyethylene, polypropylene and PVC resins were imported products, which reflected an 11% annual increase in the volume of resins imported.
Effect of Level of Indebtedness and Interest Rates
As of December 31, 2020,2023, our total outstanding consolidated indebtedness (includes borrowings and debentures), was R$54,027.553,486 million (US$10,396.511,049 million), including R$12,059.211,250 million (US$2,320.62,324 million) in connection with the secured debt related to our Mexico Complex.Braskem Idesa. The level of our indebtedness results in significant financial expenses that are reflected in our statement of profit or loss. Financial expenses consist of interest expense, exchange variations of U.S. dollar and other foreign currency-denominated debt, foreign exchange losses or gains, and other items as set forth in note 3331 to our audited consolidated financial statements. In the year ended December 31, 2020,2023, we recorded total financial expenses net of R$9,611.95,589 million, of whichmainly associated with: (i) R$2,928.83,780 million consisted of interest expenses. expenses; (ii) R$189 million is related to loans transaction costs – amortization; (iii) R$616 million is related to adjustment to present value – appropriation; and (iv) R$281 million is related to interest expenses on leases.
In addition, in the year ended December 31, 2023, we recorded a losspositive result of R$5,298.7511 million in derivatives and exchange rate variations, net in connection foreign exchange variation on our financial assets and liabilities.liabilities and results with derivatives. The interest rates that we pay depend on a variety of factors, including prevailing Brazilian and international interest rates and our risk assessments, our industry and the Brazilian economy made by our potential lenders, potential purchasers of our debt securities and the rating agencies that assess us and our debt securities.
Effect of Taxes on Our Income
We are subject to a variety of generally applicable federal and state taxes in multiple jurisdictions on our operations and results. We are generally subject to Brazilian federal income tax at 25% (including surtax), combined with Social Contribution on Net Income (Contribuição Social Sobre o Lucro Líquido– CSLL), or “CSLL”) at 9%, totalizing an effectivea nominal rate of 34%, which is the standard corporate tax rate in Brazil.
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We have available certain federal tax exemptions based upon federal law that offers tax incentives to companies that locate their manufacturing operations in the Brazilian states of Bahia and Alagoas. These exemptions represent a 75% reduction of our tax burden, and, as a result, we are entitled to pay 25% of the statutory income tax rate on the profits arising from the sale of:
· | polyethylene manufactured at one of our polyethylene plants in the Northeastern Complex (State of Bahia) until 2026; and |
· | polyethylene manufactured at one of our polyethylene plants in the Northeastern Complex and caustic soda, chlorine, ethylene dichloride and PVC produced at our plants in the Northeastern Complex (State of Bahia and |
The exemption of 75% of income tax rate combined with CSLL at 9%, entitles us to pay only 44.9% of the 34% standard corporate tax rate on the profits arising from products manufactured at these plants.
Income tax loss carryforwards available for offset in Brazil do not expire. However, the annual offset is limited to 30% of our adjusted net profits.taxable basis profit. This limit also affects the social contribution on net profit, or CSLL. There is no outstanding balance to be used in 2020.
The consolidated amount includes the impact from the different tax rates in countries where foreign subsidiaries are located, which as of December 31, 2023, were as follows:
· | Braskem Europe (Germany): |
· | Braskem America and Braskem America Finance (United States): |
· | Braskem Argentina (Argentina): |
· | Braskem Petroquímica Chile (Chile): 27.00%; |
· | Braskem |
· | Braskem Idesa, Braskem Idesa Serviços, Braskem México, Braskem México Serviços and Braskem México Sofom (Mexico): 30.00% |
· | Braskem India (India): 30.00%. |
The consolidated amount also includes the impact of taxation on universal bases, which was introduced in Brazil by articles 76 and 77 of Law No. 12,973/2014. This law determines that positive portions of results earned by subsidiaries abroad will be computed in the corporate income tax (Imposto de Renda da Pessoa Jurídica, or “IRPJ”) calculation base and CSLL in Brazil on an individual basis. In case the subsidiary has previous losses, these may be deducted up to the amount of the calculated profit, therefore, the taxpayer is obliged to inform the tax authority of the accumulated losses in the annual corporate income tax return.
All profits earned by the subsidiaries described above must be subject for IRPJ and CSLL taxation in Brazil, with the exception of profits earned by subsidiaries headquartered in countries with which Brazil has a treaty to avoid double taxation. Profits earned by companies headquartered in those countries will only be taxed when distributed to their respective controlling entities.
In addition, the universal basis taxation mechanism also allows the use, as a tax credit, of the tax that was proven to be paid by subsidiaries abroad limited to the tax due on the profit of the subsidiary in Brazil at the rate of 34%. In addition, the legislation also allows that, until 2024, the parent company in Brazil can apply a presumed tax credit at 9.0% on the profit earned by subsidiaries abroad that have industrial activity. Braskem applies this mechanism to its subsidiaries Braskem Europe GmbH, Braskem America Inc. and Braskem Idesa SAPI.
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Our export sales are currently exempt from (1) PIS – Contribution to the Social Integration Plan, (2) COFINS – Contribution for Social Security Financing, a federal value-added tax, (3) the Tax on Industrial Products (Imposto sobre Produtos Industrializados), or IPI, a federal excise tax on industrialized goods, and (4) ICMS, a state value-added tax on industrial products,sales and (4) ICMS.services.
Statement of Profit or Loss
The discussion of the results of our segments is based upon financial information reported for each of the segments of our business, as presented in the following tables, which set forth the results of each of our segments and the reconciliation of these results of our segments to our consolidated results of operations. This segment information was prepared on the same basis as the information that our Chief Operating Decision Maker uses to allocate resources among segments and evaluate their performance. We evaluate and manage the performance of our segments based on information generated from our accounting records maintained in accordance with IFRS as issued by IASB and reflected in our audited consolidated financial statements.
The discussion summarizing the significant factors affecting the results of operations for the year ended December 31, 2023, can be found in Part I, “Item 5. Operating and Financial Review and Prospects” of this annual report.
Year Ended December 31, 2020 | |||||||
Net revenue | Cost of products sold | Gross profit | Selling, general and distribution expenses | Results from equity investments | Other operating income (expense), net | Operating (loss) profit | |
(in millions of reais) | |||||||
Brazil | 40,794.4 | (32,498.0) | 8,296.4 | (1,471.7) | — | (7,082.6) | (257.9) |
USA and Europe | 14,638.7 | (12,337.5) | 2,301.2 | (721.2) | — | (82.7) | 1,497.3 |
Mexico | 4,000.8 | (3,075.0) | 925.8 | (436.9) | — | (364.3) | 124.7 |
Total segments | 59,433.9 | (47,910.5) | 11,523.4 | (2,629.8) | — | (7,529.6) | 1,364.1 |
Other segment(1) | 302.4 | (188.4) | 114.0 | 63.9 | (19.4) | (0.3) | 158.2 |
Corporate unit(2) | — | — | — | (1,493.5) | — | 359.1 | (1,134.4) |
Reclassifications and eliminations(3) |
(1,192.7) |
767.4 |
(425.3) |
(17.3) |
— |
(17.1) |
(459.7) |
Consolidated | 58,543.5 | (47,331.4) | 11,212.1 | (4,076.7) | (19.4) | (7,187.9) | (71.9) |
Year Ended December 31, 2023 | |||||||
Net revenue | Cost of products sold | Gross profit | Selling, general and distribution expenses | Results from equity investments | Other operating income (expense), net | Profit (loss) before net financial expenses and taxes | |
(in millions of reais) | |||||||
Brazil | 49,512 | (48,159) | 1,353 | (1,781) | — | (1,443) | (1,871) |
United States and Europe | 17,507 | (16,127) | 1,380 | (802) | — | 309 | 887 |
Mexico | 4,449 | (4,366) | 83 | (615) | — | 195 | (337) |
Total | 71,468 | (68,652) | 2,816 | (3,198) | — | (939) | (1,321) |
Other (1) | 782 | (501) | 281 | 137 | 7 | 8 | 433 |
Corporate unit | — | — | — | (2,033) | — | 458 | (1,575) |
Reclassifications and eliminations(2) | (1,681) | 1,605 | (76) | 240 | — | (493) | (329) |
Consolidated | 70,569 | (67,548) | 3,021 | (4,854) | 7 | (966) | (2,792) |
(1) | Represents income (expenses) of Braskem that are not allocated to any particular segment. |
(2) |
Eliminations consist primarily of inter-segment |
Year Ended December 31, 2019 | |||||||
Net revenue | Cost of products sold | Gross profit | Selling, general and distribution expenses | Results from equity investments | Other operating income (expense), net | Operating (loss) profit | |
(in millions of reais) | |||||||
Brazil | 39,142.6 | (35,245.9) | 3,896.6 | (1,852.9) | — | (4,151.9) | (2,108.2) |
USA and Europe | 10,044.3 | (8,217.5) | 1,826.7 | (525.7) | — | (23.9) | 1,277.2 |
Mexico | 3,051.4 | (2,504.0) | 547.4 | (351.2) | — | 324.7 | 520.9 |
Total segments | 52,238.3 | (45,967.5) | 6,270.8 | (2,729.8) | — | (3,851.1) | (310.1) |
Other segment(1) | 296.3 | (188.3) | 108.0 | 40.3 | 10.2 | 4.2 | 162.6 |
Corporate unit(2) | — | — | — | (1,533.6) | — | 1,773.3 | 239.7 |
Reclassifications and eliminations(3) |
(211.0) |
276.7 |
65.7 |
(39.3) |
— |
35.1 |
61.4 |
Consolidated | 52,323.5 | (45,879.1) | 6,444.4 | (4,262.4) | 10.2 | (2,038.5) | 153.7 |
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Year Ended December 31, 2022 | ||||||||
Net revenue | Cost of products sold | Gross profit | Selling, general and distribution expenses | Results from equity investments | Other operating income (expense), net | Profit (loss) before net financial expenses and taxes | ||
(in millions of reais) | ||||||||
Brazil | 69,080 | (63,196) | 5,884 | (1,853) | — | (1,889) | 2,142 | |
United States and Europe | 23,421 | (19,986) | 3,435 | (838) | — | 57 | 2,653 | |
Mexico | 5,834 | (5,070) | 764 | (452) | — | (33) | 280 | |
Total | 98,335 | (88,252) | 10,083 | (3,143) | — | (1,865) | 5,075 | |
Other(1) | 403 | (262) | 140 | 83 | 35 | 5 | 263 | |
Corporate unit | — | — | — | (2,197) | — | 19 | (2,177) | |
Reclassifications and eliminations(2) | (2,219) | 3,353 | 1,135 | (27) | — | 4 | 1,111 | |
Consolidated | 96,519 | (85,161) | 11,358 | (5,284) | 35 | (1,837) | 4,272 | |
(1) | Represents income (expenses) of Braskem that are not allocated to any particular segment. |
(2) |
Eliminations consist primarily of inter-segment |
Year Ended December 31, 2018 | |||||||
Net revenue | Cost of products sold | Gross profit | Selling, general and distribution expenses | Results from equity investments | Other operating income (expense), net | Operating (loss) profit | |
(in millions of reais) | |||||||
Brazil | 42,078.2 | (35,271.2) | 6,807.0 | (996.8) | — | (78.9) | 5,731.3 |
USA and Europe | 11,725.6 | (9,195.7) | 2,529.9 | (464.6) | — | 68.7 | 2,134.0 |
Mexico | 4,408.8 | (2,958.3) | 1,450.5 | (337.4) | — | 322.1 | 1,435.2 |
Total segments | 58,212.6 | (47,425.3) | 10,787.3 | (1,798.7) | — | 311.9 | 9,300.5 |
Other segment(1) | 292.4 | (173.6) | 118.8 | (33.7) | (0.9) | (0.1) | 84.1 |
Corporate unit(2) | — | — | 0.0 | (1,807.0) | — | 470.2 | (1,336.8) |
Reclassifications and eliminations(3) | (505.2) | 1,022.2 | 517.1 | 24.9 | — | (309.5) | 232.4 |
Consolidated | 57,999.9 | (46,576.7) | 11,423.2 | (3,614.6) | (0.9) | 472.5 | 8,280.2 |
In the following discussion, references to increases or declines in any period are made by comparison with the corresponding prior period, except as the context otherwise indicates.
Year Ended December 31, 20202023, Compared with Year Ended December 31, 20192022
The following table sets forth our audited consolidated financial information for the years ended December 31, 20202023, and 2019.2022.
Year Ended December 31, | ||||||||
2020 | 2019 | % Change | 2023 | 2022 | % Change | |||
(in millions of reais) | (in millions of reais) | |||||||
Net revenue | 58,543.5 | 52,323.5 | 11.9% | 70,569 | 96,519 | (27%) | ||
Cost of products sold | (47,331.4) | (45,879.1) | 3.2% | (67,548) | (85,161) | (21%) | ||
Gross profit | 11,212.1 | 6,444.4 | 74.0% | 3,021 | 11,358 | (73%) | ||
Income (expenses): | ||||||||
Selling and distribution | (1,852.1) | (1,783.5) | 3.8% | (1,916) | (2,108) | (9%) | ||
(Loss) reversals for impairment of accounts receivable |
(55.3) |
(7.1) |
n.m. | |||||
Loss for impairment of trade accounts receivable and others from clients | (83) | (38) | 115% | |||||
General and administrative | (1,917.9) | (2,224.2) | (13.7%) | (2,472) | (2,764) | (11%) | ||
Research and development | (250.6) | (247.7) | 1.2% | (383) | (374) | 2% | ||
Results from equity investments | (19.4) | 10.2 | n.m. | |||||
Results from equity-accounted investees | 7 | 35 | (80%) | |||||
Other income | 750.7 | 2,408.4 | (68.8%) | 1,769 | 507 | 249% | ||
Other expenses | (7,938.6) | (4,446.9) | 78.5% | (2,735) | (2,344) | 17% | ||
Operating profit (loss) | (71.9) | 153.7 | (146.8%) | |||||
(Loss) profit before financial results and taxes | (2,792) | 4,272 | (165%) | |||||
Financial results: | ||||||||
Financial expenses | (4,913.4) | (3,882.8) | 26.5% | (5,589) | (5,066) | 10% | ||
Financial income | 600.2 | 850.6 | (29.4%) | 1,678 | 1,374 | 22% | ||
Exchange rate variations, net | (5,298.7) | (1,724.5) | 207.3% | 511 | (533) | (196%) | ||
Financial expenses, net | (9,611.9) | (4,756.8) | 102.1% | |||||
(Loss) profit before income tax and social contribution |
(9,683.8) |
(4,603.1) |
110.4% | |||||
Current and deferred income tax and social contribution |
2,668.5 |
1,962.7 |
36.0% | |||||
(Loss) profit for the year from continuing operations | (7,015.3) | (2,640.4) | 165.7% | |||||
Financial results | (3,400) | (4,225) | (20%) | |||||
(Loss) profit before income tax | (6,192) | 47 | - | |||||
Income taxes | 1,302 | (868) | - | |||||
Net (loss) profit for the year | (4,890) | (821) | 496% |
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Table of Contents | ||
n.m.: Not meaningful.
Net revenue
Net revenue increaseddecreased by 11.9%R$25,950 million, or R$6,220.0 million,27%, to R$58,543.570,569 million in 2020,2023, from to R$52,323.596,519 million in 2019, primarily as2022, attributable mainly to: (i) a result of: (1) adecrease of R$1,651.819,568 million or 4.2%, increase in net revenue from our Brazil Segment, (2)segment; (ii) a decrease of R$4,594.45,914 million or 45.7%, increase in net revenue from our USA and Europe Segment,segment; and (3)(iii) a decrease of R$949.41,385 million or 31.1%, increase in net revenue from our Mexico Segment.segment.
In 2020 and 2019, we did not have any revenue arising from transactions with any single client that was equal to or greater than 10% of our total net revenue. In 2020, the most significant revenue from a single client accounted for 2.2% of our total net revenue.
Net Revenue of Brazil Segment
Net revenue of our Brazil Segment increasedsegment decreased by R$1,651.819,568 million, or 4.2%28%, to R$40,794.449,512 million in 2020, from2023, compared to R$39,142.669,080 million in 2019. Although2022, primarily as a result of: (i) lower PE, PP, and PVC prices in the international market, which resulted in a negative impact of R$7,923 million; (ii) lower main chemicals prices in the international market, which resulted in a negative impact of R$4,370 million; and (iii) lower Brazilian sales volume of resins and main chemicals, salesand lower export volume decreased, as well as their international references (in US$/ton), net revenue of our Brazil Segment increasedresins, which resulted in 2020 compared to 2019, primarily as a result of thenegative impact of R$4,392 million, which were partially offset by higher exports volume of main chemicals due to better commercial opportunities in the depreciation of the Brazilian real against the U.S. dollar between periods.international market.
The table below sets forth information regarding the weighted average international prices of main chemicals and resins that are generally used as a reference for our Brazil Segment for the periods indicated:
International References(1) | Year Ended December 31, | ||
2023 | 2022 | % Change | |
(in US$/ton) | |||
Main Chemicals(2) | 1,041 | 1,262 | (18%) |
Resins(3) | 930 | 1,201 | (23%) |
Source: External consulting (spot price). |
(2) | Average prices weighted based on Braskem’s capacity production: ethylene (20%), butadiene (10%), propylene (10%), cumene (5%), benzene (20%), paraxylene (5%), gasoline (25%) and toluene (5%). |
International References1 | Year Ended December 31, | ||
2020 | 2019 | % Change | |
(in US$/ton) | |||
Main Chemicals(2) | 617.4 | 827.9 | (25.4)% |
Resins(3) | 880.4 | 917.3 | (4.0)% |
(1) Source: External consulting firm (spot price).
(2) Average prices weighted based on Braskem’s capacity production: ethylene (20%), butadiene (10%), propylene (10%), cumene (5%), benzene (20%), paraxylene (5%), gasoline (25%) and toluene (5%).
(3) PE US (54%), PP Asia (33%) and PVC Asia (13%).
(3) | PE US (54%), PP Asia (33%) and PVC Asia (13%). |
Net Revenue of USA and Europe Segment
Net revenue of our USA and Europe Segment, which includes our polypropylene assetssegment decreased by R$5,914 million, or 25%, to R$17,507 million during 2023, from R$23,421 million during 2022, mainly as a result of the 33% reduction in the average international reference price for PP in the United States and Europe, increasedwhich were partially offset by 45.7%,higher sales volume and sales mix optimization resulted in a negative impact of R$7,626million.
The table below sets forth information regarding the weighted average international price of PP, which is generally used as a reference for our USA and Europe segment for the periods indicated:
International References(1) | Year Ended December 31, | ||
2023 | 2022 | % Change | |
(in US$/ton) | |||
PP USA and Europe(2) | 1,401 | 2,084 | (33%) |
(1) | Source: External consulting (spot price). |
(2) | Average prices weighted based on Braskem’s capacity production: PP USA (72%) and PP Europe (28%). |
Net Revenue of Mexico Segment
Net revenue of our Mexico segment decreased by R$1,385 million, or R$4,594.4 million,24%, to R$14,638.74,449 million during in 2023, from R$5,834 million in 2020,2022, as a result of a decrease of 26% in the international reference price for PE in the period, resulting in a negative impact of R$735 million, which was partially offset by an increase in polyethylene sales volume of 5%, resulting in a positive impact of R$260 million.
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International References(1) | Year Ended December 31, | ||
2023 | 2022 | % Change | |
(in US$/ton) | |||
PE US | 944 | 1,284 | (26%) |
(1) | Source: External consulting (spot price). |
Cost of Products Sold and Gross Profit
Cost of products sold decreased by R$17,613 million, or 21%, to R$67,548 million in 2023, from R$10,044.385,161 million in 2019,2022, primarily as a result of: (i) higher sales volumea decrease of PP by our United States and Europe Segment; and (ii)R$15,037 in the impact of the depreciation of the Brazilian real against the U.S. dollar between periods.
International References1 | Year Ended December 31, | ||
2020 | 2019 | % Change | |
(in US$/ton) | |||
PP US and Europe2 | 1,324.4 | 1,449.3 | (8.6)% |
(1) Source: External consulting (spot price).
(2) Average prices weighted based on Braskem’s capacity production: PP USA (72%) and PP Europe (28%).
Net Revenue of Mexico Segment
Net revenue of the Mexico Segment increased by 31.1%, or R$949.4 million, to R$4,000.8 million in 2020, from R$3,051.4 million in 2019, primarily as a result of: (i) higher sales volumes of PE by our Mexico Segment; (ii) higher PE prices in North America due to strong demand, particularly for packaging applications; and (iii) the impact of the depreciation of the Brazilian real against the U.S. dollar between periods.
International References1 | Year Ended December 31, | ||
2020 | 2019 | % Change | |
(in US$/ton) | |||
PE US | 870.2 | 868.2 | 0.2% |
(1) Source: External consulting (spot price).
Cost of Products Sold and Gross Profit
Costcost of products sold increased by 3.2%, orin our Brazil segment; (ii) a decrease of R$1,452.3 million, to R$47,331.4 million3,859 in 2020, from R$45,879.1 million in 2019, primarily as a result of: (i) higher sales volume of PP by our United States and Europe Segment; (ii) higher sales volume of PE by our Mexico Segment; and (iii) the impact of the depreciation of the Brazilian real against the U.S. dollar between periods.
Consolidated gross profit increased by 74.0%, or R$4,767.7 million, to R$11,212.1 million in 2020, from R$6,444.4 million in 2019, primarily as a result of: (i) the higher international price spreads for resins in Brazil, PP in Europe and PE in North America, mainly impacted by lower international prices of feedstocks; and (ii) the impact of the depreciation of the Brazilian real against the U.S. dollar between periods. Gross margin (gross profit as a percentage of net revenue) increased to 19.2% during 2020, from 12.3% during 2019.
Cost of Products Sold of the Brazil Segment
Costcost of products sold of the Brazil Segment decreased by 7.8%, or R$2,747.9 million, to R$32,498.0 million in 2020, from R$35,245.9 million in 2019, primarily as a result of the lower international prices of key feedstocks in the international market. That drop in prices was influenced by the decline in oil and natural gas prices in the international market due to lower demand for fuels, which was partially offset by the impact of the depreciation of the Brazilian real against the U.S. dollar in the period.
International References1 | Year Ended December 31, | ||
2020 | 2019 | % Change | |
(in US$/ton) | |||
Naphtha ARA | 355.0 | 505.3 | (29.7)% |
Ethane U.S. | 140.7 | 160.5 | (12.3)% |
Propane U.S. | 241.5 | 278.9 | (13.4)% |
EDC U.S. | 241.2 | 285.4 | (15.5)% |
(1) Source: External consulting (spot price).
Gross profit of the Brazil Segment increased by 112.9%, or R$4,399.8 million, to R$8,296.4 million in 2020, from R$3,896.6 million during 2019, primarily as a result of: (i) the higher international price spreads for resins in Brazil; and (ii) the impact of the depreciation of the Brazilian real against the U.S. dollar between periods. Gross margin (gross profit as a percentage of net revenue) increased to 20.3% during 2020, from 10.0% during 2019.
Cost of Products Sold ofour USA and Europe Segment
Cost of products sold of the USA and Europe Segment increased by 50.1%, or R$4,120.0 million, to R$12,337.5 million in 2020, from R$8,217.5 million in 2019, which was the result of: (1) higher sales volume by our Europe and United States Segment, due to better industrial performance resulting in a higher availability of polypropylene for sale during the year; and (2) the impact of the Brazilian real depreciation against the U.S. dollar between periods.
International References1 | Year Ended December 31, | ||
2020 | 2019 | % Change | |
(in US$/ton) | |||
Propylene US and Europe2 | 760.4 | 877.7 | (13.4)% |
(1) Source: External consulting (spot price).
(2) Average prices weighted based on Braskem’s capacity production: Propylene USA (72%) and Propylene Europe (28%).
Gross profit of the USA and Europe Segment increased by 26.0%, or R$474.4, to R$2,301.2 million during 2020, from R$1,826.7 million during 2019, primarily as a result of: (i) the higher international price spreads for PP in Europe; (ii) higher sales volume of PP by our United States and Europe Segment; and (iii) a R$704 decrease in the Brazilian real depreciation against the U.S. dollar between periods.cost of products sold in our Mexico segment.
Consolidated gross profit decreased by R$8,337 million, or 73%, to R$3,021 million in 2023, from R$11,358 million in 2022. Gross margin (gross profit as a percentage of net revenue) decreased to 15.7% during 2020,4% in 2023, from 18.2% during 2019.12% in 2022.
Cost of Products Sold by Mexicoof the Brazil Segment
Cost of products sold of our Brazil segment decreased by the Mexico Segment increased by 22.8%,R$15,037 million, or R$571.0 million,24%, to R$3,075.048,159 million in 2020,2023, from R$2,504.063,196 million in 2019,2022, primarily as a result of: (i) highera 16% decrease in the average Amsterdam-Rotterdam-Antwerp (ARA) naphtha price; (ii) a 49% decrease in the average Mont Belvieu reference price of ethane; (iii) 36% a decrease in the average Mont Belvieu reference price of propane; (iv) a lower Brazilian sales volumesvolume of PE by our Mexico Segment;resins and (ii) the impactmain chemicals, and lower export volume of the depreciation of the Brazilian real against the U.S. dollar between periods.resins.
International References1 | Year Ended December 31, | ||
2020 | 2019 | % Change | |
(in US$/ton) | |||
Ethane U.S. | 140.7 | 160.5 | (12.3)% |
(1) Source: External consulting (spot price).
International References(1) | Year Ended December 31, | ||
2023 | 2022 | % Change | |
(in US$/ton) | |||
Naphtha ARA | 643.4 | 769.7 | (16.4%) |
Ethane U.S. | 182.3 | 356.2 | (48.8%) |
Propane U.S. | 370.3 | 575.8 | (35.7%) |
(1) | Source: External consulting (spot price). |
Gross profit of the Mexico Segment increasedour Brazil segment decreased by 69.1%,R$4,531 million, or R$378.4,77%, to R$925.81,353 million during 2020,in 2023, from R$547.45,884 million during 2019,in 2022, primarily as a result of: (i) a decrease in resin spread of 28%, to US$319 per ton during the higher international price spreadsyear ended December 31, 2023, from US$442 per ton during the period of PE2022; and (ii) a decrease in North America; (ii) higher sales volumemain chemicals spread of PE by our Mexico Segment; and (iii)19%, to US$398 per ton during the impactyear ended December 31, 2023, from US$493 per ton during the period of the depreciation of the Brazilian real against the U.S. dollar between periods. 2022.
Gross margin (gross profit as a percentage of net revenue) increased to 23.1% during 2020, from 17.9% during 2019.
Selling and Distribution Expenses
Selling and distribution expenses increased by 3.8%, or R$68.6 million, to R$1,852.1 million in 2020, from R$1,783.5 million in 2019, primarily as a result of: (1) higher sales volumes of PP by our USA and Europe Segment; (2) higher sales volumes by our Mexico Segment; and (3) the impact of the depreciation of the Brazilian real against the U.S. dollar between periods.
(Loss) reversals for impairment of accounts receivable
(Loss) reversals for impairment of accounts receivable increased to an expense of R$55.3 million in 2020, from an expense of R$7.1 million in 2019. For more information related to our loss for impairment of accounts receivable, see note 7(i) to our audited consolidated financial statements included elsewhere in this annual report.
General and Administrative Expenses
General and administrative expenses decreased by 13.7% or R$305.4 million, to R$1,918.7 million in 2020, from R$2,224.2 million in 2019, primarily as a result of lower expenses with: (1) consulting and legal fees to support the external monitorship related to our Global Settlement, which was concluded on March, 11, 2020, as announced; and (2) third party services related to the geological event in Alagoas.
Research and Development Expenses
Research and development expenses increased by 1.2%, or R$2.9 million, to R$250.6 million in 2020, from R$247.7 million in 2019, research and development expenses as a percentage of net revenue were 0.4% during 2020, as compared to 0.5% during 2019.
Results from Equity Investments
Results from equity investments decreased to a loss of R$19.4 million in 2020, from a profit of R$10.2 million in 2019, as a result of a decrease in the results of jointly-controlled investments, primarily Refinaria de Petróleo Rio-Grandense S.A., or RPR, and Borealis Brasil S.A., or Borealis. For more information related to our results of equity investments, see note 11(c) to our audited consolidated financial statements included elsewhere in this annual report.
Other Income
Other income decreased by 68.8%, or R$1,657.7 million, to R$750.7 million in 2020, from R$2,408.4 million in 2019 due to lower tax credits related to the Federal Supreme Court (STF) decision that ICMS tax should not be included in the calculation base of PIS/COFINS. The effects of the new amount recognized in 2020 was R$438.0 million, of which R$310.6 million was recorded under “Other operating income (expenses) and R$127.5 million under “Financial income,” compared to R$2,048.8 million in 2019, of which R$1.904.2 million was recorded under “Other operating income (expenses)” and R$207.5 million under “Financial income.” For more information related to the PIS/COFINS exclusion from the ICMS tax basis calculation, see note 10(c) to our audited consolidated financial statements included elsewhere in this annual report.
Other Expenses
Other expenses increased by R$3,491.7 million, to R$7,938.6 million in 2020, from R$4,446.9 million in 2019, primarily as a result of provisions related to the geological event in Alagoas totaling R$6,901.8 million in 2020 (R$3,383.1 million in 2019). For more information related to the provision related to the geological event in Alagoas, see note 20 to our audited consolidated financial statements included elsewhere in this annual report.
Operating Profit (Loss)
As a result of the foregoing:
Financial Results
Financial expenses, net increased by 102.1%, or R$4,855.1 million, to R$9,611.9 million in 2020, from R$4,756.8 million in 2019.
Financial Expenses
Financial expenses increased by 26.5%, or R$1,030.6 million, to R$4,913.4 million in 2020, from R$3,882.8 million in 2019 due to: (i) the increase in borrowings to R$53,791.4 million in 2020, from R$38,998.7 million in 2019, mainly impacted by the depreciation of the Brazilian real against the U.S. dollar between periods, resulting in higher interest expense; and (ii) the impact of derivatives related to feedstocks operation.
Financial Income
Financial income decreased by 29.4%, or R$473.5 million, to R$600.2 million in 2020, from R$850.6 million in 2019, primarily as a result of the lower recognition of income related to PIS and COFINS claims originated in previous years ruled favorably by tax courts.
Exchange variations, net
Net exchange variations increased by 207.3%, or R$3,574.2 million, to a loss of R$5,298.7 million in 2020 from loss of R$1,724.5 million in 2019, explained by: (i) the higher expenses on the transition of the export hedge accounting that was initially recognized in the net equity; and (ii) the effect of the depreciation of the Brazilian real against the U.S. dollars in the period on the net exposure of the financial result not designated for hedge accounting.
Current and deferred
Income Tax and Social Contribution
Our income tax and social contribution was a benefit of R$2,668.5 million during 2020, as compared to a benefit of R$1,962.7 million during 2019. The effective tax rate applicable to our profit before income tax and social contribution was a negative rate of 27.6% in 2020, as compared to an effective tax rate applicable to our profit before income tax and social contribution that was a negative rate of 42.6% in 2019.
(Loss) profit for the year
As a result of the foregoing, we recorded a loss of R$7,015.3 million during 2020, as compared to a loss of R$2,640.4 million during 2019.
Year Ended December 31, 2019 Compared with Year Ended December 31, 2018
The following table sets forth our audited consolidated financial information for the years ended December 31, 2019 and 2018.
Year Ended December 31, | |||
2019 | 2018 | % Change | |
(in millions of reais) | |||
Net revenue | 52,323.5 | 57,999.9 | (9.8)% |
Cost of products sold | (45,879.1) | (46,576.7) | (1.5)% |
Gross profit | 6,444.4 | 11,423.2 | (43.6)% |
Income (expenses): | |||
Selling and distribution | (1,783.5) | (1,689.2) | 5.6% |
(Loss) reversals for impairment of accounts receivable | (7.1) | 87.0 | n.m. |
General and administrative | (2,224.2) | (1,793.2) | 24.0% |
Research and development | (247.7) | (219.3) | 13.0% |
Results from equity investments | 10.2 | (0.9) | n.m. |
Other income | 2,408.4 | 1,027.2 | 134.5% |
Other expenses | (4,446.9) | (554.7) | 701.7% |
Operating profit (loss) | 153.6 | 8,280.2 | (98.1)% |
Financial results: | |||
Financial expenses | (3,882.8) | (3,007.6) | 29.1% |
Financial income | 850.6 | 589.1 | 44.4% |
Exchange rate variations, net | (1,724.5) | (2,257.0) | (23.6)% |
Financial expenses, net | (4,756.8) | (4,675.5) | 1.7% |
(Loss) profit before income tax and social contribution | (4,603.1) | 3,604.7 | n.m. |
Current and deferred income tax and social contribution | 1,962.7 | (736.6) | n.m. |
(Loss) profit for the year from continuing operations | (2,640.4) | 2,868.2 | n.m. |
n.m.: Not meaningful
Net revenue
Net revenue decreased by 9.8%, or R$5,676.4 million, to R$52,323.5 million in 2019, from R$57,999.9 million in 2018, primarily as a result of (1) a R$2,935.6 million, or 7.0%, decrease in net revenue of our Brazil Segment,segment decreased to R$39,142.6 million3% in 2019,2023, from R$42,078.2 million9% in 2018; (2) a R$1,681.4 million, or 14.3%, decrease in net revenue2022.
Cost of our USA and Europe Segment, to R$10,044.3 million in 2019, from R$11,725.6 million in 2018; and (3) a R$1,357.4 million, or 30.8%, decrease in net revenue of our Mexico Segment, to R$3,051.4 million in 2019, from R$4,408.8 million in 2018. Reclassifications and eliminations of net revenue of our segments in consolidation, decreased by 58.2%, or R$294.2 million, to R$211.0 million in 2019, from R$505.2 million in 2018.
In 2019 and 2018, we did not have any revenue arising from transactions with any single client that was equal to or greater than 10% of our total net revenue. In 2019, the most significant revenue from a single client accounted for 6.5% of our total net revenue.
Net Revenue of Brazil Segment
Net revenue of our Brazil Segment decreased by R$2,935.6 million, or 7.0%, to R$39,142.6 million in 2019, from R$42,078.2 million in 2018.
The table below sets forth information regarding the weighted average international prices of main chemicals and resins that are generally used as a reference for our Brazil Segment for the periods indicated:
International References1 | Year Ended December 31, | ||
2019 | 2018 | % Change | |
(in US$/ton) | |||
Main Chemicals(2) | 827.9 | 1,014.9 | (18.4)% |
Resins(3) | 880.4 | 1,159.6 | (20.9)% |
(1) Source: External consulting firm (spot price).
(2) Average prices weighted based on Braskem’s capacity production: ethylene (20%), butadiene (10%), propylene (10%), cumene (5%), benzene (20%), paraxylene (5%), gasoline (25%) and toluene (5%).
(3) PE US (54%), PP Asia (33%) and PVC Asia (13%).
Net RevenueProducts Sold of USA and Europe Segment
Net revenueCost of products sold of our USA and Europe Segment decreased by 14.3%,R$3,859 million, or R$1,681.4 million,19%, to R$10,044.316,127 million in 2019,2023, from R$11,725.619,986 million in 2018, primarily as a result of lower availability of polypropylene for sale in Europe caused by lower utilization of the plants due to operational problems affecting the propylene supplier and the consequent shortage of feedstock at one of our plants.
International References1 | Year Ended December 31, | ||
2019 | 2018 | % Change | |
(in US$/ton) | |||
PP US and Europe2 | 1,449.3 | 1,763.1 | (17.8)% |
(1) Source: External consulting (spot price).
(2) Average prices weighted based on Braskem’s capacity production: PP USA (72%) and PP Europe (28%).
Net Revenue of Mexico Segment
Net revenue of the Mexico Segment decreased by 30.8%, or R$1,357.4 million, to R$3,051.4 million in 2019, from R$4,408.8 million in 2018, due to lower polyethylene prices in the international market, which was the result of the decline in global demand associated with the startup of new shale-gas-based integrated polyethylene capacity in the United States.
International References1 | Year Ended December 31, | ||
2019 | 2018 | % Change | |
(in US$/ton) | |||
PE US | 868.2 | 1,220.8 | (28.9)% |
(1) Source: External consulting (spot price).
Cost of Products Sold and Gross Profit
Cost of products sold decreased by 1.5%, or R$697.5 million, to R$45,879.1 million in 2019, from R$46,576.7 million in 2018,2022, primarily as a result of a 10.6%16% decrease in the costaverage international price reference of products sold bypropylene in the United States and Europe.
International References(1) | Year Ended December 31, | ||
2023 | 2022 | % Change | |
(in US$/ton) | |||
Propylene USA and Europe(2) | 1,016 | 1,216 | (16%) |
(1) | Source: External consulting (spot price). |
(2) | Average prices weighted based on Braskem’s capacity production: Propylene USA (72%) and Propylene Europe (28%). |
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Gross profit of our USA and Europe Segment. Reclassifications and eliminations of cost of products sold by our units calculated as part of our consolidation,Segment decreased by 72.9% in 2019.
Consolidated gross profit decreased by 43.6%,R$2,055 million, or R$4,978.8 million,60% to R$6,444.41,380 million in 2019,2023, from R$11,423.23,435 million in 2018.2022, mainly due to a decrease of 56% in the international references of PP spreads for the USA and Europe Segment. Gross margin (gross profit as a percentage of net revenue) of our USA and Europe Segment decreased to 12.3% during 2019,8% in 2023, from 19.7% during 2018.15% in 2022.
Cost of Products Sold of Brazilby Mexico Segment
Cost of products sold of our Brazil SegmentMexico segment decreased by 0.1%,R$704 million, or R$25.3 million,14%, to R$35,245.94,366 million in 2019,2023, from R$35,271.25,070 million in 2018,2022, primarily as a result of a decreasethe reductions of 61% and 49% in the average ethane and natural gas prices in the international prices of the raw materials used by the Brazil Segment.market.
International References1 | Year Ended December 31, | ||
2019 | 2018 | % Change | |
(in US$/ton) | |||
Naphtha ARA | 505.3 | 601.7 | (16.0)% |
Ethane U.S. | 160.5 | 243.4 | (34.1)% |
Propane U.S. | 278.9 | 548.1 | (39.1)% |
EDC U.S. | 285.4 | 238.4 | 19.7% |
(1) Source: External consulting (spot price).
International References1 | Year Ended December 31, | ||
2023 | 2022 | % Change | |
(in US$/ton) | |||
Ethane U.S. | 182.3 | 356.2 | (48.8%) |
Source: External consulting (spot price). |
Gross profit of the Brazil Segmentour Mexico segment decreased by 42.8%,R$681 million, or R$2,910.4 million, to R$3,896.6 million in 2019, from R$6,807.0 million during 2018, and gross margin (gross profit as a percentage of net revenue) decreased to 10.0% during 2019, from 16.2% during 2018.
Cost of Products Sold of USA and Europe Segment
Cost of products sold of the USA and Europe Segment decreased by 10.6%, or R$918.8 million, to R$8,217.5 million in 2019, from R$9,195.7 million in 2018, which was the result of: (1) the increased availability of propylene in the United States due to the high utilization rates of PDH plants and the higher use of natural gas liquids in crackers, and (2) the normalization of logistics constraints on propylene in Europe, which affected the region in the previous year due to low river levels.
International References1 | Year Ended December 31, | ||
2019 | 2018 | % Change | |
(in US$/ton) | |||
PP US and Europe2 | 877.7 | 1,183.1 | (25.8)% |
(1) Source: External consulting (spot price).
(2) Average prices weighted based on Braskem’s capacity production: PP USA (72%) and PP Europe (28%).
Gross profit of the USA and Europe Segment decreased by 27.8%89%, to R$1,826.783 million during 2019,in 2023, from R$2,529.9764 million during 2018, and gross margin (gross profitin 2022, as a percentageresult of net revenue) decreased to 18.2% during 2019, from 21.6% during 2018.
Cost of Products Sold by Mexico Segment
Cost of products sold by the Mexico Segment decreased by 15.4%, or R$170.2 million, to R$2,504.0a 14% decrease in 2019, from R$2,958.3 million in 2018, due to the drop in U.S.international ethane average prices due to higher supply associated with the startup of new gas fractionators and pipelines for transportation and with the delays in the startup of new petrochemical complexes in the United States.
International References1 | Year Ended December 31, | ||
2019 | 2018 | % Change | |
(in US$/ton) | |||
Ethane U.S. | 160.5 | 243.4 | (34.1)% |
(1) Source: External consulting (spot price).
During 2019, the Mexico Segment recorded a gross profit of R$547.4 million and grossperiod. Gross margin (gross profit as a percentage of net revenue) of 17.9%. During 2018,our Mexico segment decreased to 2% in 2023, compared to 13% in 2022, as a result of the Mexico Segment recorded a gross profit of R$1,450.5 million and gross margin of 32.9%.aforementioned factors.
Selling and Distribution Expenses
Selling and distribution expenses increaseddecreased by 5.6%,R$192 million, or R$94.3 million,9%, to R$1,783.51,916 million in 2019,2023, from R$1,689.22,108 million in 2018,2022, primarily due to a decrease in third parties services, storage, and logistics expenses as a result of: (1) higher exportsof lower sales of resins and main chemicals ofvolume in our Brazil Segment, (2) higher sales volumessegment and the implementation of our USAvariable cost reduction initiatives. Selling and Europe Segment,distribution expenses as a percentage of net revenue were 3% during the year ended December 31, 2023, compared to 2% in 2022.
Loss for Impairment of Trade Accounts Receivable and (3) higher exports salesOthers from our Mexico Segment.Clients
(Loss) reversalsLoss for impairment of accounts receivable
(Loss) reversals for impairment oftrade accounts receivable decreasedand others from clients increased by R$45 million, or 118%, to a lossan impairment expense of R$7.183 million in 2019,2023, from a reversalan impairment expense of R$87.038 million in 2018. For more information related2022, mainly due to our (loss) reversals for impairment of accounts receivable, see note 7(i)customer defaults in Brazil due to our audited consolidated financial statements included elsewhere in this annual report.economic and sector challenges.
General and Administrative Expenses
General and administrative expenses increaseddecreased by 24.0%,R$292 million, or R$431.0 million,11%, to R$2,224.22,472 million in 2019,2023, from R$1,793.22,764 million in 2018,2022, primarily as a result of higherlower expenses with: (1)resulting from advertising and publicity, consulting services, legal expenses and legal fees to support the external monitorship related to our Global Settlement with certain authorities; (2) auditing firms; and (3) the cooperation with relevant authorities and the local community in relation to the geological event in certain neighborhoodstravels as a result of the cityimplementation of Maceió,expenses reduction initiatives. General and administrative expenses as a percentage of net revenue were 3.5% during the year ended December 31, 2023, compared to 3% in the state of Alagoas, Brazil, that are located adjacent to and above the area where our salt mining activities were located.
2022.
Research and Development Expenses
Research and development expenses increased by 13.0%,R$9 million, or R$28.5 million,2%, to R$247.7 in 2019, from R$219.3383 million in 2018.2023, from R$374 million during the period of 2022, mainly due to higher expenses with employees’ compensation and benefits, registration and maintenance of brands and patents, facilities rental and laboratory materials. Research and development expenses as a percentage of net revenue were 0.5% during 2019, asthe year ended December 31, 2023, compared to 0.4% during 2018.in 2022.
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Results from Equity InvestmentsEquity-Accounted Investees
Results from equity investments decreased by R$28 million, or 80%, to a profit of R$7 million in 2023, from a profit of R$35 million in 2022, due to lower gains from our investees Refinaria de Petróleo Riograndense (RPR) and higher loss from our investee Sustainea Bioglycols, which were partially offset by higher gains from our investee Borealis Brasil S.A.
Other Income
Other income increased by R$1,262 million, or 249%, to R$1,769 million in 2023, from R$507 million in 2022, mainly due to: (i) the settlement of claim agreement signed with insurance companies; and (ii) the recognition of PIS and COFINS tax credits on inputs considered essential and relevant. Other income as a percentage of net revenue was 3% during the year ended December 31, 2023, compared to 1% in 2022.
Other Expenses
Other expenses increased by R$391 million, or 17%, to R$2,735 million in 2023, from R$2,344 million in 2022, primarily due to: the accounting provisions related to the geological event in Alagoas relating to the Global Agreement with the Municipality of Maceió, the progress of action fronts and the additional provisions throughout the year. Other expenses as a percentage of net revenue were 4% during the year ended December 31, 2023, compared to 2% in 2022.
Profit (Loss) Before Net Financial Expenses and Taxes
As a result of the foregoing, profit (loss) before net financial expenses and taxes on a consolidated basis decreased by R$7,064 million, to a loss of R$2,792 million in 2023, from a profit of R$4,272 million 2022. Operating margin, defined as a percentage of profit (loss) before net financial expenses and taxes divided by net revenue decreased to (4%) in 2023, from 4% in 2022, mainly due to (i) lower international spreads for PE, PP and PVC in Brazil, PP in the United States and Europe, and PE in Mexico; and (ii) higher provisions related to the geological event of Alagoas.
Financial Results
Financial Expenses
Financial expenses increased by R$523 million, or 10%, to R$5,589 million in 2023, from R$5,066 million in 2022, primarily due to higher interest expenses due to the increase of gross debt balance in the period.
Financial Income
Financial income increased by R$304 million, or 22%, to R$1,678 million in 2023, from R$1,374 million in 2022, mainly explained by higher income from interest on financial investments in the Brazilian and international markets due to (i) the increase in the financial investments balance in the period; (ii) the increase in interest rates in Brazil and the international market.
Derivatives and Exchange Rate Variations, Net
Derivatives and exchange rate variations, net increased by R$1,044 million, or 196%, to an income of R$10.2511 million in 2019,2023, from an expense of R$533 million in 2022, primarily as a result of the effects of (i) the appreciation of the real at the end of the period against the U.S. dollar over the average net exposure to the U.S. dollar of the financial result not designated to hedge accounting in the amount of US$4 billion for the twelve-month period ended December 31, 2023; and (ii) the appreciation of the Mexican peso at the end of the period against the U.S. dollar over the average net exposure to the U.S. dollar of the Braskem Idesa financial result not designated to hedge accounting in the amount of US$2 billion for the twelve-month period ended December 31, 2023.
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(Loss) Net Profit For the Year
As a result of the above, we recorded a loss of R$0.94,890 million, or 7% of net revenue, in 2023, compared to a loss of R$821 million, or 1% of net revenue, in 2022, mainly due to (i) lower petrochemical spreads in the international market in all of our segments in the period; and (ii) higher provisions related to the geological event in Alagoas.
Income Tax
Income tax represented a benefit of R$1,302 million compared to an expense of R$868 million in 2018,2023, primarily as a result of an increasea decrease in the resultsprofit before income tax, which was mainly impacted by lower petrochemical spreads in all of jointly-controlled investments, primarily Refinaria de Petróleo Rio-Grandense S.A., or RPR, and Borealis Brasil S.A., or Borealis. our segments in the period.
For more information, related to our results of equity investments, see note 11(c)21 to our audited consolidated financial statements included elsewhere in this annual report.
Other Income
Other income increased by 134.5%, or R$1,381.2 million, to R$2,408.4 million in 2019 from R$1,027.2 million in 2018, which was the result of an increase of R$1,667.8 million in the provision related to the Federal Supreme Court (STF) decision that ICMS tax should not be included in the calculation base of PIS/COFINS. For more information related to the PIS/COFINS exclusion from the ICMS tax basis calculation, see note 10(c) to our audited consolidated financial statements included elsewhere in this annual report.
Other Expenses
Other expenses increased by R$3,892.2 million, to R$4,446.9 million in 2019 from R$554.7 million in 2018, due to: (1) provisions related to the Financial Compensation and Support for Relocation Program, Business Recovery and Promotion of Educational Activities Program and the actions required to close certain of our salt wells totaling R$3,383.1 million; (2) the provision related to the leniency agreement with the Office of the Federal Controller General (CGU) and the Office of the Attorney General (AGU) (the “CGU/AGU Agreement”) in the amount of R$409.9 million; (3) the provision to permanently close our chlor-alkali production facility located in Camaçari, in the State of Bahia, Brazil, in the amount of R$172.9 million; and (4) an increase of R$52.1 million, or 58.3%, in the provision for remediation of environmental damage.
Operating Profit (Loss)
As a result of the foregoing:
Financial Results
Financial expenses, net increased by 1.7%, or R$81.3 million, to R$4,756.8 million in 2019, from R$4,675.5 million in 2018.
Financial Expenses
Financial expenses increased by 29.1%, or R$875.2 million, to R$3,882.8 million in 2019, from R$3,007.6 million in 2018 due to: (1) the interest linked to the adoption of the new IFRS 16 standard as from January 1, 2019; (2) the adjustment to present value of the leniency agreement as a result of a change in the index of monetary correction applicable to the installments payable to the Federal Public Ministry, from IPCA to Selic, in the amount of R$117.9 million; and (3) the payment of costs related to the full redemption of notes maturing in 2020 and 2021 and the partial redemption of notes maturing in 2022 and 2023.
Financial Income
Financial income increased by 44.4%, or R$261.5 million, to R$850.6 million in 2019, from R$589.1 million in 2018, mainly due to the recognition of revenue related to PIS and COFINS claims originated in previous years ruled favorably by tax courts.
Exchange variations, net
Net exchange variations decreased by 23.6%, or R$532.5 million, to R$1,724.5 million in 2019, from R$2,257.0 million in 2018, explained by the effect of a lower depreciation of the Brazilian real against the U.S. dollars in the period on the net exposure of the financial result not designated for hedge accounting, and by the expense with the transition to hedge accounting of exports of Braskem and Braskem Idesa, which were previously recorded under shareholders’ equity, in the amount of R$1,652.3 million during 2019, compared to R$1,259.4 million during 2018.
Current and deferred
Income Tax and Social Contribution
Our income tax and social contribution was a benefit of R$1,962.7 million during 2019, as compared to an expense of R$736.6 million during 2018. The effective tax rate applicable to our profit before income tax and social contribution was a negative rate of 42.6% in 2019, as compared to an effective tax rate applicable to our profit before income tax and social contribution of 20.4% in 2018.
(Loss) profit for the year
As a result of the foregoing, we recorded a loss of R$2,640.4 million during 2019, compared to a profit of R$2,868.2 million, or 4.9% of net revenue, during 2018.
Liquidity and Capital Resources
Our principal cash requirements for 20202023 consisted of the following:
· | servicing our indebtedness; |
· |
capital expenditures related to investments in operations, |
· |
Our principal sources of liquidity have traditionally consisted of the following:
· | cash flows from operating activities; |
· |
· | issuance of debt in international capital markets; and |
· | credit facilities with banks; |
· | sales of |
During 2020, cash flow provided by operating activities was used primarily for investing activities, working capital requirements, to service our outstanding debt obligations and tax payments. Considering that the Company had net loss in the fiscal year ended December 31, 2020 and pursuant to article 201 of the Brazilian Corporations Law, no dividends or other results will be distributed to the shareholders.
As of December 31, 2020,2023, our consolidated cash and cash equivalents and financial investments amounted to R$13,862.9 million, including the aggregate amount of R$904.4 million of Braskem Idesa’s cash and cash equivalents.
As of December 31, 2020, we had positive net working capital (defined as (1) current assets minus (2) current liabilities) of R$5,803.1 million, including total assets in the amount of R$2,158.719,161 million and total liabilities in the amount ofincluded R$8,385.91,562 million ofheld by Braskem Idesa.Idesa, which was restricted to its exclusive use.
Projected Sources and Uses of Cash
Considering our short-termcurrent financial contractual obligations and commitments as of December 31, 20202023, and budgeted capital expenditures for 2021,2024, we anticipateexpected that we will be required to spend R$19,157.322,623 million (US$4,533 million) during 2021 to meet our short-term contractual obligations and commitments and budgeted capital expenditures. We expect that we will meet these cash requirements2024 mainly for (1) our operations, through sales of our products, and (2) our debt service through new financing activities, including new debt financings and the refinancing of our existing short-termcurrent indebtedness as it becomes due.due, and (3) interest payment. We have firm commitments from several financial institutions to provide us with financing in the future, subject to conditions precedent and the payment of commitment fees.
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In May 2018, in line with our commitment to maintain financial liquidity, we and several of our subsidiaries entered into an international revolving credit facility with several international financial institutions for a principal amount of R$5,196.7 million (US$1,000.0 million), which matures in May 2023. This line of credit may be used without restrictions to improve our credit quality or in the event of a deterioration in the macroeconomic scenario. We borrowed the amount of R$5,196.7 million (US$1,000.0 million) under this credit line in April 2020 and repaid it in full in July 2020.
In July 2018, Braskem America entered into a credit facility with Euler Hermes, a German export credit agency, in the aggregate principal amount of up to R$1,169.3 million (US$225.0 million) to finance a portion of the investments in our new PP plant in the United States. The facility, which matures on December 30, 2028, bears interest at a rate equivalent to LIBOR plus 0.65% per year, payable semi-annually to maturity. The principal amount is amortized semi-annually as from December 30, 2020. The funds are disbursed in accordance with the progress of the construction project, and the remaining amount is expected to be disbursed in the first half of 2021. As of December 31, 2020, R$1,058.8 million (US$203.7 million) had been disbursed in principal amount, and the amount of principal plus interest outstanding under the credit facility was R$996.5 million (US$191.8 million).
In December 2018, we entered into a new credit facility with BNDES, in the aggregate principal amount of R$476.0 million, maturing in January 2031, with proceeds used to finance our capital expenditures in Brazil. On January 30, 2019, we drew the first installment under this facility in the aggregate principal amount of R$266.0 million. On August 11, 2020 we drew the remaining available amount under this facility in the aggregate principal amount of R$210.0 million This facility bears interest at a rate equivalent to IPCA plus 6.04% per year, payable quarterly after an initial grace period, from the first installment until January 2021, and afterwards monthly to maturity until January 2031. The principal amount is payable in 120 successive monthly installments beginning in February 2021. As of December 31, 2020, the outstanding amount under this facility was R$491.0 million (US$94.5 million).
Cash Flows
The following table sets forth certain consolidated cash flow information for the periods indicated:
As of December 31, | |||
2020 | 2019 | 2018 | |
(in millions of reais) | |||
Net cash provided by (used in) operating activities | 6,293.0 | 2,265.3 | 9,250.4 |
Net cash provided by (used in) investing activities | (2,721.8) | (2,666.4) | (2,488.3) |
Net cash provided by (used in) financing activities | 2,173.2 | 1,636.8 | (4,603.4) |
Effect of exchange rate changes on cash and cash equivalents | 1,314.6 | 20.6 | (386.1) |
Increase (decrease) in cash and cash equivalents | 7,059.0 | 1,256.3 | 1,772.6 |
As of December 31, | |||
2023 | 2022 | 2021 | |
(in millions of reais) | |||
Net cash (used in) generated from operating activities | (2,272) | 8,952 | 14,786 |
Net cash used in investing activities | (4,525) | (4,947) | (3,381) |
Net cash generated from (used in) financing activities | 8,873 | 225 | (16,966) |
Exchange variation on cash of foreign subsidiaries | (355) | (444) | 378 |
Increase (decrease) in cash and cash equivalents | 1,721 | 3,786 | (5,182) |
Net Cash Flows generated byGenerated from Operating Activities
Net cash provided byused in operating activities was R$6,293.02,272 million during 2020,2023, and net cash generated from operating activities was R$2,265.38,952 million during 2019 and2022, a decrease of R$9,250.411,224 million during 2018. Net cash provided by operating activities increased by R$4,027.7 million during 2020,2023, as compared to 2019,2022, which was the result of the:of:
· | the lower |
· |
· |
During 2020, theThe effects of these factors were partially offset by the:by:
· |
· |
Net cash provided bygenerated from operating activities was R$8,952 million during 2022, and R$14,786 million during 2021. Net cash generated from operating activities decreased by R$6,985.15,835 million during 2019,2022, as compared to 2018,2021, which was the result of theof:
· |
During 2019, theThe effects of these factors were partially offset by the:by:
· | the positive variation in working capital mainly due to (i) lower |
· |
· |
Net Cash Flows Used in Investing Activities
Net cash used in investing activities was R$2,721.84,525 million during 2020,2023, R$2,666.44,947 million during 20192022 and R$2,488.33,381 million during 2018.2021.
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During 2023, investing activities for which we used cash on a consolidated basis primarily consisted of: (1) acquisitions to property, plant and equipment and intangible assets of R$2,936 million, in Brazil Segment, which were allocated primarily to industrial operations, including the investments related to operating efficiency, health, environmental and safety, or HES, productivity and modernization, (2) acquisitions to property, plant and equipment and intangible assets of R$842 million in Mexico, considering operating and strategic investments such as the construction of the ethane import terminal; and (3) acquisitions to property, plant and equipment and intangible assets of R$340 million in the USA and Europe Segment, allocated both to industrial operations and strategic projects.
During 2020,2022, investing activities for which we used cash on a consolidated basis primarily consisted of: (1) acquisitions to property, plant and equipment of R$1,635.73,716 million, in Brazil Segment, which were allocated primarily to industrial operations, including the investments related to operating efficiency, health, environmental and safety, or HES, productivity and modernization, (2) acquisitions to property, plant and equipment of R$1,163.0695 million in Mexico, considering operating and strategic investments such as the construction of the ethane import terminal; and (3) acquisitions to property, plant and equipment of R$373 million in the USA and Europe Segment, allocated both to industrial operations and strategic projects, such as the new polypropylene plant, and (3) acquisitions to property, plant and equipment of R$103.3 million in Mexico.projects.
During 2019,2021, investing activities for which we used cash on a consolidated basis primarily consisted of: (1) acquisitions to property, plant and equipment of R$1,749.33,056 million, in Brazil Segment, which were allocated primarily to industrial operations, including the investments related to operating efficiency, health, environmental and safety, or HES, productivity and modernization, (2) acquisitions to property, plant and equipment of R$1,026.9472 million in the USA and Europe Segment, allocated both to industrial operations and strategic projects, such as the new polypropylene plant, and (3) acquisitions to property, plant and equipment of R$104.5176 million in Mexico.
During 2018, investing activities for which we used cash on a consolidated basis primarily consisted of: (1) acquisitions to property, plant and equipment of R$1,777.7 million, in Brazil Segment, which were allocated primarily to industrial operations, including the investments related to HES, productivity and modernization (such as diversification of the feedstock profile of the cracker in Bahia), (2) acquisitions to property, plant and equipment of R$992.6 million in the USA and Europe Segment, allocated both to industrial operations and strategic projects, such as our new polypropylene plant, and (3) acquisitions to property, plant and equipment of R$55.2 million in Mexico.
Net Cash Flows UsedGenerated (Used) in Financing Activities
Net cash provided bygenerated in financing activities was R$2,173.28,873 million during 2020,in 2023, as compared to a net cash used in financing activities of R$1,636.8225 million during 2019.2022 and net cash generated in financing activities of R$16,966 million during 2021.
During 2020:2023, we raised mainly:
· | R$8,826 million (US$1,831 million) through the issuance of 7.250% Senior Notes due 2033 and 8.500% Senior Notes due 2031; and |
· |
· | R$760 million relate to the withdrawn of TQPM of the financing amount obtained to build the ethane import terminal in the total amount of R$1,975 (US$ 408). |
During 2023, we mainly used cash to pay:
· | R$ 1,561 million (US$300 million), relating to the full redemption of our outstanding 6.450% Notes due 2024; and |
· | R$1,209 million, relating to the payment of aggregate expenses related to lease agreements. |
During 2022, we raised mainly:
· | R$2,950 million, through the issuance of debentures in Brazil; |
· | R$2,783 million, through export credit facilities; and |
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· | R$697 million, through the issuance of agribusiness receivables certificates in Brazil. |
During 2022, we mainly used cash to pay:
· | R$2,281 million, relating to the full redemption of our outstanding 3.500% Notes due 2023 and partial redemption of our outstanding 6.450% Notes due 2024; |
· | R$1,050 million, relating to the line of pre-payment of export credit lines with international and national financial institutions; |
· | R$929 million, relating to the aggregate expenses of lease agreements; and |
· | R$1,350 million relating to the payment of dividends for the year ended December 31, 2021 to holders of our common shares and class A preferred shares. |
During 2021, we raised mainly:
· | R$6.7 billion (US$1.2 billion) in aggregate principal amount in the fourth quarter of 2021 related to Braskem Idesa’s Project Finance through the issuance of subordinated resettable fixed rate notes |
· | R$837 (US$150 million) in |
During 2020,2021, we used cash to pay:
· | R$ |
· | R$ |
· | R$ |
· | R$6.9 billion related to the full redemption of the outstanding notes maturing in 2022 and of our perpetual bonds, and the partial redemption of outstanding notes maturing in 2023, 2024, 2028 and 2041; |
· | R$8.0 billion, related the fully repayment of Braskem Idesa’s project finance facility and the partial amortization of the Braskem Idesa project finance facility; |
· | R$ |
· | R$ |
During 2019:
During 2019, we used cash to pay:
In addition, in 2019 we used cash to pay dividends in the aggregate amount of R$667.4 million.
During 2018:
During 2018, we used cash to pay:
In addition, in 2018 we used cash to pay dividends in the aggregate amount of R$1,499.8 million.
Unless our board of directors deems it inconsistent with our financial position and the decision of our board of directors is ratified by our shareholders, payment of minimum dividends is mandatory under Brazilian Corporate Law and our by-laws and also is required under agreements with two of our shareholders and, consequently, may give rise to significant cash requirements in future periods. For additional information, see “Item 8. Financial Information—Dividends and Dividend Policy—Mandatory Distributions.”
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Contractual Commitments
The following table summarizes significant contractual obligations and commitments as of December 31, 2020 that2023, which have an impact on our liquidity.
We have adopted a calculation methodology to determine minimum cash needs for a 30-day timeframe (the “monthly vision”) and minimum cash needs for a 12-month timeframe (the “yearly vision”) for the purpose, respectively, of: (i) ensuringmonitoring the liquidity needed to meet obligations coming due in the following month; and (ii) ensuringmonitoring that we maintain liquidity during potential crises. Minimum cash needed for our “yearly vision” is calculated mainly based on the projected operating cash generation, less short-termcurrent debts and working capital needs. Minimum cash needed for our “monthly vision” considers the projected operating cash disbursements, debt service and contributions to projects, as well as the planned disbursement for derivatives maturing in the following month, among other items. For our financial policy, we adopt the greater of these two references to determine the amount of minimum cash needed.
In May 2018, in line with our commitment to maintaining our financial liquidity, in December 2021 we entered into arenewed the revolving credit facility in the amount of approximately R$5,196.7 million5 billion (US$1,000.0 million)1 billion), which expires in 2023.2026. This credit line of credit may be used without restrictions to improve our credit qualityliquidity or in the event of deterioration in the macroeconomic scenario. As of December 31, 2020,2023, this new credit line had not been used.
On December 31, 2020, due to the breach of certain covenants provided for in its financing agreement, our subsidiary Braskem Idesa recorded under current liabilities its financial obligations with original long-term maturities. Note that Braskem Idesa has been settling all its obligations in accordance with the original maturity schedule and no creditor required or indicated the intention of requiring immediate reimbursement of these obligations or early debt payment.
Considering that the group of creditors of Braskem Idesa will continue not requiring prepayment of the debt, ourThe Company’s financial liabilities, by maturity, including the amounts due under the Leniency Agreement, are shown in the table below. These amounts are calculated based on cash flows not discounted and may not be reconciled with the amounts disclosed in the balance sheet.
Maturity as of December 31, 2020 Within one year Between one and Between two and More than five years Total 399.0 313.6 852.8 1,565.4 870.6 641.3 898.1 1,070.8 3,480.8 15,253.8 8,016.8 13,067.5 87,031.5 123,369.6
two years
five years (in millions of reais) Trade payables 9,978.6 7.2 — — 9,985.8 Borrowings 1,439.1 4,365.5 7,953.2 71,000.4 84,758.2 Debentures 57.0 125.3 97.1 - 279.4 Braskem Idesa borrowings 1,194.8 2,340.1 2,911.8 10,212.7 16,659.4 Derivatives 1,314.7 223.8 354.5 — 1,893.0 Loan to non-controlling shareholder of Braskem Idesa — — — 4,747.6 4,747.6 Leniency agreement (note 25 to our audited consolidated financial statements) Leases Total
Within one year | Between one and two years | Between two and five years | More than five years | Total | ||||||
(in millions of reais) | ||||||||||
Trade payables | 13,522 | 13,522 | ||||||||
Borrowings and debentures | 2,138 | 3,000 | 11,197 | 64,359 | 80,694 | |||||
Braskem Idesa borrowings | 950 | 71 | 979 | 15,403 | 17,402 | |||||
Derivatives | 60 | 27 | 105 | 29 | 222 | |||||
Loan to non-controlling shareholder of Braskem Idesa | 3,288 | 3,288 | ||||||||
Leniency agreement | 847 | 206 | 1,053 | |||||||
Lease | 1,347 | 932 | 1,817 | 1,282 | 5,377 | |||||
At December 31, 2023 | 18,864 | 4,236 | 14,098 | 84,361 | 121,558 | |||||
Interest discounted to present value | (1,000) | (2,773) | (1,956) | (41,484) | (47,213) | |||||
Carrying amount | 17,864 | 1,463 | 12,141 | 42,877 | 74,345 |
If Braskem Idesa’s group of creditors choose to accelerate this debt, our liabilities by maturity date, including the amounts due under the leniency agreement (see Note 25 to our financial statements), are shown in the table below. These amounts are gross and undiscounted and include contractual interest payments, therefore may not be reconciled with the balance sheet.
Maturity as of December 31, 2020 | |||||
Within one year | Between one and | Between two and | More than five years | Total | |
(in millions of reais) | |||||
Trade payables | 9,978.6 | 7.2 | — | — | 9,985.8 |
Borrowings | 1,439.1 | 4,365.5 | 7,953.2 | 71,000.4 | 84,758.2 |
Debentures | 57.0 | 125.3 | 97.1 | — | 279.4 |
Braskem Idesa borrowings | 8,064.4 | — | — | 7,785.8 | 15,850.2 |
Derivatives | 1,314.7 | 223.8 | 354.5 | — | 1,893.0 |
Loan to non-controlling shareholder of Braskem Idesa | — | — | — | 4,747.6 | 4,747.6 |
Leniency agreement (note 25 to our audited consolidated financial statements) | 399.0 | 313.6 | 852.8 | — | 1,565.4 |
Leases | 870.6 | 641.3 | 898.1 | 1,070.8 | 3,480.8 |
Total | 22,123.4 | 5,676.7 | 10,155.7 | 84,604.6 | 122,560.4 |
Indebtedness and Financing Strategy
As of December 31, 2020,2023, our total outstanding consolidated indebtedness was R$54,027.553,486 million (US$10,396.511,048 million), including R$12,059.211,250 million (US$2,320.62,324 million) in connection with the secured debt related to our Mexico Complex.Complex. As of December 31, 2020,2023, we had R$3,222.52,490 million (US$514 million), translated solely for the convenience at the selling rate reported by the Central Bank as of December 31, 2023, of R$4.8413 to US$1.00, in outstanding indebtedness relating to a loan payable to the non-controlling shareholder of Braskem Idesa, maturing in December 2029 and accruingwith interest atof 7% p.a., whose proceeds were used by Braskem Idesa to fund its construction project.
Our short-term indebtedness outstanding as of December 31, 2020 was R$9,033.5 million, including the current portion of long-term indebtedness (16.7% of our total indebtedness) and the amount of R$7,660.1 million in connection with the secured debt related to our Mexico Complex.
Our long-term indebtedness outstanding as of December 31, 2020 was R$44,994.0 million (83.3% of our total indebtedness), including the amount of R$4,399.1 million in connection with the secured debt related to our Mexico Complex.
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On a consolidated basis, our real-denominated indebtedness as of December 31, 2020,2023, was R$1,733.95,072, million (3,2%(9.5% of our total indebtedness), and our foreign currency-denominated indebtedness was R$52,293.648,414 million (96,8%(90.5% of our total indebtedness).
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | Thereafter | Total | ||
(in millions of reais) | ||||||||||
Borrowings and debentures Related to Braskem | 2,029 | 579 | 1,743 | 2,208 | 6,769 | 2,850 | 7,527 | 18,531 | 42,236 | |
Borrowings Related to Braskem Idesa | 739 | - | - | - | 466 | 4,290 | - | 5,755 | 11,250 | |
Total | 2,768 | 579 | 1,743 | 2,208 | 7,235 | 7,140 | 7,527 | 24,286 | 53,486 | |
The following table presents information relating to our debt maturity profile as
Current Indebtedness
As of December 31, 2021 2022 2023 2024 2025 2026 Thereafter Total 7,660.1 (36.2) (36.2) (36.2) (36.2) (36.2) 4,580.3 12,059.2 9,033.5 2,103.7 1,841.7 5,670.6 1,106.9 543.8 33.727,3 54.027,42020: (in millions of reais) Indebtedness 645.8 671.5 876.1 1,397.5 1,172.9 609.8 1,518.2 6,892.0 Capital Markets 727.6 1,468.4 1,001.8 4,309.3 (29.8) (29.8) 27,628.8 35,076.2 Debt related to our Mexico Complex (Braskem Idesa Financing) Total
Short-Term Indebtedness
Our consolidated short-term debt,2023, the amount of our current borrowings and debentures, including current portion of long-term debt,interest, was R$9,033.52,768 million), of which R$739 million was current indebtedness of Braskem Idesa.
Non-current Indebtedness
As of December 31, 2023, the outstanding amount of our non-current borrowings and debentures was R$50,718 million, including the amount of R$7,660.110,511 million in connection with the secured debt related to our Mexico Complex.
Long-Term Indebtedness
Our long-term indebtedness outstanding as of December 31, 2020 was R$44,994.0 million (83.3% of our total indebtedness), including the amount of R$4,399.1 million in connection with the secured debt related to our Mexico Complex.Braskem Idesa.
Our principal sources of long-term debt are:
· | fixed-rate unsecured notes issued in the international market; |
· |
· |
borrowings under bank credit facilities; |
In October 2019, our finance subsidiary Braskem Netherlands Finance B.V. issued R$7,795.5million (US$1,500.0 million) in aggregate principal amount of 4.500% notes due 2030 and R$3,897.5 million (US$750.0 million) in aggregate principal amount of 5.875% notes due 2050. The proceeds of the issuance were used primarily to repay certain of our outstanding debt. In November 2019, we issued R$550.0 million in aggregate principal amount of promissory notes due 2024. The proceeds from the promissory notes issuance were used primarily to repay certain of our outstanding debt, including our notes maturing in 2020 and 2021, and for a partial repayment of our notes maturing in 2022 and 2023.
As of December 31, 2020,2023, R$5,072 million of our long-term indebtedness was denominated in Brazilian reais, and R$48,414 million of our long-term indebtedness was denominated in foreign currencies.
Certain of the instruments governing our indebtedness contain covenants that could restrict, among other things, our and most of our subsidiaries’ ability to incur liens or merge or consolidate with any other entity or sell or otherwise dispose of all or substantially all of our project finance debtor their assets. In addition, the instruments governing a substantial portion of our indebtedness contain cross-default or cross-acceleration clauses among Braskem S.A. and its subsidiaries’ indebtedness, such that the occurrence of an event of default under one of these instruments could trigger an event of default under other indebtedness or enable the creditors under other indebtedness to accelerate that indebtedness. As of December 31, 2023, Braskem and its subsidiaries were in compliance with the covenants under their underlying indebtedness instruments.
On June 29, 2023 Braskem Idesa obtained an extension of the waiver related to our Mexico Complex was secured.a leverage ratio (covenant) until March 31, 2024. In orderthis sense, even though Braskem Idesa is not in default and creditors did not request to secureaccelerate this debt, because the waiver did not provide a period of grace ending at least twelve months after the reporting period, the entire balance, in the amount of R$ 502 million, was classified in current liabilities on December 31, 2023.
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Additionally, on March 28, 2024, Braskem Idesa obtained a new extension of the waiver related to the covenant until March 30, 2025.Braskem Idesa is in compliance with its debt service obligations under such financing agreement.
The instruments governing a substantial portion of our indebtedness also contain change-of-control provisions that provide our counterparties with a termination right or the ability to accelerate the maturity of our indebtedness in the event of a change of our control without their consent and/or ratings decline, as applicable. For additional information, see “Item 3. Risk Factors—Risks Relating To Us And The Petrochemical Industry—If we are unable to comply with the restrictions and covenants in the agreements governing our indebtedness, there could be a default under the terms of these agreements, which could result in an acceleration of payment of funds that we have pledgedborrowed and could affect our shares in Braskem Idesa, some ofability to make principal and interest payments on our rights to repayment under subordinated loans that Braskem S.A. has made to Braskem Idesa, and all of the assets of Braskem Idesa.debt obligations.”
Fixed-Rate Notes Denominated in U.S. DollarsBonds
We have issued fixed-rate debt securitiesbonds in the international market.capital markets. All of these securities pay interest semi-annually in arrears, except for our perpetual bonds, on which interest is payable quarterly in arrears.
In September 2023, we issued R$4,115 million (US$850 million) of 8.500% Senior Notes due 2031. The net proceeds of such issuance were used for general corporate purposes and repayment of outstanding debt.
In February 2023, we issued R$4,841 million (US$1,000 million) of 7.250% Senior Notes due 2033. The net proceeds of such issuance were used (i) to fully redeem the 6.45% Notes due 2024 and (ii) for general corporate purposes.
The table below sets forth our outstanding fixed-rate debt securities,bonds issued in the international capital markets as of December 31, 2023, the outstanding principal amount of these securities and their maturity dates.dates:
Security | Outstanding Principal plus Interest Amount as of December 31, 2020 | Final Maturity | |
(in millions of US$) | (in millions of reais) | ||
5.375% Notes due 2022(1) | 288.7 | 1,500.3 | May 2022 |
3.50% Notes due 2023(2) | 199.0 | 1,034.2 | January 2023 |
6.45% Notes due 2024(1) | 769.9 | 4,000.9 | February 2024 |
4.50% Notes due 2028(2) | 1,276.6 | 6,633.9 | February 2028 |
4.500% Notes due 2030(2) | 1,528.1 | 7,941.2 | January 2030 |
7.125% Notes due 2041(3) | 773.4 | 4,019.4 | July 2041 |
5.875% Notes due 2050(2) | 768.4 | 3,992.9 | January 2050 |
Subordinated Resettable Fixed Rate Notes due 2081(2) | 624.0 | 3,242.5 | January 2081 |
7.375% Perpetual Bonds(1)(*) | 500.0 | 2,598.4 | — |
Security | Outstanding Principal plus Interest Amount as of December 31, 2023 | Final Maturity | |
(in millions of US$) | (in millions of reais)(3) | ||
4.50% Notes due 2028(1) | 1,198 | 5,798 | January 2028 |
4.50% Notes due 2030(1) | 1,521 | 7,364 | January 2030 |
8.50% Notes due 2031(1) | 872 | 4,220 | January 2031 |
7.25% Notes due 2033(1) | 1,028 | 4,976 | February 2033 |
7.13% Notes due 2041(2) | 584 | 2,825 | July 2041 |
5.88% Notes due 2050(1) | 768 | 3,720 | January 2050 |
8.50% Subordinated Resettable Fixed Rate Notes due 2081(1) (4) | 636 | 3,077 | January 2081 |
(1) |
Represents notes issued by Braskem Netherlands Finance B.V. and guaranteed by Braskem. |
(2) | Represents notes issued by Braskem America Finance and guaranteed by Braskem. |
(3) | The |
Floating-Rate Notes Denominated in Brazilian Reais
We have issued a series of floating-rate promissory notes in the Brazilian market, which pays interest in ten semi-annual installments to maturity in November 2024. The promissory notes constitute a non-amortizing transaction, and principal becomes due upon maturity. The table below sets forth the outstanding amount of this security and its maturity date.
Security | Outstanding Principal | Final Maturity | |
(in millions of US$) | (in millions of reais) | ||
CDI + 0.85% Promissory Notes due 2024 | 104.9 | 545.2 | November 2024 |
Credit Facilities with Governmental Agencies Denominated in U.S. Dollars
In March 2017, we entered into a credit facility secured by NEXI, a Japanese export credit agency, in an aggregate principal amount of R$701.6 million (US$135.0 million). This facility bears interest at a rate equivalent to LIBOR plus 1.61% per year, payable semi-annually to maturity in March 2027. The principal amount is amortized in 20 successive semi-annual installments beginning in September 2017. As of December 31, 2020, the outstanding principal plus interest amount under this facility was R$509.1 million (US$98.0 million).
In July 2018, Braskem America entered into a credit facility with Euler Hermes, a German export credit agency, in the aggregate principal amount of up to R$1,169.3 million (US$225.0 million) to finance a portion of the investments in our new PP plant in the United States. The facility, which matures on December 30, 2028, bears interest at a rate equivalent to LIBOR plus 0.65% per year, payable semi-annually to maturity. The principal amount is amortized semi-annually as from December 30, 2020. The funds are disbursed in accordance with the progress of the construction project, and the remaining amount is expected to be disbursed in the first half of 2021. As of December 31, 2020, R$1,058.8 million (US$203.7 million) had been disbursed in principal amount, and the amount of principal plus interest outstanding under the credit facility was R$996.5 million (US$191.8 million).
In November 2018, we entered into a credit facility secured by SACE, an Italian export credit agency, in an aggregate principal amount of R$1,533.7 million (US$295.1 million). This facility bears interest at a rate equivalent to LIBOR plus 0.90% per year, payable semi-annually to maturity in November 2028. The principal amount is payable in 20 successive semi-annual installments beginning in May 2019. As of December 31, 2020, the outstanding principal plus interest amount under this facility was R$1,228.3 million (US$236.4 million).
In December 2019, we entered into a credit facility secured by SACE, in an aggregate principal amount of R$779.6 million (US$150.0 million). This facility bears interest at a rate equivalent to LIBOR plus 0.90% per year, payable semi-annually to maturity in December 2029. The principal amount is payable in 20 successive semi-annual installments beginning in June 2020. As of December 31, 2020, the outstanding principal plus interest amount under this facility was R$702.0 million (US$135.1 million).
(4) | The bond can be repaid by the Company at par value, for periods of 90 days prior to each interest reset, with the first interest reset taking place in January 2026 and the others every 5 years thereafter. |
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In August 2020, we entered into a credit facility securedWe have fully, unconditionally and irrevocably, guaranteed the bonds issued by NEXI, a Japanese export credit agency,Braskem Finance, Braskem America Finance and Braskem Netherlands Finance. Braskem’s guarantees for issues carried out between 2011 and 2019 comprise senior unsecured obligations of Braskem, ranking equal in an aggregate principal amountright of R$1,169.3 million (US$225.0 million). This facility bears interest at a rate equivalent to LIBOR plus 1.70% per yearpayment with all of its other existing and payable semi-annually to maturityfuture senior unsecured debt. As for the issuance carried out in February 2031. The principal amount is amortized semi-annually from August 4, 2021. As of December 31, 2020, the outstanding amount under this facility was R$1,177.2 million (US$226.5 million).
Issue Date | Outstanding Principal plus Interest Amount | Interest Rate | Amortization | Final | |
(in millions of US$) | (in millions of reais) | ||||
March 2017 | 98.0 | 509.1 | LIBOR + 1.61% p.a. | Semi-annual(1) | March 2027 |
July 2018 | 191.8 | 996.5 | LIBOR + 0.65% p.a. | Semi-annual(2) | December 2028 |
November 2018 | 236.4 | 1,228.3 | LIBOR + 0.90% p.a. | Semi-annual(3) | November 2028 |
December 2019 | 135.1 | 702.0 | LIBOR + 0.90% p.a. | Semi-annual(4) | December 2029 |
August 2020 | 226.5 | 1,177.2 | LIBOR + 1.70% p.a. | Semi-annual(5) | February 2031 |
guarantee comprises obligations without collateral subordinated to all current or future senior debts of Braskem.
Credit Facilities with Governmental Agencies Denominated in Brazilian Reais
In December 2018, we entered into a new credit facility with BNDES,Debt Securities issued in the aggregate principal amount of R$476.0 million, maturing in January 2031, with proceeds used to finance ourBrazilian capital expenditures in Brazil. On January 30, 2019, we drew the first installment under this facilitymarket
We issued debt securities in the aggregate principal amountBrazilian capital markets. All of R$266.0 million. On August 11, 2020 we drew down the remaining available amount under this facilitythese securities pay interest semi-annually in the aggregate principal amount of R$210.0 million. This facility bears interest at a rate equivalent to IPCA plus 6.04% per year, payable quarterly after an initial grace period, from the first installment until January 2021, and afterwards monthly to maturity until January 2031. The principal amount is payable in 120 successive monthly installments beginning in February 2021. As of December 31, 2020, the outstanding principal plus interest amount under this facility was R$491.0 million (US$94.5 million).arrears.
The table below sets forth selected information with respect to our BNDES credit facilities asoutstanding debt securities issued in the Brazilian capital markets, the outstanding principal amount of December 31, 2020.these securities and their maturity dates:
Facility | Outstanding Principal plus Interest Amount as of December 31, 2020 | Weighted Average | Expiration of Commitment | |
(in millions of US$) | (in millions of reais) | |||
December 2009 (1) — Fixed rate | 0,3 | 1.5 | 4.0% p.a. | January 2021 |
January 2019 (2) — Fixed rate | 94.5 | 491.0 | IPCA + 6.04% p.a. | January 2031 |
Security | Outstanding Principal plus Interest Amount as of December 31, 2023 | Interest Rate | Final Maturity | |
(in millions of US$) | (in millions of reais) | |||
Debentures issued in March 2013 (1) | 13 | 64 | IPCA + 6.00% | March 2025 |
Debentures issued in September 2013 (2) | 5 | 22 | 126,50% of CDI | September 2025 |
Debentures CRA – 1st tranche (3) | 133 | 644 | IPCA + 5.54% | December 2028 |
Debentures CRA – 2nd tranche (3) | 32 | 154 | IPCA + 5.57% | December 2031 |
Debentures issued in May 2022 – 1st tranche | 159 | 769 | CDI + 1.75% | May 2029 |
Debentures issued in May 2022 – 2nd tranche | 51 | 248 | CDI + 2.00% | May 2032 |
Debentures issued in August 2022 (4) | 162 | 787 | CDI + 1.75% | August 2029 |
Debentures issued in November 2022 – 1st tranche | 232 | 1,124 | CDI + 1.70% | November 2029 |
Debentures issued in November 2022 – 2nd tranche | 20 | 98 | CDI + 1.95% | November 2032 |
(1) |
(2) | Issued by Cetrel. |
(3) | Issuance of private debentures that were used as security for the issuance of Agribusiness Receivables Certificates (certificados de recebíveis do agronegócio – “CRA”) by Eco Securitizadora de Direitos Creditórios do Agronegócio S.A. |
(4) | In April 2024, the debenture issued in |
The credit facility that matures in January 2021 is secured by mortgages on one of our plants located in our Southern Complex. The credit facility that matures in January 2031 is unsecured.
Revolving Credit Facility Agreement
In May 2018,On December 20, 2021, we and certain of our subsidiaries entered into a revolving credit facility agreement with several international financial institutions for a principalsyndicate of global lenders, in the aggregate amount of up to US$1,000.01,000 million, (R$5,196.7 million), which maturesmaturing in May 2023. We had no drawn amounts on thisDecember 2026. The new agreement replaced our previous revolving credit facility asfacility. As of December 31, 2020. In April 2020,2023, we borrowedhad not drawn any amount under the amount of R$5,196.7 million (US$1,000.0 million), on thisnew revolving credit facility and fully repaid this amount in July 2020.facility.
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Indebtedness of Braskem Idesa
Credit Facilities with Banks Denominated in Dollars
On April 8, 2019, we entered into a credit facility with international institutions in the aggregate principal amount of R$417.8 million (US$80.4 million) with a term of seven years. To consummate this facility, certain assets of the Company’s plants were transferred to the financial institutions and, by the maturity date, Braskem has the option to repurchase them for a residual value. In accordance with IFRS15, this transfer is not considered a sale. This facility bears interest at a rate equivalent to LIBOR minus 1.00% per year, payable semi-annually to maturity in April 2026. The principal amount is payable in successive semi-annual installments beginning in September 30, 2019. As of December 31, 2020,2023, the outstanding principal plus interest amount under this facility was R$300.4 million (US$57.8 million).
In October 2019, we entered in an export pre-payment facility and received a disbursement in an aggregate principalcarrying amount of US$ 100.0the borrowings relating to our Mexico segment was R$11,250 million (R$519.7(US$2,324 million). This facility bears interest atThe Braskem Idesa financing agreements and bond issuance include certain covenants that require, among other things, the presentation of audited financial statements within a rate of LIBOR plus 1.75% per year, payable semi-annually to maturity in October 2024. The principal amount is payable in a single installment at maturity. As of December 31, 2020, the outstanding principal plus interest amount under this facility was US$100.4 million (R$521.5 million).certain timeframe.
In January 2020, we entered in a term-loan facility and received a disbursement in an aggregate principal amount of US$100.0 million (R$519.7 million). This facility bears interest at a rate of LIBOR plus 1.65% per year, payable semi-annually to maturity in January 2025. The principal amount is payable in a single installment at maturity. As of December 31, 2020, the outstanding principal plus interest amount under this facility was US$100.9 million (R$524.5 million).
Issue Date | Outstanding Principal plus Interest Amount | Interest Rate | Amortization | Final | |
(in millions of US$) | (in millions of reais) | ||||
April 2019 | 57.4 | 300.4 | LIBOR – 1.00% | Semi-annual | April 2026 |
October 2019 | 100.4 | 521.5 | LIBOR + 1.75% | Bullet | October 2024 |
January 2020 | 100.9 | 524.5 | LIBOR + 1.65% | Bullet | January 2025 |
Credit Facilities with Banks Denominated in Reais
In April 2018, we entered into an export credit note facility in the aggregate principal amount of R$400.0 million. This facility bears interest at a rate equivalent to CDI plus 0.70% per year, payable semi-annually to maturity in March 2024. The principal amount is payable in two installments, in March 2023 and March 2024. As of December 31, 2020, the outstanding principal plus interest amount under this facility was R$402.7 million.
Issue Date | Outstanding Principal and Interest Amount | Interest Rate | Amortization | Final | |
(in millions of US$) | (in millions of reais) | ||||
April 2018 | 77.5 | 402.7 | CDI + 0.70% | 2023 and 2024 | March 2024 |
Indebtedness of Braskem Idesa
InOn December 2012, Braskem Idesa entered into a common terms agreement with certain financial institutions to finance the development, design, construction and initial operation of the Mexico Complex. The Mexico Complex includes an ethane cracker with annual capacity of 1.05 million tons to produce ethylene, two high density polyethylene plants and a low densitylow-density polyethylene plant. In connection with the common terms agreement, Braskem Idesa entered into eight separate financing agreements with international and Brazilian financial institutions and development banks in an aggregate principal amount of up to US$R$15 billion (US$3.2 billion,billion), or the Braskem Idesa Financing. All amounts disbursed under these credit facilities arewere secured by our shares in Braskem Idesa. In addition, as a condition precedent to the initial disbursement and each subsequent disbursement, Braskem Idesa was required to have a maximum debt to base equity ratio of 70 to 30 after giving effect to such disbursement, as calculated pursuant to the common terms agreement. In September 2015, Braskem Idesa received the final disbursement pursuant to the common terms agreement, reaching an aggregate principal amount of R$17.414 billion (US$3.23 billion). The financing consists of fixed and floating tranches. The interest rates on the fixed tranche are within a range of 4.33% to 6.17%. The interest rates on the floating tranche are within a range of LIBOR plus 2.73% to LIBOR plus 4.65%. To reduce the interest rate risk, the second tranche is hedged through several swap agreements. Interest on both tranches is payable quarterly in arrears and principal is amortized quarterly. The final maturity date of these loans is February 15, 2029 with amortizations beginning in May 2016.
On November 25, 2019, Braskem Idesa issued R$4,667.04,667 million (US$900.0900 million) in aggregate principal amount of 7.450% senior secured notes due 2029.The2029. The 2029 notes are senior secured obligations of Braskem Idesa and rank pari passu with the existing Braskem Idesa project finance debt untilsenior secured obligations due 2032 and the full repayment of the outstanding amount of the Braskem Idesa project financecredit facility. After the full amortization of the outstanding amount of the Braskem Idesa project finance2032 notes and the credit facility, Braskem Idesa’s 2029 notes will convert into senior unsecured notes. Interest on the notes is payable semi-annually, and the principal amount becomes due at maturity. The proceeds of the notes were used to partially refinance Braskem Idesa’s existing secured project finance indebtedness incurred in 2012 to construct a plantComplex in Mexico. Excess proceeds of the issuance were used to prepay certain other indebtedness of Braskem Idesa.
On October 11, 2021, Braskem Idesa entered into a senior secured syndicated term loan facility of up to R$3,338 million (US$600 million) with Morgan Stanley Senior Funding, Inc., Credit Agricole Corporate and Investment Bank, Deutsche Bank AG, London Branch and Itaú Unibanco S.A., Miami Branch, as lenders. The credit facility is secured by first priority security interest in favor of the lenders and all lenders share the collateral equally with the holders of the 2029 and 2032 notes and potential additional secured parties as permitted under the credit facility and the indenture governing the notes. The credit facility has a five-year term and will bear interest at a rate equal to quarterly Term SOFR plus an applicable margin ranging from 2.25% to 4.25% (depending on Braskem Idesa credit rating), to be paid quarterly. The principal amount will be repaid in semi-annual installments commencing 24 months after the closing date. The loan under the credit facility was partially drawn, R$837 million (US$150 million) on October 20, 2021 in order to fully prepaid the project finance indebtedness incurred in 2012, along with the 2032 notes issued by Braskem Idesa.
Security(1) | Outstanding Principal plus Interest Amount as of December 31, 2020 | Final Maturity | |
(in millions of US$) | (in millions of reais) | ||
7.45% Notes due 2029 | 910,1 | 4,729.6 | November 2029 |
On October 20, 2021, Braskem Idesa issued R$6,697 million (US$1,200 million) in aggregate principal amount of 6.990% senior secured sustainability linked notes due 2032. The notes are senior secured obligations of Braskem Idesa and rank pari passu with the existing Braskem Idesa senior secured notes due 2029 and the credit facility. Interest on the notes is payable semi-annually, and the principal amount becomes due at maturity. The 2032 notes accrue an interest step-up by 37.5 basis points to 7.365% per annum if Braskem Idesa does not satisfy the sustainability performance target to reduce absolute GHG emissions by 15% from a 2017 baseline by year-end 2028. The proceeds of the notes were used (jointly with the credit facility) to fully refinance Braskem Idesa’s existing secured project finance indebtedness incurred in 2012 to construct a Complex in Mexico. With this financing, Braskem Idesa concluded its debt refinancing plan, replacing the remaining balance of US$1,350 million from its project finance facility with new debt instruments with a longer maturity, which extended its average debt maturity term from five to nine years. With the repayment of the project finance facility, the financial guarantees granted by Braskem for the benefit of Braskem Idesa, in the total amount of US$358 million, were extinguished.
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Braskem Idesa is in compliance with its debt service obligations under such financing agreement.
Security | Outstanding Principal plus Interest Amount as of December 31, 2023 | Final Maturity | |
(in millions of US$) | (in millions of reais) | ||
7.45% Notes due 2029(1) (2) | 905 | 4,383 | November 2029 |
6.99% Notes due 2032(1) (3) | 1,226 | 5,936 | February 2032 |
Credit Facilities(4) | 129 | 625 | October 2026 |
TQPM Financing (4) | 158 | 766 | October 2028 |
(1) | Represents notes issued by Braskem Idesa. |
(2) | Unsecured bond |
(3) | Sustainability-linked bonds. The bonds have a 10-year term and bear interest at 6.99% p.a., which may be increased by up to 0.37% p.a. if certain conditions are not met. Braskem Idesa pledged as guarantee property, plant and equipment assets in the same value as the bond. |
(4) | Terminal Química pledged as collateral property, plant and equipment assets. |
Capital Expenditures
During 2020,2023, investing activities for which we used net cash on a consolidated basis primarily consisted of: (1)(i) acquisitions toof property, plant and equipment and intangible assets of R$1,635.72,936 million, in the Brazil Segment,segment, which were allocated primarily to industrial operations, including the investments related to HES,schedule maintenance, operating efficiency, health, environmental and safety (HES), including reliability and operating safety of industrial assets, productivity, modernization and modernization, (2)strategic projects; (ii) acquisitions to of property, plant and equipment and intangible assets of R$1,163.0340 million invested in the USA and Europe Segment,segment, which were allocated both to industrial operations and strategic projects, such as our new polypropylene plant;projects; and (3)(iii) acquisitions toof property, plant and equipment and intangible assets of R$103.3842 million in Mexico.the Mexico segment, mainly represented by the new ethane terminal.
For additional information, see “Item 5. Operating and Financial Review and Prospects—Capital Expenditures” in our Annual Report.
Capital Expenditure Budget
We plan to invest R$3,903.52,219 million in 2021,2024, excluding Braskem Idesa investments, which will be used mainly for (i) scheduled maintenance shutdowns in some units of resins in Brazil, U.S. and Germany; (ii) regulatory investments and those related to process safety; (iii) program for asset mechanical integrity and acquisition of spare parts; (iv) investments in Innovation & Technology, including the new lab in Boston, United States; (v) technological developments; and (vi) the ongoing construction of desulfurization unit to reduce atmospheric emissions and increase energy efficiency of the Triunfo Petrochemical Complex in Rio Grande do Sul.
With respect to Braskem Idesa, investments of R$1,270 million are planned in 2024, of which R$545.01,016 million is peggedrelated to the U.S. dollar, related to investments inethane import terminal that will be financed through the United States and Europe Segment.
Of the total investment,Syndicated Project Finance Loan issued by Terminal Quimica Puerto México (TQPM). The remaining R$3,358.5254 million will be allocated mainly to Health, Environment & Safety (HES) projects as wellrelated to related to operating efficiency, such as maintenance, productivity, and operating efficiency projects, including the investmentHES.
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Joint Ventures Related to be made in the scheduled shutdown of the cracker in São Paulo and a brief stop in Rio Grande do Sul, and also the expansion of the biopolymer business and the recycled resin production capacity.Our Mexico Segment
Braskem Idesa plans to invest approximately R$175.0 million (US$34.0 million) in projects related to maintenance, productivity, HES and operating efficiency.
Joint Venture
Mexico Complex
Braskem and Idesa formed Braskem Idesa in April 2010 to develop, construct and operate the Mexico Complex, located in the Mexican state of Veracruz. The Mexico Complex includes an ethylene cracker that produces 1.05 million tons of ethylene per year from ethane based on technology licensed from Technip Italy S.p.A,S.p.A., or Technip, two high density polyethylene plants based on Innovene S technology licensed from Ineos Commercial Services UK Limited (as successor to Ineos Europe Limited) and a low densitylow-density polyethylene plant based on Lupotech T technology licensed from Basell Polyolefin GmbH. The three polyethylene plants have a combined annual production capacity of 1.0 million tons of HDPE and LDPE.
Braskem Idesa is a party to an ethane supply agreement with Pemex TRI, a subsidiary of Pemex, dated February 19, 2010 pursuant to which(“BI’s Ethane Supply Agreement”). As per the terms and conditions provided in BI’s Ethane Supply Agreement, ethane supply is assured through a 20-year contract with Pemex TRI is obligatedat a price pegged to provide,the U.S. gas price.
On September 27, 2021, Braskem Idesa signed the following documents: (i) Amended ESA with PEMEX, with settlement of any pending contractual amounts; and (ii) Terminal Agreement.
The Amended ESA changes the minimum contractual volume commitment to 30,000 barrels/day until February 2025 (subject to extensions in the event of delay in obtaining the licenses for the terminal’s construction). Pemex TRI and Braskem Idesa have agreed to purchase, 66,000 barrels per dayextend semi-annually the contractual volume until May 31, 2025, with the terminal’s startup expected in the second half of 2024.
The Amended ESA further establishes first-refusal rights, which consists of a preemptive right for Braskem Idesa in the acquisition of all ethane to the Mexico Complex for a period of 20 yearsthat PEMEX has available and does not consume in its own production process through 2045, at prices based on the U.S. dollar-based international reference price of these feedstocks. Under this agreement, any daily volume rejected by Braskem Idesa must be purchased in installments in subsequent deliveries until the deficit has been resolved and, If Pemex deliversreferences. The terminal project is designed to Braskem Idesa less than the volumes stablished under the Ethane Supply Agreement, it needs to pay shortfall penalties to Braskem Idesa. This contract will expire in 2035 and is renewable for three five-year periods, with prior notice by each party at least two years prior to the expiration of the agreement that it intends to renew this agreement.
If Pemex TRI (i) delivers less than an average of 70% of the 66,000 barrels of ethane per day over a six-month period, (ii) reaches the annual limit in respect of shortfall penalties owed by Pemex TRI to us and such limit is not waived by Pemex TRI, or (iii) materially breaches any of its obligations related to the supply of ethane thereunder; Braskem Idesa has the right to notify Pemex TRI trough a notice of breach and if such breach continues for more than six months after notice, or an extended period if the parties agree, Braskem Idesa has the right to terminate thesupplement ethane supply agreement and require Pemex TRIin Mexico by gaining access to repay certain outstanding debt and compensate Braskem and Idesa according to an agreed valuation formula including the repayment of certain of our debt.
The ethane supply agreement contains a volume delivery long-term performance covenant that requires Pemex TRI to meet a volume delivery of ethane over a six-month period averaging 70% of the agreed-upon volume under the ethane supply agreement (the “Long-Term Performance Test”). As of November 2020, Pemex TRI volume deliveries under the Long-Term Performance Test remained close but above the threshold. In the event that Pemex TRI fails to meet the Long-Term Performance Test, in addition to the direct negative impact on the production volumes of our Mexico Complex, it may (i) render us unable to generate sufficient cash to service our indebtedness with creditors under the Braskem Idesa Financing, (ii) cause such creditors to accelerate this indebtedness, and/or (iii) require Braskem Idesa to exercise a termination and put option against Pemex TRI that would force Pemex TRI to purchase the Mexico Complex from us. In the event any such termination and put option is exercised by us, there can be no assurance that Pemex TRI will not challenge the exercise of this termination and put option or otherwise attempt to avoid purchasing the Mexico Complex from us. See “Item 3. Key Information—Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico.”new feedstock sources.
In February 2010, we and Idesa entered into the Braskem Idesa shareholders’ agreement to govern our relationship with respect to Braskem Idesa, which was amended in November 2012, December 2012, April 2015, April 2017 and April 2017.October 2021. The Braskem Idesa shareholders’ agreement, as amended, sets forth the understanding of the parties regarding the implementation of this project and the relationship of Braskem and Idesa as shareholders of Braskem Idesa. Under the Braskem Idesa shareholders’ agreement, as amended:
· | the parties agree to use their best efforts to use Braskem Idesa as their commercialization vehicle for polyethylene in Mexico; |
· | the parties agree that the polyethylene production of Braskem Idesa shall be strategically focused on supplying the Mexican market; |
· | we have the right to appoint five members and Idesa has the right to appoint two members of Braskem Idesa’s board of directors; decisions considered at Braskem Idesa’s general shareholders’ meetings require the approval of at least 50% plus one of the voting shares of Braskem Idesa. Decisions considered by Braskem Idesa’s board of directors require the approval by a simple majority of votes of its members; |
· | upon the failure of Braskem and Idesa to agree to vote in favor of certain matters requiring a supermajority vote in an extraordinary shareholders’ meeting, (1) we will have the right to seek approval of such matters by a simple majority vote of Braskem Idesa’s shareholders, (2) in the event that such matters are approved by a simple majority vote of Braskem Idesa’s shareholders, we will have the option to purchase all of the shares then held by Idesa, and (3) in the event that we do not exercise this right, Idesa will have the option to sell all of its shares of Braskem Idesa to us; and |
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· | any disputes between Braskem and Idesa arising out of or in connection with the Braskem Idesa shareholders’ agreement will be resolved through arbitration. |
The Braskem Idesa shareholders’ agreement also contains rights of first refusal, tag along rights and drag along rights in connection with the disposition of Braskem Idesa shares.
The original estimated total cost of the Mexico Complex of US$4.5 billion, including financial costs during construction and initial working capital requirements, was revised in 2015 to US$5.2 billion primarily as a result of (1) a change in the scope of the power generating unit in order to ensure the self-sufficiency of the complex and improve the reliability of energy supply, with the possibility of selling any surplus energy to the grid; and (2) additional costs arising from infrastructure and local services.
We and Idesa contributed an aggregate of 38% of the total costs as equity in proportion to our ownership interests in Braskem Idesa, and the remainder was borrowed by Braskem Idesa under project finance facilities secured by the assets of this project, with multilateral credit agencies, export credit agencies, development banks and private banks.
Construction of the Mexico Complex began in 2012 and it commenced operations with the production of the first batch of polyethylene in April 2016.
Although our Mexico Complex is operational and Braskem Idesa has satisfied and continues to satisfy its debt service requirements and all other payment obligations under its R$7,646.4 million (US$1,471.4 million) senior secured syndicated facility on a timely basis, certain defaults not related to payment obligations occurred in 2016. However, in October 2019, a waivers and consent package was approved by the intercreditor agent on behalf of the lenders, thereby extending the date for achieving the guaranteed physical completion date from November 30, 2016 to December 31, 2020 and the guaranteed financial completion date from December 31, 2016 to December 31, 2020.
As of December 31, 2020, certain non-monetary obligation established in the financing agreements remained unfulfilled. As a result, the entire balance of non-current liabilities, in the amount of R$6,538.6 million was reclassified to current liabilities, in accordance with IAS 1 (Presentation of Financial Statements). These defaults give the creditors thereunder the right to vote to accelerate their debt under this facility and exercise their remedies in respect of the collateral for the facility, including the Mexico Complex and the outstanding shares of Braskem Idesa.
In accordance with the aforementioned accounting standards, reclassification is required in situations in which the breach of certain contractual obligations entitles creditors to accelerate the indebtedness. None of the creditors requested said prepayment of obligations and Braskem Idesa has been settling its debt service obligations in accordance with their original maturity schedule.
Furthermore, Braskem Idesa intends to negotiate a waiver of such breaches with its creditors to reclassify the entire amount reclassified from current liabilities back to non-current liabilities.
On November 25, 2019, Braskem Idesa issued R$4,667.3 million (US$900.0 million) in aggregate principal amount of 7.450% senior secured notes due 2029. The notes are senior secured obligations of Braskem Idesa and rank pari passu with the existing Braskem Idesa project finance debt until the full repayment of the outstanding amount of the Braskem Idesa project finance facility. After the full amortization of the outstanding amount of the Braskem Idesa project finance facility, Braskem Idesa’s notes will convert into senior unsecured notes.
In December 2020, we received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency solely responsible for the natural gas pipelines and transportation in Mexico, related to the unilateral non-renewal of the service of natural gas transportation, an essential energy input for the production of PE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities, which may have a material adverse effect on our operating or financial results, depending on the timing of the stoppage. Later in January 2021, Braskem Idesa partially resumed its operating activities based on an experimental business model to produce polyethylene. Braskem Idesa also initiated legal measures to enforce its legal and contractual rights. For additional information, see “Risk Factor - Political and economic conditions and government policies in Mexico, including political interferences in state-owned companies such as Pemex TRI and Cenagas, and elsewhere may have a material impact on our operations.”
Equity Support Agreement Relating to the Mexico Complex
In December 2012, we, Braskem Idesa, Etileno XXI, S.A. de C.V., and Idesa entered into an equity support agreement pursuant to which Braskem Idesa’s shareholders agreed to make and guarantee payment of certain equity contributions to Braskem Idesa. This contract was amended and restated in April 2015. Pursuant to the amended and restated equity support agreement, the parties assumed a base equity commitment of US$2.0 billion in proportion to their percentage ownership, direct or indirect, in Braskem Idesa (Braskem 75% and Idesa 25%), which has been fully contributed into Braskem Idesa. The shareholders have also assumed the obligation of making certain contingent equity contributions to cover any additional amounts necessary to complete the project. Our contingent equity commitment that remains available is in the amount of up to US$208 million, and such commitment will be available until the occurrence of the contingent equity release date in accordance with the amended and restated equity support agreement; provided that the same will be reduced to the lesser of the amount then available and US$100 million upon the achievement of financial completion of the project. Currently, we have not provided credit support for any of our obligations to fund base equity or primary or secondary contingent equity, but in the event that we cease to have an investment grade rating prior to the release of our base and contingent equity obligations, we will be required to provide cash collateral or in an amount equal to any such equity contributions that we may be required to make under the agreement.
To develop our Mexico Complex, Braskem Idesa required significant capital expenditure and incurred significant debt. The ability of Braskem Idesa’s shareholders to comply with the obligation to make certain contingent equity contributions to cover additional amounts necessary to complete the project, as agreed in the equity support agreement in connection with the project finance facility, could affect the operation of the Mexican Complex. See “Risk Factors—Risks Relating to Us and the Petrochemical Industry—We may face unforeseen challenges in the operation of our Mexico Complex, which could result in this business unit failing to provide expected benefits to us.”
Amendments to Braskem Idesa Shareholders’Shareholders' Agreement Relating to Project Ethylene XXI
In February 2010, Braskem and Idesa entered into a shareholders’ agreement, which we refer to as the Braskem Idesa shareholders’ agreement, to govern our relationship with respect to Braskem Idesa. In November 2012, Braskem and Idesa entered into the first amendment to the Braskem Idesa shareholders’ agreement, under which our ownership interest in Braskem Idesa was increased to 75% minus one share of the equity interest in Braskem Idesa and Idesa’s ownership interest in Braskem Idesa was reduced to 25% plus one share of the equity interest. In December 2012, we and Idesa entered into the second amendment to the Braskem Idesa shareholders’ agreement to include the commitment of both Sponsors to fund certain primary and secondary contingent equity to the project. In April 2015, we and Idesa entered into the third amendment to the Braskem Idesa shareholders’ agreement to include additional base equity contribution and reaffirm the new commitments of contingent equity, under which we agreed to fund up to 100% of the contingent equity commitment under the equity support agreement up to start-up date. The primary contingent equity commitment is US$208 million. Finally, inIn April 2017, we and Idesa amended and restated the Braskem Idesa shareholders’ agreement to update the terms to reflect the progress of the enterprisecompany since the original signing in 2010 and to reflect the understanding among the shareholders as to the shareholders’ rights and obligations in connection with the payment of fees and interest by Idesa related to any funding by Braskem of Idesa’s portion of contingent equity or the working capital needs of Braskem Idesa, and the eventual dilution of Idesa’s equity interests in Braskem Idesa as a result of the same. Finally, in October, 2021, we and Idesa executed the second amendment and restatement shareholder agreement of Braskem Idesa in order to update the excess commitment fee regarding the contingent equity funded by us and modifying the fee rate related to it.
Other Investments
New PP plant in the United States
Aligned with the strategy to diversify the raw materials matrix and geographic expansion in the Americas, reinforcing the leadership in the PP production in the United States, our Board of Directors approved, on June 21, 2017, the project to build a new PP plant of 450,000 tons at the La Porte site, in the American state of Texas. After completing the commissioning phase in accordance with the applicable safety standards, we have started the commercial production of PP at our new plant in the United States in September 2020.
With an approved investment of up to US$758 million, as of December 31, 2020, we had already invested R$3,764.5 million (US$724.5 million) in the project. In 2020, the project had an 100% completion rate: 100% of the construction was completed, and 100% of the engineering detailing and equipment and material acquisitions were completed. Linde Group was hired to lead the EPC (engineering, procurement and construction) of the project and the choice of Grace’s UNIPOL® technology.
Braskem America entered into a credit facility in the amount of up to R$1,169.3 million (US$225.0 million) with Euler Hermes, a German export credit agency, which will be used to finance a portion of the investments in the new PP plant. The transaction, which matures on December 30, 2028, has a interest at a rate equivalent to LIBOR plus 0.65% per year, payable semi-annually to maturity. The principal amount is amortized semi-annually as from December 30, 2020. The funds are disbursed in accordance with the progress of the construction project, and the remaining amount is expected to be disbursed in the first semester of 2021. As of December 31, 2020, R$996.5 million (US$191.8 million) had been disbursed in principal amount, and the amount outstanding under the credit facility was R$996.5 million (US$191.8 million).
Energy efficiency project in our cracker at the São Paulo Complex
To improve energy efficiency and competitiveness of the cracker at the São Paulo Complex, Braskem Siemens will invest approximately R$600 million to improve the thermoelectric system of the unit at the complex by replacing some of the steam-powered turbines with high-efficiency electric engines supported by a new co-generation plant that will consume the residual gas from the unit’s own production process. To enable the investment by Siemens in the new co-generation plant, Braskem signed an agreement with Siemens for a term of 15 years under a build, own and operate model. With startup expected in 2021, the project will not only reduce the site’s energy consumption, but also reduces the cracker’s water consumption by 11.4% and its greenhouse gas emissions by 6.3%.
As of December 31, 2020, R$180 million (US$34 million) was already invested and the project was approximately 86% complete.
Technology change at our chlor-alkali facility in Alagoas
We are investing R$67.7 million in a project at our chlor-alkali facility located in the district of Pontal da Barra, in Maceió, in the state of Alagoas, which aims to change the raw material processing from brine to sea salt.
With this project, we were able to resume operations of our chlor-alkali and dichloroethane plants in the region that have been suspended since May 2019 following the developments stemming from the publication of Report no. 1 by the Brazilian Geological Service (CPRM). See “Item 3. Key Information—Risk Factors—Our business and operations are inherently subject to environmental, health and safety hazards. As a result, our business is also subject to stringent environmental and other regulations.”
The new technology consists of sourcing salt from third parties. Salt could be sourced from the Northeast region of Brazil by road or imported from other regions using the port of Maceió, which is located near the chlor-alkali facility. Salt sourced from third parties will be initially stored, dissolved into water to produce brine, treated and then sent to be processed in the chlor-alkali facility.
As of December 31, 2020, R$65.1 million (US$12.5 million) had already been invested.
Solution to import ethane for the Braskem Idesa facility in Mexico
Braskem Idesa has been investing in logistics infrastructure to import ethane from the United States to maintain and increase the capacity utilization rate of its cracker. Concerning to ethane supply, Braskem Idesa has entered into a long-term agreement to acquire ethane and could also import in the sport market.
To ensure the Fast-Track Solution’s feasibility, Braskem Idesa executed agreements with Smart Pass, a logistics operator, and with Enestas, a company specialized in cryogenic gas transportation. Smart Pass will beis the responsible for receiving liquefied ethane at the Port of Coatzacoalcos docks and unloading it from the vessels in cryogenic tanks. Enestas willis the responsible for the transport theof ethane by truck to the Braskem Idesa petrochemical complex, where the ethane will beis stored in existing tanks and regasified for use in the production process.
With an approximate investment of R$49.9 million (US$9.6 million), this complementary solution for acquiring feedstock had made it possible to import up to 12,800 barrels per day of ethane to the Petrochemical Complex in Mexico, which represents 19% of its ethane needs. In February 2020, Braskem Idesa started its operation to import ethane the "Fast Track" solution,(the “Fast Track Solution”) and imported its first shipment of ethane.
The total investment ofin the Fast Track Solution, considering expansion, is an approximate a total investment of R$62.967.5 million (US$12.1 million), with approximately R$51.755.2 million (US$9.9 million) spent by the end of 2020. The expansion of this complementary solution for acquiring feedstock will makemakes it possible to import up to 28,00035,000 barrels per day of ethane to the Petrochemical Complex in Mexico, which represents 40%50% of its ethane needs. In December 2020, Braskem Idesa concluded the first phase of expansion of the "Fast-Track"Fast Track Solution to 20 kbpd and, is expected to be concluded in April 2021 we concluded the second phase of expansion to a total capacity of 2825 kbpd. By 2022 Braskem Idesa increased the total capacity up to 35,000 bpd as a result of additional investment of R$86.5 million (US$15.5 million).
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By 2023, our petrochemical complex had an operating rate of approximately 77% primarily due to the shortfall in ethane supplied under the ESA, which was partially offset by imported ethane supplied by the Fast Track Solution. We diversified our sources of feedstock supply with the Fast-Track Solution and we plan to increase our import capacity in the future by adding additional discharge stations, both at the port and at our plant. Once the Ethane Import Terminal is operational, we expect to rely less on the Fast-Track Solution.
Besides,In addition, to implement the Fast-Track Solution, we executed the BNL Ethane Supply Agreement, a contract for the purchase of a target volume of ethane per year with Braskem Netherlands in February 2020, which has a term of twenty-four months, extendable for one optional period of six months. The price of ethane was determined by a contractual formula, and penalties would apply for delivery delays or if incorrect quantities are delivered. In addition, we have purchased additional volumes of ethane from Braskem Netherlands by entering into the BNL Ethane Supply Agreement Amendment.
On December 18, 2023, Braskem Idesa continuesentered into a term agreement for the purchase of ethane with Braskem Netherlands, B.V., in effect until March 2033, using Mont Belvieu price reference, in order to assess a complementary solution for larger-scaleimport: (i) additional capacity of ethane imports whose scope consiststo the ethane currently supplied by Pemex before Ethane Import Terminal becomes fully operational, and (ii) all ethane requirements of building a terminal for importing ethane and a pipeline to transport it to its petrochemical complex. Braskem Idesa after Ethane Import Terminal become operational.
For additional information, particularly relating to the risks associated with this project, please see "Item 3. Key Information—“Item 3.D Risk Factors—Risks Relating to Mexico—IfWe source part of our ethane feedstock from Pemex TRI in Mexico, which we expect to be our primary source of ethane until the company fails to develop anEthane Import Terminal is operational.”
Braskem Idesa is also developing the Ethane Import Terminal, a long-term alternative source of imported ethane it may haveand a negative impact onpipeline that will connect the terminal directly to our business becauseComplex. The expected ethane capacity of the Ethane Import Terminal would be enough to fulfill the total ethane needs for the Mexico Complex. This terminal would provide the capacity to import more ethane than we cannot operatecurrently require. With this, our Mexico Segment will be able to source the total needs of our Mexico Complex atto increase our polyethylene production and take advantage of the forecasted increase in demand for polyethylene products in North America and around the world.
On October 12, 2021, Braskem Idesa and Braskem Idesa Servicios incorporated Terminal Química Puerto México, S.A.P.I. under the laws of Mexico, with the main purpose of designing, constructing and developing the ethane import terminal. In addition, on December 09, 2021, Braskem Idesa’s board of directors approved the Final Investment Decision (“FID”) in order to invest in the Ethane Import Terminal Project.
The estimated cost of the Ethane Import Terminal and related infrastructure investment is approximately R$2,327 million (US$446 million) (inclusive of financing costs and VAT). On June 13, 2022, Braskem Idesa and TQPM, entered into a stock purchase agreement with Advario, a carve-out of Oiltanking GmBH, for a 50% interest in TQPM, subject to certain conditions precedents. The Mexican Antitrust agency (COFECE) approved such purchase on October 3, 2022. On March 1, 2023, Braskem Idesa met the conditions precedent, receiving the payment of R$292 million (US$56 million) referring to the capital contribution disbursed, which was equivalent to 50% interest in TQPM’s capital by Braskem Idesa until the respective date, totaling R$584 (US$112 million). The Ethane Import Terminal is expected to be completed and to reach full capacity.capacity by the end of 2024, but there may be delays.
On October 2023, with the support of its shareholders, Braskem Idesa and Advario, TQPM secured the financing of R$1,975 million (US$408 MM) Senior Loan, by INBURSA, ING KFW-IPEX, Credit Agricole, Mizuho, and DEG. It is a syndicated project finance loan, a five-year mini-perm deal with standard guarantees for a transaction of this nature. The capital structure of the project is expected to be 30% equity and 70% debt of the total investment. On November 2023, TQPM made the first disbursement of the syndicated project finance loan in the amount of R$760 million (US$157 million).
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On October 7, 2022, TQPM entered into a land purchase agreement with Administración del Sistema Portuario Nacional Coatzacoalcos, S.A. de C.V. (“ASIPONA”) for the land that will be used for the construction of the storage system of the Ethane Import Terminal. Also, TQPM obtained the construction license for construction of the storage system on December 22, 2022.
On October 31, 2022, TQPM entered into an Alliance Engineering, Procurement and Construction Contract with ICA Flour Daniel, S. de R.L. de C.V. (“ICAF”), in order to ICAF be responsible for the design, engineering, procurement, construction, commissioning and deliver turnkey the Ethane Import Terminal to TQPM.
The Ethane Import Terminal is expected to be completed by the end of 2024 and to reach full capacity by the first half of 2025, but there may be delays. Please see “Item 3. D Risk Factors—Risks Relating to Mexico—We source part of our ethane feedstock from Pemex TRI in Mexico, which we expect to be our primary source of ethane until the Ethane Import Terminal is operational.”
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Off-Balance Sheet Arrangements
We do not currently have any transactions involving off-balance sheet arrangements.
Directors and Senior Management
Our board of directors (“conselho de administração”) and our board of executive officers (“diretoria”diretoria estatutária”) are responsible for operating our business.
Board of Directors of Braskem
Our by-laws provide for a board of directors of eleven members and its alternate directors. During periods of absence or temporary unavailability of a regular member of our board of directors, the corresponding alternate member substitutes for the absent or unavailable regular member. Our board of directors is a decision-making body responsible for, among other things, determining policies and guidelines, as well as the approval for acquisition of products and material and execution of certain contracts for our business and our wholly owned subsidiaries and controlled companies.companies, when applicable. Our board of directors also supervises our board of executive officers and monitors its implementation of the policies and guidelines that are established from time to time by the board of directors. Under the Brazilian Corporate Law, our board of directors is also responsible for hiring independent accountants.
The members of our board of directors are elected at general meetings of shareholders for a two-year termsunified term and are eligible for reelection. The terms of all current members will expire at our annual shareholders’ meeting scheduled for 2022.to be held in April 2024. Members of our board of directors are subject to removal at any time at a general shareholders’ meeting.meeting, observing the provisions in the Shareholders’ Agreement filed at the Company’s headquarters. The position of Chief Executive Officer and Chairman of the board of directors cannot be held at the same time by the same individual according to the Brazilian Corporate Law. Our by-laws do not contain any citizenship or residency requirements for members of our board of directors and the members of our board of directors needthey do not have to be our shareholder.shareholders. Our board of directors is presided over by the chairman of the board of directors, and, in his absence or temporary unavailability, by the vice-chairman of the board of directors. The chairman and the vice-chairman of our board of directors are elected at a general shareholders’ meeting from among the members of our board of directors to serve for two-year terms and are eligible for reelection.
Our board of directors ordinarily meets at least six and up to 12 times a year every month and extraordinarily whenever called by the chairman, the vice-chairman or any two other members of our board of directors. Decisions of our board of directors require a quorum of a majority of the current directors and are taken by majority vote, other than certain actions which require the consensus of the nominees of Novonor formerly called Odebrecht S.A. – Em Recuperação Judicial (“Novonor”), and Petrobras Brasileiro S.A.–Petrobras (“Petrobras”) under the Braskem S.A. Shareholders’ Agreement. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Agreements—Braskem S.A. Shareholders’ Agreement.”
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The following table sets forth certain information with respect to the current members of our board of directors and their alternates as of the date of this annual report:
Name | Member Since | Position Held | Age |
José Mauro Mettrau Carneiro da Cunha | December 20, 2019 | Chairman of the Board | |
Vice-Chairman of the Board | |||
Board Member | |||
Gesner José de Oliveira Filho(1) | June 27, 2017 | Board Member | |
April 16, 2019 | Board Member | ||
April | Board Member | ||
November | Board Member | ||
May | Board Member | ||
Charles Lenzi (1) | April 19, 2022 | Board Member | 65 |
Marcelo Klujsza | August 24, 2020 | Board Member | |
André Amaro da Silveira(1) | June 8, 2016 | ||
April | Alternate | ||
Daniel Pereira de Alburquerque Ennes | May 29, 2020 | Alternate | |
Guilherme Simões de Abreu | May 29, 2020 | Alternate | |
Marco Antônio Zacarias | April 19, 2022 | Alternate | 63 |
Lineu Fachin Leonardo | April 19, 2022 | Alternate | 42 |
(1) | Independent director. |
The following is a summary of the business experience, areas of expertise and principal outside business interests of our current directors and their alternates.
Directors
José Mauro Mettrau Carneiro da Cunha. Mr. José Mauro Mettrau Carneiro da Cunha has beenwas elected as an effective member and Chairman of the Company'sCompany’s Board of Directors on May 29, 2020, and he has been appointed by shareholder Novonor S.A.Novonor. Mr. José Mauro is awas reelected as an effective member and Chairman of the Company’s Board of Directors on May 29, 2020 and on April 19, 2022. He was Chief Executive Officer of Novonor S.A. since October 2019,from April 2021 to March 2022 and he was a member of the Board of Directors of Oi S.A. from September 2018 to September 2020. He was2020, having previously theserved as Chairman of the Board of Directors of Oi S.A. since 2009. Mr. José Mauro startedbegan his career as aan employee of BNDES, employee, exercisingwhere he held several dutiespositions and occupying severalheld various executive positions (from 1974 to 1990), having also beingbeen appointed OfficerDirector (from 1991 to 1998) and Vice-President,Vice President, responsible for the Industrial Operations, Legal and Fiscal MattersTax Affairs areas (from 1998 to 2002). His main professional experiences include: (i) Effective memberFull Member of the Board of Directors of Telemar Participações S.A. (from 2008 tountil the merger of Telemar Participações S.A., in September 2015); (ii) Effective memberFull Member of the Board of Directors of Vale S.A. (from 2010 to April 2015); (iii) ActingInterim Chief Executive Officer of Oi S.A., in 2013; (iv) Chairman of the Board of Directors of the following companies: Tele Norte Leste Participações S.A. (from 1999 to 2003 and from 2007 to 2012), where he also actedserved as an Alternate Member of the Board of Directors in 2006; Telemar Norte Leste S.A. (from 2007 to 2012); TNL PCS S.A. (from 2007 to 2012); Tele Norte Celular Participações S.A. (from 2008 to 2012); Coari Participações S.A. (from 2007 to 2012); Dommo Empreendimentos Imobiliários S.A., formerformerly Calais Participações S.A. (from 2007 to December 2016); (v) Effective Member of the Board of Directors of Log-In Logística Intermodal S.A. (from 2007 to 2011); (vi) Effective Member of the Board of Directors of Lupatech S.A. (from 2006 to 2012); (vii) Effective Member of the Board of Directors of Santo Antonio Energia S.A. (from 2008 to 2016); (viii) Effective MemberFull member of the Board of Directors of the following Companies:companies: (a) Braskem S.A. (from 2007 to 2010), where he previously held the position of Vice-PresidentVice President of Strategic Planning (from 2003 to 2005); (b) LIGHT Serviços de Eletricidade S.A. (from 1997 to 2000); (c) Aracruz Celulose S.A. (from 1997 to 2002); (d) Politeno Indústria e Comércio S.A. (from 2003 to 2004); (e)(e) BANESTES S.A. –- Banco do Estado do Espírito Santo (from 2008 to 2009); and (f) Pharol, SGPS, S.A. (from 2015 to 2017). Mr. José Mauro earned a graduate degreegraduated in mechanical engineering from Universidade Católica de Petrópolis, in Rio de Janeiro, in 1971. He concluded thecompleted an Executive Program in Management at the Anderson School, University of California, in December 2002.
João Cox Neto. Mr. Cox currently serves as Chairman of the board of directors of Vivara S.A., vice-Chairman of Braskem S.A. and also as a member of the board of directors of Embraer S.A. He is the founding partner and managing director of Cox Investiments & Advisory. Between 2006 and 2010, Cox served as CEO and vice-chairman of Claro. In 2005, he was the vice-chairman of the board of directors of Cellcom Israel. He served as CFO and investor relations of Telemig Celular Participações and Tele Norte Celular Participações from April 1999 to August 2004 and also as CEO of Telemig Celular and Amazonia Celular from August 2002 to August 2004. In addition, Mr. Cox has served as a member of the boards of directors of certain companies in Brazil, Argentina, The Netherlands and Israel. He also served as a board member of the CRSFN—National Financial System Resources Council, ABRASCA (Brazilian Association of Publicly Held Companies) and IBRI (Brazilian Institute of Investors’ Relations). Cox holds a bachelor’s degree in economics from Universidade Federal da Bahia and attended to post graduation in economics at Université du Québec à Montreal and at the College of Petroleum Studies of Oxford University. Mr. Cox is member of the Board of Directors of Embraer, as a nominee of the shareholder Petróleo Brasileiro - Petrobras.
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Roberto Lopes Pontes SimõesEduardo Bacellar Leal Ferreira (independent member). Mr. Roberto Simões is the current Chief Executive Officer of Braskem, in addition to beingEduardo Bacellar Leal Ferreira was elected as an effective member of the Company’s Board of Directors.Directors on April 19, 2022, and he has been appointed by shareholder Petróleo Brasileiro S.A. - Petrobras. Mr. Roberto Simões has acted asEduardo Bacellar Leal Ferreira was Chairman or member of the Board of Directors of large companiesPetrobras from 2019 to April 2022. In addition to the Petrobras Board, he participated in the Admiralty (Navy High Command) from 2013 to 2019, having chaired it from 2015 to 2019; the navy’s Financial and Administrative Council, from 2015 to 2019; the Interministerial Commission for the Resources of the Sea (coordinator), from 2015 to 2019; the Management Councils in the various Military Organizations he directed or institutions, such as: IBP (Instituto Brasileirocommanded; and the Officer Promotion Commission, in 2007. He served in the Brazilian Navy from 1971 to 2019, in the positions of Director of Ports and Coasts, from 2010 to 2011; Commander-in-Chief of the Fleet, in 2012; Commander of the National War College, from 2013 to 2015; and Commander of the Navy, from 2015 to 2019. Before 2010, he served in numerous positions and functions inherent to his career, including a total of 13 years in command and direction of ships and land-based organizations, including the Captaincy of Ports Department of Rio de Petróleo), ABIQUIM, Odebrecht Engenharia e Construção, Consorcio Baia de Sepetiba, Itaguaí Construções Navais, Petroquímica Paulínia, Ipiranga Química, Ipiranga Petroquímica, Refinaria Ipiranga, COPESUL, PetroflexJaneiro, the Admiral Alexandrino Training Center, the Brazilian Naval Academy and CETREL.the Seventh Naval District Command (Brasilia, Goiás and Tocantins). He was CEO of Ocyan S.A. (2012-2019)a celestial navigation instructor at the American Naval Academy, in Annapolis (Maryland), Odebrecht Defesa e Tecnologia (2010-2012), President of Santo Antônio Energia (2008-2010) and Executive Vice-President of Braskem (2004-2008). From 2000 to 2004, he heldfor two years. He also served in the position of COO and CEO of iG-Internet Group. He was the President of Opportrans Concessão Metroviária - Metro Rio, from 1999 to 2000. His career at Odebrecht Organization began in 1994, as Tenenge and CNO Agreements Officer, holding such office until 1999. Mr. Simões earnedChilean Navy, taking a graduate degree in Mechanical Engineering from Universidade Federal da Bahia (UFBA) in 1978. He has also attended the Petrochemical Projects and Maintenance Engineering Course - Cemant (a cooperation between Petrobras and UFBA).General Staff course. He is a graduate of the Officer’s Graduation Course and of Operations Engineering, mechanical modality, by the Naval School, from 1971 to 1975. He took the Electronics Course for Officers, at the Admiral Wandenkolk Training Center, from 1976 to 1977; Command and General Staff Course, in 1990, Superior Course, in 1991, Maritime Policy and Strategy Course, in 2000, at the Naval War College; General Staff Course at the Chilean Navy, in 1992; Module of Economic Sciences, from the Faculty of Economic and Administrative Sciences of the Universidad Marítima de Chile, in 1992; Professional Master of Naval Sciences, from the Naval War College, in 1992; and Professional Doctorate in Naval Sciences, Maritime Policy and Strategy at the EGN, in 2000.
José Luis Bringel Vidal (independent member). Mr. José Luis Bringel Vidal was elected as an effective member of Assembleia das Obras Sociaisthe Company’s Board of Directors on April 19, 2022, and he has been appointed by shareholder Petróleo Brasileiro S.A. - Petrobras. Mr. José Luis Bringel Vidal has been a member of the Advisory Board and the Founder President of the Mining Committee of the Commercial Chamber Brazil-Texas, since July, 2023. He is also a founding member and coordinator of the Infrastructure and Logistics Committee, of RGB - Rede de Irmã Dulce.Governança do Brasil, since April 2021; Senior Government Relations Consultant of Norsk Hydro do Brasil, since February 2021; Member of the Board of Directors of Santos Brasil S.A., since May 2018, and of BEMISA - Brasil Exploração Mineral S.A., since March 2011. He is a Shareholder and Member of the Board of Directors of WV Logistics, since January 2020, and was Founding Partner and C&O from November 2003 until January 2020. He was Director of the Logistics and Transportation Division of the Infrastructure Department of FIESP - Federation of Industries of the State of São Paulo, from February 2020 to January 2022; Member of the Advisory Board of the Port of Angra dos Reis, from March 2020 to May 2021; Member of the Advisory Board of ABPM - Brazilian Association of Mineral Research Companies, from March 2017 until September 2020; Senior Consultant at Rio Tinto Alvan (Alcan), from December 2017 until July 2018; Founding Partner at TACV - Transport System Development, from August 2013 until July 2017; Senior Consultant at Piaui State Government - BR, from March 2015 until March 2016; Senior Consultant at Zamin Resources Limited, from November 2015 until January 2016; Senior Consultant at Warburg Pincus LLC, from January 2015 until May 2015; Senior Consultant at Itochu Corp & JFE Steel & Posco Group & China Steel, from March 2014 until October 2014; Senior Consultant at Hatch - CODELCO, from July 2014 until September 2014; Senior Consultant at Rio Tinto Alcan, from May 2011 until March 2013; Senior Consultant at SNC - LAVALIN, from February 2012 until May 2012; Senior Consultant at Itochu Corporation & JFE Steel & Nippon Steel & Posco Group & China Steel, from March 2008 until November 2008; Logistics Director at BEMISA - Brasil Exploração Mineral S. A., from June 2007 until September 2008; Senior Advisor of Bahia Mineração S.A. - BAMIN, from March 2005 until April 2006; National Coordinator of the Logistics Council of FECOMÉRCIO - Federação do Comércio do Estado de São Paulo, from June 2001 until March 2005; General Manager of Pasha Brasil, of The Pasha Group - Rio Doce Pasha Terminais L.P., from July 2001 to October 2003; Manager of the São Paulo Business Unit of Ferrovia Centro Atlântica S.A. - FCA, from January 1997 to June 2001. He is an Electrical Engineer from Escola de Engenharia de Mauá, in 1992. He holds a Post-Graduate degree in Market-Oriented Business Administration from Escola Superior de Propaganda e Marketing, in 1994; Board of Directors Program, from Instituto Brasileiro de Governança Corporativa, in 2012; Certification as Experienced Board Member (CCA+), from Instituto Brasileiro de Governança Corporativa, in 2019 – Certificate renewed in August 2022 (credential code 31581/2022); Update for Certified Board Members, from Instituto Brasileiro de Governança Corporativa, in 2020; Corporate Risk Management 1st Edition, by the Brazilian Institute of Corporate Governance, in 2020; Advanced Course for Board Members 14th Edition, by the Brazilian Institute of Corporate Governance, in 2020; Professional Education Specialization Leadership in Innovation, by MIT - Massachusetts Institute of Technology, in 2021; Specialization in Risk Management and Financial Decision Making, by the University of Chicago, in 2021. ESG: how to rethink and innovate business in a changing world - Integrated Leadership Training Program, by the Instituto Brasileiro de Governança Corporativa, in 2022; and Coordinator & Professor of the 1st Improvement Program in Governance, Compliance and Risk Management with Emphasis on Transport and Infrastructure promoted by the Latin American Institute of Governance and Public Compliance (IGCP) for Members of the National Transport Confederation (CNT) and Institute of Transport and Logistics (ITL), in 2022. He has been a Visiting Professor at FGV Transportes - Fundação Getúlio Vargas since August, 2023.
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Gesner José de Oliveira Filho (independent member). Mr. Gesner José de Oliveira Filho has beenwas elected as an independent and effective member of the Company'sCompany’s Board of Directors on June 27, 2017, he has been appointed by the shareholder Novonor S.A.Novonor. Mr. Gesner Oliveira was reelected on April 30, 2018, on May 29, 2020 and on April 14, 2022. Mr. Gesner Oliveira also holds the position of Coordinator of the Company’s Statutory Compliance and Audit Committee since April 27, 2022. He is ancertified by IBGC as independent director certified byand as member of Audit Committee CCoAud+; he is member of the Brazilian Institute for Corporate Governance - IBGC. In addition to being a Director at Braskem,Board of Directors of TIM, where he coordinates the Statutory Audit Committee and is also a member of the Boards of Directors, of the ESG Committee and Coordinator of the Audit Committee at TIM BRASIL;“ESG” Committee; he is Chairman of the Board of Directors of Estre Ambiental member of the Board of Directors of Iguá Saneamento and of Instituto Iguá de Sustentabilidade, member of the Advisory Board of ETCO, member of the Advisory Board of CIEE and member of the Self-Regulation Board of FEBRABAN. His experience in BoardsHe was member of the Global Consultive Board of UBER and of the Board of Directors includes public and private companies, such as SABESP,of Iguá, Usiminas, Sabesp, CESP, Banco Nossa Caixa VARIG and USIMINAS.Varig. He currently participates, as a volunteer, at the Instituto Brasileiro de Ética Concorrencial (ETCO), Centro de Integração Empresa-Escola (CIEE), acts as a member of the Consultive Council of GRAPE ESG and as a member of the Consultive Council of Climatic Actions and Politics at Secretaria Executiva de Mudanças Climáticas (SECLIMA) and of the São Paulo Municipal’s Secretary. He is a Partnerpartner at GO Associados, Professor of the Getúlio Vargas Foundation (FGV),at FGV, where he coordinates the Center for Infrastructure &and Environmental Solutions Studies. BetweenStudy Centre. From 2007 andto 2011 he was the Presidentpresident of Sabesp – Sanitation Company of the State of São Paulo (CompanhiaCompanhia de Saneamento do Estado de São Paulo). He has also acted as Advisor in a project for the World Bank regarding the institutional analysisPaulo. From 1996 to 2000 he was president of a sanitation company in Dhaka, Bangladesh, in 2012.CADE. Mr. Gesner Oliveira holds a graduatePhD degree in Economics from the School of Economics and Administration of Universidade de São Paulo – FEA/USP, andCalifornia University (Berkeley), a Master’s degree from Unicamp and a bachelor’s degree from FEA-USP, in Economics from the Economics Institute of Universidade Estadual de Campinas (UNICAMP) and Ph.D. in Economics from University of California, Berkeley.area.
Paulo Roberto Vales de Souza. (independentJoão Pinheiro Nogueira Batista (independent member). Mr. Paulo Roberto Vales de Souza has been appointedJoão Pinheiro Nogueira Batista was elected as an effective member of the Company’s Board of Directors by shareholder OdebrechtNovonor. Mr. Paulo Roberto Vales de Souza is an engineer,on April 16, 2019, and he earnedhas been appointed by the shareholder Novonor S.A. - Em Recuperação Judicial. Mr. João Nogueira was reelected on May 29, 2020 and on April 19, 2022. Mr. João Nogueira is currently the CEO of Marisa Lojas S. A. since February, 2023, as well as Board’s President of Vports Autoridade Portuária S.A. Mr. João Pinheiro Nogueira Batista has served for more than 10 years on the Board of Directors of companies in Brazil and abroad. Until January 2022 Mr. João Nogueira was CEO of Evoltz Participações S.A. He is also member at two third sector organizations: Associação Maria Helen Drexel and Instituto de Reciclagem do Adolescente-Recicla. In the Novonor Group, he was an independent member of the Boards of Directors of Odebrecht Engenharia e Construção since June 2017 and of Ocyan since April 2018, in which he remained until January 2019, when he joined the Board of Directors of Novonor S.A. – Em Recuperação Judicial and remained until April 2021. In his broad executive career built in the public and private sectors, he was CEO of Swiss Re, Bertin S.A. and Suzano Petroquímica, as well as held directorships in companies such as Petrobras, Dresdner Bank, Citibank, Radiobras and Siderbras. Mr. João Nogueira Batista holds a graduate degree in economics from Universidade Federal do Rio de Janeiro in 1972,PUC - RJ and a graduate degreean MBA in Economic Engineering from Pontifícia Universidade Católica doGama Filho, Rio de Janeiro in 1979. Mr. Paulo Roberto Vales de Souza workedJaneiro.
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Juliana Sá Vieira Baiardi. Ms. Juliana Sá Vieira Baiardi was elected as an engineer approved in a public examination at the Brazilian Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econômico - BNDES), from January 1974 to January 2001, having occupied executive positions (from Manager to Superintendent) since 1979, in the areas of infrastructure, agroindustry, consumer goods, planning and credit refund. Mr. Paulo Roberto Vales de Souza was Chairman of the Board of Directors and Chief Executive Officer of the Retirement Fund of BNDES - FAPES from July 1991 to January 2001, Chairman of the Decision-making Council of the Brazilian Association of Private Pension Funds - Abrapp from 1995 to 1998, Planning Officer of the National Social Security Institute from 1994 to 1997, Chairman of the Ethics Commission of Abrapp/National Union of Private Pension Funds (Sindapp) from 2001 to 2004, 2004 to 2007, 2007 to 2010 and 2011 to 2013,effective member of the Audit CommitteeCompany’s Board of Diretors on April 19, 2022, and she has been appointed by the shareholder Novonor – Em Recuperação Judicial. Ms. Juliana Baiardi joined Odebrecht Group in August 2011. Ms. Juliana Baiardi acts as member of the Board of Directors of BNDESOTP and of Enseada Industrial Naval S.A. - Em Recuperação Judicial. From April 2021 until June 2022, she has been an advisor of Novonor’s CEO and from 2008June 2022 to 2018, memberOctober 2023, she was Leader of Business-Participations of Novonor. Ms. Juliana Baiardi was Vice-Chairman of the Committee of Best Market Practices of ANBIMA, member of the Credit Committee of Fund JBVC I, managed by Jardim Botânico Investimentos, in 2001, member of the Advisory Board of OCROMA Investimentos, memberOdebrecht Engenharia e Construção from October, 2019 until June, 2022. Ms. Juliana Baiardi acted as CEO at Atvos from May 2019 to February 2021; CEO of OTP from May 2017 to May 2019; CEO of Odebrecht Ambiental from September 2016 to April 2017; CFO of Odebrecht Ambiental from February 2016 to September 2016; and Director of Logistics of OTP from August 2011 to February 2016. Before joining Odebrecht Group, Ms. Juliana Baiardi worked 10 years at J P Morgan in the Audit Committee of VALIQ, Pension Fund of Vale do Rio Doce, since January 2019,Investment Banking Latin America and GovernancePrivate Equity areas. She also worked at Dresdner Bank in Brazil in the Project Finance sector from 1997 to 1999. Ms. Juliana Baiardi holds a degree in Civil Engineering from UFBA Universidade Federal da Bahia and Risk Management consultant at Fundação Atlântico, Pension Fund of Oi.an MBA from Columbia Business School in New York.
Roberto Faldini.Héctor Nuñez. Mr. Roberto Faldini has been appointedHéctor Nuñez was elected as an effective member of the Company’s Board of Directors ason November 18, 2021, and he has been appointed by the shareholder Novonor. Mr. Héctor Nuñez was reelected on April 19, 2022. Mr. Héctor Nuñez is a nomineesenior executive, customer-focused, international business strategist with over 25 years of Novonor S.A.success managing growth, re-engineering troubled operations and starting up startups throughout the United States and South America. He holds a degreebachelor and an MBA in Business Administration from Getúlio Vargas Foundation (Fundação Getúlio Vargas) (1972).Florida International University. He served as CEO of Ri Happy Brinquedos S.A. for 9 years, leading transactions to acquire the largest specialty retailers in Brazil. He also served as CEO of Walmart Stores, Inc. and various leadership positions at The Coca-Cola Company and its group companies. Since March 2022, he holds specialization degrees in (i) Advanced Managementthe position of CEO of Novonor, a company where he also held the position of Chairman of the Board of Directors from Dom Cabral Foundation (Fundação Dom Cabral) and INSEAD (1991); (ii) EntrepreneurshipApril 2021 to March 2022. He acted, from Babson College (2004) and (iii) Corporate Governance (IFC and IBGC - 2009,January 2011 2013 and 2016)to December 2021, as an Independent Board Member of Vulcabrás and; as Chairman of the Board of Directors of Marisa S.A until April 2017. He is also a board member of the NGO Amigos do Bem.
Roberto Faldini. Mr. Roberto Faldini was elected as an effective member of the Company’s Board of Directors on May 22, 2019, and he has been appointed by the shareholder Novonor. Mr. Roberto Faldini was reelected on May 29, 2020 and on April 19, 2022. He is PresidentCEO and partner of Faldini Participações Administração e Investimentos Ltda. and Chief Executive Officer of MBF Administração e Serviços. In addition toBesides the Board of Braskem SA, Board, he is currently a member of the Boards of Irani Papel e Embalagens SA, Cia. Habitasul de Participações and NovonorLitela S.A. He isvoluntarily participates as a voluntary member of the Curator Board of Trustees of the Dorina Nowill Foundation for the Blind, member of the Board of Trustees of Norberto Odebrecht Foundation and also of the Crespi Prado Foundation, where he is also the CEO, and ofthe Norberto Odebrecht Foundation. He is an officerthe director of Fundação Cultural Ema Gordon Klabin Cultural Foundation.Klabin. Mr. Roberto Faldini is an inviteda professor fromat the IBGC – Brazilian Institute of Corporate Governance and a guest professor at Fundação Dom Cabral Foundation and an arbitrator of Arbitrationat CAM - Arbitrage Chamber of B3 Market. Hethe Exchange Market of the B3. Since the 80’s he has participated as a member of Boardsthe Board of Directors and Advisory BoardsBoard of several companies in Brazil and abroad, includingamong them BOVESPA, Metal Leve, Maraú, Livrarias Siciliano, CPFL, Inpar, Klicknet, Sadia, BRF, Banco BMG, Vulcabrás and Marfrig. Mr. Faldini isHe was a co-founder of IBCGIBGC - Brazilian Institute forof Corporate Governance (Instituto Brasileiro de Governança Corporativa (inin 1995 and nowadays he remainsis still active in manyseveral of its committees. He is an associatedassociate member of IBEF - Brazilian Institute forof Financial Executives (Instituto Brasileiro dos Executivos Financeiros), and of FBN - Family Business Network. Mr. Faldini is also an Honorary Board Member of Abrasca - Brazilian Association of the Public Traded Companies. For more thanover 20 years he was CEO,an executive officer, shareholder and member of the Board of Directors of Metal Leve S.A., and he held the position ofwas Chairman and President of CVM (Brazilian Securities Exchange Comission) in 1992. He was the coordinator for 5 years (2002 - 2007) in the State of São Paulo of the Family Business CenterNúcleo da Empresa Familiar - PDA, of the Dom Cabral Foundation, for 5 years (from 2002Foundation. He graduated in Business Administration at Fundação Getúlio Vargas (1972) and has specialization in (i) Advanced Management from Fundação Dom Cabral and INSEAD Fontainebleau – France (1991); (ii) Entrepreneurship at Babson College (2004) and (iii) Corporate Governance (IFC and IBGC - 2009, 2011, 2013 and 2016). From 2016 to 2007).
João Pinheiro Nogueira Batista. Mr. João Pinheiro Nogueira Batista has been elected an effective member of the Company's Board of Directors by shareholder Novonor S.A. Mr. João Nogueira Batista holds a graduate degreepresent, he continued and continues to participate in economics from PUC-RJseveral courses and an MBA in Economic Engineering - Universidade Gama Filho, Rio de Janeiro. He has acted for more than 10 years in Boards of Directors in companiesseminars in Brazil and abroad. In the Novonor Group, heabroad, as well as, events related to Business Strategy, Business Administration, Corporate and Family Governance aiming his continuous learning.
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Charles Lenzi (independent member). Mr. Charles Lenzi was elected as an independent member of the Boards of Directors of Odebrecht Engenharia e Construção starting June 2017 and of Ocyan starting April 2018, where he remained until January 2019, when he joined the Board of Directors of Novonor S.A. Mr. João Nogueira Batista is currently the CEO of Evoltz Participações S.A. In his wide executive career developed in the public and private sectors, he has been the CEO of Swiss Re, Bertin S.A. and Suzano Petroquímica, also holding the position of officer in companies like Petrobras, Dresdner Bank, Citibank, Radiobras and Siderbras. Mr. João Nogueira Batista is a director in two non-governmental organizations: Associação Maria Helen Drexel and Instituto de Reciclagem do Adolescente- Recicla.
Julio Soares de Moura Neto (independent member.) Mr. Julio Soares de Moura Neto was appointed as an effective member of the Company’s Board of Directors on April 19, 2022 and holds the position of member of the Statutory Compliance and Audit Committee since April 27, 2022, and he has been appointed by the shareholder Petróleo Brasileiro S.A. –- Petrobras. Mr. Moura NetoCharles Lenzi is Fleet Admiral, Bachelor in Naval Sciences by the Navy School, Master in Naval Sciences by the Navy War School (Military Command and Staff Course), Doctor in Naval Sciences by the Navy War School (Maritime Politics and Strategy Course), and also attending the Higher Education Navy War CourseExecutive Chairman of the Higher Navy War Institute - Portugal. He has off-Navy experience in the Strategic Advisory Board of the Foundation (EZUTE-SP) and in the Advisory Board of Cia Brasileira de Cartuchos (CBC-SP).
Rogério Bautista da Nova Moreira. Mr. Rogério Bautista da Nova Moreira is currently also a member of the Board of Directors of OEC S.A., of OR Empreendimentos Imobiliários S.A., of Santo Antonio Energia S.A., of Ocyan S.A. and of Odebrecht Transport S.A., and works as a general counsel at Novonor S.A. He was previously a member of the Board of Directors of Lagoa da Barra S.A., between 2018 and 2020, of Santo Antonio Energia S.A. and of Odebrecht Comercializadora de Energia S.A., between 2014 and 2015. He also worked as a general counsel of OR Empreendimentos Imobiliários S.A., between 2016 and 2019, and of Odebrecht Energia S.A., between 2012 and 2016, and as an attorney of Odebrecht Energia S.A., between 2008 and 2012, of Braskem S.A., between 2002 and 2008, of law firm Veirano Advogados, between 2000 and 2001, and of Deloitte, between 1999 and 2000. Mr. Rogério Bautista has a degree in Law from the Catholic University of Salvador, having graduated in 1999, and he has a specialization in Tax Law from the Brazilian Institute of Tax Law (IBDT) and an MBA in business management from the Getulio Vargas Foundation.
Andrea da Motta Chamma. (independent member). Ms. Andrea Chamma has been appointed as an effective member of the Company’s Board of Directors by shareholder Petróleo Brasileiro S.A. – Petrobras. She is currently an effective memberABRAGEL, since 2018; Independent Member of the Board of Directors and leaderMember of the PersonsAudit Committee of Grupo Fleury, effective memberAES Brasil, since 2019; and Independent Member of the Board of Directors, Member of Banco Votorantimthe Audit Committee and AdvisorMember of the People and ConsultingSustainability Committee of BEVAP - Bioenergética Vale do Paracatu, since 2020. He was CEO of Eletropaulo, from 2016 to 2018; COO of AES Brasil, CEO of Eletropaulo and CEO of AES Sul from 2016 to 2017; Executive President of ABMGEL from 2010 to 2016; Managing Director in startups Fintechs/Blockchain by 3C Advisors. Previously, she acted as Vice-Chairwomanof Grupo Stefani, from 2008 to 2010; Vice-President of Distribution AES Brasil, Eletropaulo and HeadAES Sul, from 2006 to 2008; General Director of EquityAES Sul, from 2004 to 2006; Vice-President of Operations of Eletropaulo, from 2002 to 2003; Regional Director of AES EDC - La Eletricidad de Caracas, from 2001 to 2002; President Director of AES CESCO - India, from 2000 to 2001; Business Unit Manager of AES Sul, from 1998 to 1999; General Manager of Gazola S/A from 1988 to 1998; Sales Engineer of Bank of America Merrill Lynch, and Officer of brokerage and equity sales at ABN Amro. Ms. Andrea Chammalntral S/A from 1982 to 1986. He is an Electrical Engineer from PUCRS, from 1977 to 1981. He holds a graduate degreeSpecialization Degree in Industrial Automation from UNICAMP, from 1986 to 1988; MBA in Finance from UCS, from 1996 to 1998; MBA in Strategic Planning and Business Management from FGV, in 1999; Leadership Development Program from Darden Business School, University of Virginia, in 2006; PGA Advanced Management Program, from Dom Cabral INSEAD Foundation, in 2007; Master in Business Administration and Business from the Getúlio Vargas Foundation (FGV)PUCRS, in 2015; Board Member Course from IBGC, in 2016; and attended specialization courses at the universities of Harvard and Columbia.Global Executive Leadership Retreat, from Georgetown University, in 2017.
Marcelo Klujsza. Mr. Marcelo Klujsza has been appointedwas elected as an effective member of the Company’s Board of Directors on August 24, 2020, and he has been appointed by the shareholder Petróleo Brasileiro S.A.– Petrobras. Mr. Marcelo Klujsza was reelected on April 19, 2022 and is a member of its Support Committee - Petrobras. He holds a graduate degreeFinance and Investment Committee. Mr. Marcelo Klujsza has served in Mechanical Engineering from Pontifícia Universidade Católica do Rio de Janeiro, and a Master’s Degree in Geosciences/Geology from Universidade Federal do Rio de Janeiro, having a professional career for approximately 35 years. He has held several offices in the Senior Managementsenior management positions in consulting companies - CEO atof Metal Data S.A. and Vice President atof Alexander Proudfoot ConsultingConsultoria - in addition to workingacting as a consultant atthrough his own company - Metakarp Value Consulting, providingoffering support to the management and to the board of directors of companies, particularlyespecially in the mineral and metallurgy sectors.metallurgical industry segment. He has also heldworked in technical, management and Senior Management offices in the companiessenior management positions at Vale, Rio Paracatu Mineração, Rio Tinto Brasil, IBM Brasil and Grupo Solmucci Entretenimento. He wasAt Petrobras, he held the position of Assistant to Petrobras’the Board of Directors from June 06/2015 to November 11/2015 and served as CEO’s Advisor at Petrobrasto the Presidency from December 12/2018 to April 202104/2021. He held office asthe position of Chairman of the Board of Directors of Liquigás Distribuidora S.A. from June 06/2019 to December 12/2020.
Alternate Directors
Maria Isabel de Faria Perez. Ms. Maria Isabel de Faria Perez is an alternate member of the Company's Board of Directors as a nominee of the shareholder Petróleo Brasileiro S.A. – Petrobras. Currently, she acts as General Manager in the area of Business Integration and Interest at Petrobras, having previously acted as Manager in Petrobras' Legal Department. Ms. Maria Isabel He holds a graduate degree in Lawmechanical engineering from Pontifícia Universidade do EstadoCatólica do Rio de Janeiro, (UERJ), and a Postgraduatemaster's degree in OilGeosciences/Geology from Universidade Federal do Rio de Janeiro, a specialization in Business Administration from Pontifícia Universidade Católica do Rio de Janeiro, a Board Member Development Course from Minas Gerais Industry Federation - FIEMG and Gas Exploitation and Production Business Management from the Brazilian Oil Institute (Instituto Brasileiro de Petróleo - IBP),has a Business Acument for the Energy Executive certification from McCombs School of Business University (University of Texas) and extension courses in Anticorruption Compliance for the Energy Sector (IBP) and in National and International Commercial Arbitration at IBMEC.
professional career spanning 35 years.
André Amaro da Silveira. Silveira (independent member).Mr. André Amaro iswas elected as an alternateeffective member of the Company’s Board of Directors on January 26, 2023, and holds the position of member of the Statutory Compliance and Audit Committee since April 27, 2022. He has been appointed by the shareholder Novonor. Mr. André Amaro acted as a nomineean alternate member of Novonor S.A. Mr. Amarothe Board of Directors from 2016 until 2023. He also worked with Novonor Group from 1988 to 2018. In addition to the aforementioned office at the Company, Mr.Mr.André Amaro works as a member of the Personnel and Organization Committee of the Company's Board of Directors, is an effective member of the Board of Directors of the company Ocyan S.A., working also as coordinator of the Culture, Communication, Personnel and Sustainability Committee and as a member of the Compliance and Audit Committee, he is an effective member of the Board of Directors of the company Odebrecht Transport,OTP, and also acts as coordinator of the Personnel and Organization Committee and as member of the Finance and Investment Committee, and is the chairmanmember of the Advisory Board of Directors of Redram Construtora de ObrasSupermix S.A. He began his career in heavy infrastructure projects and led Odebrecht investments in the concession of public services in Brazil, Argentina and Portugal. During this period, he was also Director of Project Finance and Export Chief Officer at Construtora Norberto Odebrecht, Vice President of Planning and People at Braskem, DirectorVice President of Human ResourcesPeople and Planning at Novonor S.A., President of Odebrecht Properties and of Odebrecht Defesa e Tecnologia.Tecnologia and Chairman of the Board of Directors of Redram Construtora de Obras S.A. He holds a graduate degree in Civil Engineering from UnversidadeUniversidade Federal de Minas Gerais and a Master'sMaster’s degree in Business Administration from IMD.
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Alternate Directors
Rodrigo Tiradentes Montecchiari
Marcelo Rossini de Oliveira.. Mr. Marcelo Rossini de Oliveira is an alternate member of the Company's Board of DirectorsRodrigo Tirandentes Montecchiari was elected as a nominee of shareholder Novonor S.A. He is currently a Treasury and IR Officer of Novonor S.A. From 2005 to 2018, he worked as a financial analyst, Capital Market and Transaction Structuring Manager, Treasury Manager at Braskem S.A. He previously worked as Senior Auditor and Financial Analyst of Deloitte - Auditores e Consultores.
Marcelo Mancini Stella. Mr. Marcelo Mancini is an alternate member of the Company’s Board of Directors on April 19, 2022, and he has been appointed by the shareholder Petróleo Brasileiro S.A. - Petrobras. Mr. Rodrigo Montecchiari is Commercialization Control Operations manager at Petrobras since December 2022 and member of the Fiscal Council of Refinarias de Mucuripe S.A. since November 2020. Additionally, he was Chief Financial Officer (CFO) of PB-LOG since April 2017 until December 2021. He acted as a nomineemember of shareholder Novonorthe Fiscal Council at Cia Petroquímica de Pernambuco from April 2013 until June 2017; Cia de Gás do Estado do Mato Grosso do Sul from April 2013 until April 2015; Paraná Xisto S.A. He works as Vice-President in charge forfrom December 2020 until November 2022; Refinaria de Manaus S.A. from December 2020 until November 2022; Refinaria Mataripe S.A. from December 2020 until November 2021; Alternate Member of the SaleFiscal Council at Logum Logísitica S.A. from May 2018 until April 2021 and at Petros, from April 2013 to March 2018; Corporate Finance at Petrobras, from December 2012 to March 2017; Chief Financial and Administrative Officer at Petrobras Namibia, from March 2012 to November 2012; at Petrobras Angola, from March 2010 until February 2012; at Petrobras Nigeria, from May 2007 until February 2010; and Coordinator of Ethanol, SugarAudit and Power, and for the Planning, Logistics and Business Development Areas of Atvos since 2010. Previously, he occupied several positionsJoint Ventures at BraskemPetrobras, from 2002 to 2010, leading the executive boards of Polyethylene, Vinyls and Polypropylene.2003 until April 2007. He worked for Pilkington Brasil Ltd. as sales and marketing director of Brazil from 1990 to 2002. Mr. Mancini holds a graduate degree in production engineeringeconomics from Universidade Federal Fluminense, an Executive MBA from Fundação Dom Cabral and a Master's degree in Corporate Finance from the Polytechnic SchoolUniversity of the Universidade de São Paulo and an MBA from the Universidade de São Paulo—FIA. He has further attended the Finance Programs of INSEAD, Marketing Program of Cranfield University and the Program for Directors of IBGC.
Liverpool.
Daniel Pereira de Albuquerque Ennes. Mr. Daniel Pereira de Albuquerque Ennes iswas elected as an alternate member of the Company'sCompany’s Board of Directors as a nominee ofon May, 29, 2020, and he has been appointed by the shareholder Petróleo Brasileiro S.A. – Petrobras. He is currently the Bank and Structured Finance Manager of Petrobras. He was previously an effective member of the Board of Directors of Liquigás Distribuidora S.A. and Bank Market Coordinator, Domestic Capital Market Coordinator and Export Credit Agency Coordinator of Petrobras. Mr. Daniel Pereira holds a graduate degree in Economics from Universidade Federal do Rio de Janeiro (UFRJ), a bachelor’s degree in Law from Universidade do Estado do Rio de Janeiro (UERJ) and a Master’s degree in Industrial Economics from Universidade Federal do Rio de Janeiro (UFRJ).
José Marcelo Lima Pontes. Mr. José Marcelo Pontes has been appointed for the position of alternate member of the Company’s Board of Directors as a nominee of Novonor S.A. Mr. José Marcelo Pontes is a professional journalist, with 34 years of experience, acting in some of the main media outlets of the country (including Jornal do Brasil, O Globo and Veja) and 23 years of experience in corporate communication, eight of which at Novonor.
Laura Maniero Gadelho. Ms. Gadelho has been appointed for the position of alternate member of the Company’s Board of Directors as a nominee of Novonor S.A. Ms. Laura Maniero Gadelho is currently a lawyer at the corporate department of Novonor S.A., a position she has held since 2016, having previously worked at Odebrecht Properties (from January/2013 to April/2016) as a lawyer at the corporate and business departments, as senior lawyer at the litigation and arbitration department of law firm Lefosse Advogados and Linklaters, in São Paulo and New York (from October/2007 to January/2013) and a lawyer at the litigation and arbitration department of law firm Dourado Fialdini Penna Tilkian Advogados Associados (from November/2005 to October/2007). Ms. Gadelho holds a Law degree from the University of São Paulo (USP), a LL.M. (Master of Laws) degree from the Law School of Columbia University, and is been a member of the International Commercial Arbitration Association and of the Latin American Association of Corporate Law.
Guilherme Simões de Abreu. Mr. Guilherme Simões de Abreu iswas elected as an alternate member of theBraskem’s Board of Directors of Braskem,on May 29, 2020, and he has been appointed by Novonor S.A.shareholder Novonor. He currently holds office asheld the position of Responsible Person for Persons,People, Communication and Organization ofat Novonor S.A., sincefrom January 2020.2020 to January 2024. From June 2018 to December 2019,on, he held office asholds the position of Executive Secretary of the Board of Directors of Novonor S.A. - Em Recuperação Judicial From 2013 to March 2017, he was Manager of Odebrecht S.A.,Novonor, for PersonsPeople and Organization matters.
Marco Antonio Zacarias. Mr. Marcos Antonio Zacarias was elected as an alternate member of the Company’s Board of Directors on April 19, 2022. He has been appointed by the shareholder Petróleo Brasileiro S.A. - Petrobras. Mr. Marcos Antonio is the Legal Representant and Operation and Commercialization Manager at Petrobras Colombia Combustíveis S.A. since August 3, 2022, and has been CEO of Petrobras Uruguay S.A. de lnversión and of Petrobras Uruguay Servicios y Operaciones S.A, since March 1, 2020 until November 22, 2022. He was CEO of Petrobras Uruguay Distribuición S.A. and Misurol S.A., from 03/01/2020 to 02/05/2021; Director of Petrobras Uruguay S.A. de lnversión, Vice President of Petrobras Uruguay Distribuición S.A., Vice President of Mirusol S.A., and Vice President of Petrobras Uruguay Servicios y Operaciones S.A., from 01/01/2018 to 02/29/2020; Vice President of Distribuidora de Gas Montevideo S.A. and Director of Conecta S.A., from 01/02/2019 until 09/30/2019; General Manager of Company Management and Benefits, from 2016 until 2017, General Manager of Financial Management, in 2016, Executive Manager of Corporate Finance, from 2015 until 2016, General Manager of Financial Management, from 2006 until 2015, Manager of Subsidiary Coordination, from 2005 until 2006, Accounting Manager of International Business, from 2000 until 2005, at Petrobras - Petróleo Brasileiro S.A.; Financial Control Manager, at Petrobras lnternacional S.A. - Braspetro, from 1999 to 2000; and Financial and Administrative Manager, at Petrobras Colombia, from 1995 to 1999. He worked at Amil Assistência Médica lnternacional Ltda., at Cobra Computadores S.A., at Banco Mercantil de São Paulo S.A. and at the Ministério da Aeronáutica during his mandatory military service. He graduated in Accountancy from the Universidade do Estado do Rio de Janeiro in 1987. He holds an MBA in Business, Controlling, Auditing and Accounting from Fundação Getúlio Vargas, in 1994; an MBA in Accounting Management from the University of São Paulo, in 2005; an Advanced Management Program from INSEAD Business School, Fontainebleau, France, in 2008; and an Advanced International Program in Oil and Gas Financial Management from the University of Texas at Dallas, USA, in 1997.
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Lineu Fachin Leonardo. Mr. Lineu Fachin Leonardo was elected as an alternate member of the Company's Board of Directors on April 19, 2022. He has been appointed by the shareholder Petróleo Brasileiro S.A. - Petrobras. Mr. Lineu Fachin has been The Head of Development, Career and Leadership at Petrobras - Petróleo Brasileiro S.A., since September 2020. He has held several leadership positions at Petrobras in the last 10 years, and has also worked at a company controlled by Petrobras in the Human Resources area. Among the managerial experiences at Petrobras, the highlights are the conduction of Career, Succession and Performance, Development, and Organizational Learning topics, in addition to having acted as International HR manager at Petrobras. At Transpetro (Petrobras Transporte S.A.) he was in charge of Career, Remuneration, Performance, and Labor and Union Relations during his time at the company. Before working for Petrobras, he worked in the education business, having implemented distance learning courses at Universidade Norte do Paraná. He holds a Bachelor's degree in Business Administration from the State University of Londrina (1999-2003), and a degree in Tourism and Hospitality from the University of Northern Paraná (1999-2003). He holds a Specialization in International Relations from Universidade Candido Mendes (2007-2008); Specialization in People Management from IBMEC (2008-2009). He holds a Master in Administration - Business Management, from Fundação Getúlio Vargas/RJ (2019-2020). He has also international executive training abroad at schools such as INSEAD - Institut Européen d'Administration des Affaires, Center for Creative Leadership, Kellogg School of Management, TIAS Business School and Rutgers Business School.
Board of Executive Officers of Braskem
Our board of executive officers is our executive management body. Our executive officers are our legal representatives and are responsible for our internal organization, day-to-day operations and the implementation of the general policies and guidelines established from time to time by our board of directors.
Our by-laws require that the board of executive officers consistconsists of a chief executive officer and between three and nine additional members, each responsible for business areas that our board of directors assigns to them. The members of our board of executive officers, other thanand our chief executive officer and, the general counsel, have no formal titles (other than the title of executive officer or director) but have the informal titles set forth in the table below.
The members of our board of executive officers are elected by our board of directors for a three-year terms unified terms and are eligible for reelection. The current term of all of our executive officers ends at the first board of directors meeting held immediately after our annual shareholders’ meeting to be held in 2021.2024. Our board of directors may remove any executive officer fromfrom office at any time with or without cause. AccordingCompany’s by-laws do not require the members of our board of directors to the Brazilian Corporate Law, executive officers must be residents ofa resident in Brazil but don’t need to beor become our shareholders. Our board of executive officers holds meetings when called by our chief executive officer.
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The following table lists the current members of our board of executive officers as of the date of this annual report:
Name | Year of First | Position Held | Age | Year of First | Position Held | Age |
Roberto Lopes Pontes Simões | 2019 | Chief Executive Officer | 64 | |||
Roberto Bischoff | 2023 | Chief Executive Officer | 68 | |||
Pedro van Langendonck Teixeira de Freitas | 2016 | Chief Financial Officer and Head of Procurement and Institutional Relation | 45 | 2016 | Chief Financial Officer and Head of Procurement and Institutional Relation | 48 |
Edison Terra Filho | 2017 | Executive Officer and Head of the Olefins & Polyolefins South America | 49 | 2017 | Executive Officer and Head of the Olefins & Polyolefins South America | 52 |
Marcelo Arantes de Carvalho | 2015 | Executive Officer and Head of People, Communication, Marketing and Sustainable Development | 52 | 2015 | Executive Officer and Head of People, Communication, Marketing and Sustainable Development | 55 |
Marcelo de Oliveira Cerqueira | 2013 | Executive Officer and Head of Brazil Manufacturing and Global Industrial Operations | 55 | 2013 | Executive Officer and Head of Brazil Manufacturing and Global Industrial Operations | 58 |
Daniel Sales Corrêa | 2020 | Executive Officer and Head of Investments & Digital Technologies | 53 | |||
João Henrique Rittershaussen | 2023 | Executive Officer and Head of Investments & Digital Technologies | 59 |
Summarized below is information regarding the business experience, areas of expertise and principal outside business interests of our current executive officers:
Roberto Bischoff. Mr. Roberto Bischoff is the current Chief Executive Officer of Braskem elected on January 1, 2023. Mr. Bischoff was the business leader of Ocyan S.A from 2019 until 2022. He was, from 2017 to 2019, the global head of business support for HSE, industrial excellence, energy, automation, procurement, projects & processes, and knowledge management at Braskem. From 2010 to 2017, he was CEO of Braskem Idesa and he was Director of Vinyl Business at Braskem, from 2009 until 2010. He also acted as CEO of Ipiranga Petroquímica S.A., from 2007 to 2008; Director of International Project Development, from 2006 to 2007; Commercial Director of the Basic Input Unit, from 2005 to 2006; and Director of Raw Materials at Braskem, from 2003 to 2004. He was Chief of Mechanical Maintenance, Maintenance Manager, and Engineering and Procurement Manager (1984 to 1992) and Mechanical Engineer and Chief of Mechanical Maintenance (1979 to 1983) at Poliolefinas S.A. Mr. Bischoff is a Mechanical Engineer, Business Administrator, and Public Administrator, all of them degress from the Federal University of Rio Grande do Sul. He also holds a post-graduate degree in Materials Science from the Federal University of Rio Grande do Sul. He has a specialization in Maintenance Engineering (CEMANT) from the agreement Petrobras/UFRGS; MBA from SDE (now IBMEC) and specialization in Administration from INSEAD, in France.
Pedro Van Langendonck Teixeira de Freitas.Freitas. Mr. Pedro van Langendonck Teixeira de Freitas was elected as the Company’s Financial and Investors Relations Officer on April 01, 2016 and was reelected on May 09, 2018 and on April 14, 2021. He is also currently Braskem’s Responsible Personresponsible for Finance, Investor Relations, SuppliersProcurement and Institutional Relations. In this office, he globally leads the financial, investors relations, procurement and supplies areas and the strategic planning areas, and coordinates the institutional relations in Brazil. In this context, he is responsible for the Company'sCompany’s financial management, and financial health, for the innovation in the search for efficiency in the management processes and for the motivation of a high-performance team. From 2011 to 2016, he was in chargeresponsible of Braskem'sBraskem’s Corporate Strategy, Management, preparingdeveloping the business plan and evaluating investments and M&A opportunities. Prior to this,Previously, he was aworked in strategy consultant,consulting, having participated in the definition of business and M&A strategies in various industries, including in the petrochemical,petrochemicals, agribusiness, consumer goods and pharmaceutical industries.pharmaceuticals. Mr. Pedro Freitas holds a Productionan Industrial Engineering degree from the Polytechnic School of Universidade de São Paulo (USP),USP, and an MBA from INSEAD.
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Edison Terra Filho. Mr. Edison Terra Filho was elected as a member of the Company’s Executive Management on January 9, 2017, and was reelected on May 9, 2018 and on April 14, 2021 and he is currently responsible for the South America Olefinas & Poliolefinas Unit. Mr. Edison Terra joined Braskem in 2002, and he worked in the Marketing, Supply Chain Exportand Exportation areas, as leader of the Polyethylene Business, Europe and PresidentRenewable, and of UNIB and quantiQ. Before working for Braskem, he worked nine years for Rhodia. Mr. Edison Terra holds a graduate degree in Production Engineering from the Polytechnic School of Universidade de São Paulo USP and a MastersMaster’s degree in Business Administration from EAESP-FGV/SP. He has also attended continuing educationextension courses in Global Leadership in Wharton Business School and in Disruptive Technologies in Singularity University. He is executive president of INP (Instituto Nacional do Plástico) and officer of FIESP (Federação das Indústrias do Estado de São Paulo).
Marcelo Cerqueira.de Oliveira Cerqueira. Mr. Marcelo de Oliveira Cerqueira has been appointed as a member of the Company’s Executive Management on October 21, 2023 and was reelected on May 6,2015, May 9, 2018, and April 14, 2021 and he is currently the Executive Vice-President of Manufatura Brasil e Operações Industriais Globais. Mr. Cerqueira has more than 3035 years of experience in the chemical and petrochemical industry. He initiatedhas started his career in 1987 at Companhia Alcoolquímica Nacional1987acting in industrial plants, and COPERBO (currently Lanxess). Inin 1989 he joined Companhia Petroquímica Camaçari, wherewhich its assets are currently integrated to Braskem. Since then, he worked as aon Production, Logistics, Health, Safety and Environment – SSMA (Saúde, Segurança e Meio Ambiente) and Supplies Engineer. At Braskem, he has already workedareas and held different leadership positions as Responsible Person for the Vinyls Unit, Industrial Vinyls Officer and Production Manager, Industrial Director, Business Director and Vice-President of the PVC Unit of Alagoas and Bahia and responsible for the Chemicals Unit at Braskem.Business Unit. Mr. Marcelo Cerqueira holds a degree in Chemical Engineering from Universidade de Pernambuco and an MBA in business managementBusiness Management from FGV, and he has attended the Global Leadership Program at Wharton Business School - University of Pennsylvania.
Marcelo Arantes de Carvalho.Carvalho. Mr. Marcelo Arantes de Carvalho was elected as a member of the Company’s Executive Management on May 6, 2015 and was reelected on May 9, 2018 and April 14, 2021 and he is currently the Responsible Person for People, Communication, Marketing and Sustainable Development,Press Relation of the Company, with 2934 years of professional experience. He has acted in various large-sized companies and in several offices related to Human Resources. He commencedstarted his career as an intern in Fiat Group in 1988, and then he worked at Celite S.A. from 1989 to 1991, in the Remuneration and Union Relations area. From 1991 to 1998, he worked as Human Resources Manager at Asea Brown Boveri Ltda., and then he joined Unilever to work as Human Resources Development Manager. In 2000 he became Human and Organizational Development Officer of Intelig Telecomunicações. Later, in 2005, he joined Reckitt Benckiser, where he remained until 2008 as Human Resources Officer. Between 2008 and 2010 he was the Human Resources Officer for Latin America at Fiat Group, after which he came to Braskem. Mr. Marcelo Arantes holds a degree in Business Administration from Faculdade de Ciências Gerenciais (UNA) and an Executive MBA from Dom Cabral Foundation (Fundaç(Fundação Dom Cabral)Cabral), and he has attended the Global Leadership Program at Wharton Business School - University of Pennsylvania.
Daniel Sales CorrêaJoão Henrique Rittershaussen. . Mr. Daniel Sales CorrêaJoão Henrique Rittershaussen acted as Executive Officer of Production Development at Petróleo Brasileiro S.A. – Petrobras from April 2021 to May 2023. From November 2017 until April 2021, he acted as Executive Manager from Surface, Refining, Gas and Energy also at Petrobras. From May 2016 until November 2017, he occupied the position of General Procurement Manager; from May 2012 until May 2016, he acted as General Manager of Project Implementation; and from October 2010 until May 2012, he acted as General Manager of Supplier Market Development, all the positions at Petrobras, company where he has acted since 1987. Mr. João Henrique is a professional who holds a graduate degree inan Electrical Engineering from Universidade Federal do Amazonas (UFAM), a postgraduate degree in Equipment EngineeringEngineer by UFMG and in Oil Refining Engineering from UniversidadeEngineer by Petrobras, and in Quality and Productivity Management from FUCAPI/UFRGS. In addition, he holds an Executive and Advanced MBA in Strategic Business ManagementAdministration from FIA/USP. During the 26 years he worked for Petrobras, he worked in various refineries, and held offices in Engineering, Production, Process Optimization and Commercialization. At the company's principal place of business, he has been operational efficiency general manager, encompassing all refineries, and more recently he was the general manager of the company's refining, transport and commercialization business restructuring programs, where he leaded initiative to reposition Petrobras in the "Downstream",“Ddownstream,” segment, focused on the "carved“carve out"” of the refineries and terminals to be divested. During the period from 2019 to July 2020, he was also a member of the board of directors of Refinaria de Petróleo Riogranense S.A. – RPR. He is currently the Executive Vice-President of BRASKEM and is responsible for the implementation of the investments and for the global IT, Automation, Digital Technologies and Knowledge Management operations.
Fiscal Council
The Brazilian Corporate Law requires us to establish a permanent or non-permanent fiscal council (“conselho fiscal”), with a minimum of 3 and up to 5 members. Our by-laws provide for a permanent fiscal council composed of up to five members and their respective alternate members. The fiscal council is a separate corporate body, independent of our management and our independent directors.
The members of our fiscal council are elected by our shareholders at the annual general shareholders’ meeting for one-year terms and are eligible for reelection. The terms of the members of our fiscal council expire at the next annual general shareholders’ meeting, which will be held in 2021. Under the Brazilian Corporate Law, the fiscal council may not contain members who are members of our board of directors or of our board of executive officers or be employees or spouses or relatives of any member of our management. To be eligible to serve on our fiscal council, a person must be a resident of Brazil and either be a university graduate or have been an officer or fiscal council member of another Brazilian Company for at least three years prior to election to our fiscal council. Holders of (1) preferred shares without voting rights, or with restricted vote, and (2) non-controlling common shareholders that together hold at least 10.0% of our voting share capital are each entitled to elect one member and his or her respective alternate to the fiscal council.
The responsibilities of a fiscal council are established by the Brazilian Corporate Law. In accordance with the Brazilian Corporate Law, our fiscal council has the right and obligation to, among other things:
As described in “Item 16D. Exemptions from the Listing Standards for Audit Committees,” we are relying on the general exemption from the listing standards relating to audit committees contained in Rule 10A-3(c)(3) under the Exchange Act. In order to comply with the requirements of this exemption, our board of directors has delegated to our fiscal council certain additional responsibilities and our fiscal council adopted rules under which our fiscal council has the duties and responsibilities of a U.S. audit committee to the extent permitted under Brazilian Corporate Law. Because Brazilian Corporate Law does not permit the board of directors to delegate responsibility for the appointment, retention and compensation of the external auditors and does not provide our board of directors with the authority to resolve disagreements between management and our external auditors regarding financial reporting, our fiscal council cannot fulfill these functions. Our fiscal council may only make recommendations to our board of directors with respect to the appointment, retention and compensation of the external auditors, and with regard to resolution of disagreements between management and the independent auditors, our fiscal council may intermediate and opine, if necessary. Under the rules governing fiscal councils, our fiscal council has the following rights and obligations, among others, in addition to those established by the Brazilian Corporate Law:
The following table lists the current members of our fiscal council and their alternates:
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The following is a summary of the business experience, areas of expertise and principal outside business interests of the current members of our fiscal council and their alternates.
Members of Fiscal Council
Ismael Campos de Abreu. Mr. Abreu served as Officer of Kieppe Participações e Administração Ltda. from April 2011 to May 2017. Between 1995 and March 2011, he worked as a Controller of Novonor S.A., which company indirectly holds interest in excess of 5% of a same kind or class of securities of the Company. He was Manager of the tax consulting division of PricewaterhouseCoopers (1978/1985) and of Arthur Andersen (1989/1991). He was a member of Performance Auditoria e Consultoria Empresarial (1992/1995). He was a member of the Board of Directors of Hospital Cardio Pulmonar and a member of the Fiscal Council of various companies that operate in the petrochemical industry. Mr. Abreu holds a degree in Accounting from Fundação Visconde de Cairú and a postgraduate degree in Economic Engineering from Centro Interamericano de Desenvolvimento.
Gilberto Braga. Mr. Braga was elected an effective member of the Company’s Fiscal Council as a nominee of the shareholder Novonor S.A. Mr. Braga is a business consultant in the financial, capital markets, corporate, expert examination and court expert examination assistance areas, in addition to working as member of the fiscal, management and audit committees of listed companies and professional associations. He has been a member of the Advisory Committee on Accounting Standards for the Investment Funds of the CVM, teaches undergraduate and graduate corporate governance courses at Dom Cabral Foundation, IBMEC, PUC and FGV, and is a commentator of Radio CBN, FM 94 on RJ and a columnist for the newspaper O Dia. Mr. Braga holds degrees in Economics from UCAM Ipanema and Accounting from UGF, a Postgraduate degree from IAG-PUC Rio in Financial ManagementCOPPEAD and an MBA (Finance and Capital Markets)Advanced Management Program from IBMEC- Rio. He is a member of IBGC.Insead – France.
Marcílio José Ribeiro Júnior. Mr. Ribeiro was appointed as effective member of the Company’s Fiscal Council by shareholder Petróleo Brasileiro S.A. – Petrobras. Mr. Marcílio José Ribeiro Jr. is currently a Senior Accountant at Petróleo Brasileiro S.A. - PETROBRAS, having previously occupied other positions at the same company (since October 2, 2006). He is currently a Fiscal Councilor at METANOR – Metanol do Nordeste S.A. and Alternate Fiscal Councilor at IBIRITERMO S/A, having previously worked as Fiscal Councilor at Asfaltos S.A. He has also previously worked at Queiroz Galvão Óleo e Gás S/A, as a Controller; at Starfish Oil & Gas S.A., as Accounting Manager; at Gaspart Gás Participações Ltda. (currently MITSUI Gás do Brasil), as an Accountant; at ALTM S.A. Tecnologia e Serviços de Manutenção (Alstom Group), as Accounting Manager; at Terminal Garagem Menezes Côrtes S.A., as an Accountant; and at Erco Engenharia S.A., as an Accounting Analyst. He has a bachelor’s degree in Accounting Sciences from the Federal University of Rio de Janeiro (February/1993 – August/1997); an MBA in Economic and Financial Engineering from the Federal University of the State of Rio de Janeiro (September/2000 – November/2001); and an LL.M. in Corporate Law by IBMEC (March/2014 – February/2016).
Amós da Silva Cancio. Mr. Amós da Silva Cancio was appointed as effective member of the Company’s Fiscal Council by shareholder Petróleo Brasileiro S.A. – Petrobras. He is currently the E&P Partnership Accounting and Tax Management Manager at Petrobras, and he previously worked as Accounting General Manager of the Controlling Shareholder, Subsidiaries and of the Consolidated of Petrobras and as Accounting Planning and Guidance Manager. Mr. Amós Cancio holds a graduate degree in Accounting Sciences from Universidade Federal Fluminense (UFF), an MBA in Economic and Financial Engineering and a Master’s degree in Production Engineering (emphasis in Corporate Strategy, Management and Finance) from the same institution, in addition to a Postgraduate degree in Oil and Gas Exploitation and Production Business Management from Instituto Brasileiro de Petróleo e Gás (IBP) and professional certification as North-American Public Accountant (CPA).
Heloisa Belotti Bedicks. Ms. Heloisa Bedicks was elected an effective member of the Company's Fiscal Council by minority shareholders. She is a Member of the Board of Directors of BNDES and of Mapfre Group, of the Audit Committee of Brasilseg, of the Fiscal Councils of Braskem and of Fundação Boticário and of the Advisory Board of Portas Abertas in Brazil (NGO). She was General Officer of IBGC - Brazilian Institute for Corporate Governance (Instituto Brasileiro de Governança Corporativa) from 2001 to 2020, Deputy Chairman of GNDI – Global Network of Director Institute and member of the Board of Governors of ICGN – International Corporate Governance Network. She has been a member of the Board of the Association of the Supporters of the Acquisition and Consolidation Committee – ACAF (B3, Anbima and IBGC), of the Advisory Boards of the Ethical Fund of ABN AMRO Asset Management, of the Center for Sustainability Studies of the Getúlio Vargas Foundation and of the Corporate Sustainability Index (Índice de Sustentabilidade Empresarial - ISE) of BMF&Bovespa. Ms. Heloisa Bedicks holds a master's degree in Financial Administration from Universidade Presbiteriana Mackenzie, a graduate's degree in Economics from Unicamp and Accounting Sciences from PUC Campinas, specialization degree in Corporate Governance from Yale University and in Boards of Directors from the Chicago University.
Alternate Members of Fiscal Council
Ivan Duarte. Mr. Duarte is an alternate member of the Company’s Fiscal Council as a nominee of shareholder Novonor S.A. Mr. Duarte is an officer of Kieppe Participações e Administração Ltda. since January 2016, which company is part of the same economic group of the issuer and indirectly holds more than 5% of its capital stock. Previously, Mr. Duarte acted as manager of KPMG - Auditores Independentes, from 1995 to 2001, when he became senior manager at PricewaterhouseCoopers Auditores Independentes until 2008. Between 2008 and 2015, Mr. Duarte was an officer of EAO Empreendimentos Agropecuários e Obras S.A., which company belongs to the Novonor Group, which operates in the Agricultural and Food and Drinks industries. Mr. Duarte holds a graduate degree in Accounting from Universidade de Salvador (UNIFACS) and an MBA in Corporate Finance from Getúlio Vargas Foundation (Fundação Getúlio Vargas) and an MBA in Entrepreneurship from Babson College (Boston/USA).
Tatiana Macedo Costa Rego Tourinho. Ms. Macedo is an alternate member of the Company’s Fiscal Council as a nominee of shareholder Novonor S.A. Ms. Macedo is currently responsible for the controllership of OEC (Odebrecht Engenharia e Construção). Ms. Macedo previously worked as Tax Planning Responsible Person of Construtora Norberto Odebrecht S.A. (“CNO”). In the period from 2000 to April 2007, Ms. Macedo worked in the tax area of VIVO S/A of the telephony industry, where she held office as Tax Planning Division Manager. She previously worked at Arthur Andersen for 2 years. Ms. Macedo holds a Public and Private Business Administration degree from Universidade Federal da Bahia and an MBA in Management from IBMEC. Ms. Macedo does not hold management office in any non-governmental organization.
Viviana Cardoso de Sá e Faria. Ms. Cardoso is an alternate Member of the Company’s Fiscal Council as a nominee of the shareholder shareholder Petróleo Brasileiro S.A. – Petrobras. Ms. Viviana Cardoso de Sá e Faria is currently a Coordinator-Master Economist at Petróleo Brasileiro S.A. - Petrobras, having previously occupied other positions at the same company (since January 16, 2007). She has worked as Fiscal Councilor at Braskem S.A. and Petrocoque S.A. Indústria e Comércio – PETROCOQUE and as Alternate Fiscal Councilor at Petrobras Distribuidora S.A. and at Companhia de Gás do Estado de Mato Grosso do Sul - MS GÁS. She also previously worked at the Brazilian Association of Electricity Distributors (ABRADEE), as a Strategic Affairs Coordinator; at the Brazilian Center of Infrastructure (CBIE), as Head of the Energy Department; and at Banco Votorantim, as a Trainee in the Commercial Department (Companies and Pension Funds). She was a professor at Universidade Candido Mendes (UCAM), teaching courses Micro I and II (Economics) and Project Finance (Law) (August/2000 – December/2003) and Regulation Economy at MBP – Executive Graduate Degree in Oil and Natural Gas (January/2000 – December/2002). She has a degree in Economics by UFF - Universidade Federal Fluminense (August/1993 – December/1997); A master’s degree in Strategic and Environmental Planning, with emphasis on Power Savings, Economic Regulations and Project Finance by PPE/COPPE/UFRJ (March/1999 – February/2003); A graduate degree in Tax Management by the Law Institute: PUC-Rio (March/2009 – June/2010); and an extension course on “Comparative Tax Policy and Administration” by the Harvard Kennedy School (August/2014).
Pedro Albuquerque Zappa. Mr. Zappa is an alternate member of the Company’s Fiscal Council as a nominee of the shareholder Petróleo Brasileiro S.A. – Petrobras. Mr. Pedro Albuquerque Zappa is currently a Segment Manager - Senior Economist at Petróleo Brasileiro S.A. - PETROBRAS, having previously occupied other positions at the same company (since July 3, 2006). He is currently the Vice-President (Directorio) at Petrobras Frade Inversiones (PFISA), Managing Director A at Petrobras Global Trading BV (PGT), Managing Director A at Petrobras Middle East BV (PEMID) and Fiscal Councilor at Petrocoque S.A. Indústria e Comércio – PETROCOQUE, having previously worked as Fiscal Councilor at Petrobras Negócios Eletrônicos S.A. and Deten Química S.A., in addition to Alternate Fiscal Councilor at Muricy – Energética Camaçari Muricy I, Guarani S.A., Companhia de Gás do Amapá – GASAP and Suzano Petroquímica. He has also worked at ITAU as an Analyst. He has a degree in Economic Sciences by UFRJ (2001 – 2005) and a master’s degree in Corporate Finance and Economy by FGV-RJ (2008 – 2010), having also undertaken training at IBGC (2009).
Reginaldo Ferreira Alexandre. Mr. Alexandre is an alternate member of the Company's Fiscal Council as a nominee of the minority shareholders. He holds a graduate degree in economics and has eighteen years of experience in the area of investment analysis, as analyst, organizer and officer of analysis teams, having held these offices, successfully, in Citibank, Unibanco, BBA (current Itaú-BBA) and Itaú Corretora de Valores. He has also worked as corporate credit analyst (Citibank) and as advisor in the strategy (Accenture) and corporate finance (Deloitte) areas. He also worked for ProxyCon Consultoria Empresarial, a company engaged in advisory and provision of services in the capital markets, finance and corporate governance areas between 2003 and 2017. He is a member of the Accounting Pronouncements Committee (CPC - Comitê de Pronunciamentos Contábeis) – which body formulates the Brazilian accounting standards – since its foundation, in 2005. Vice-Coordinator of Institutional Relations of the CPC. Certified investment analyst (CNPI). Securities manager authorized by the CVM. Fiscal Council Member Certified by the IBGC. Director of Mahle Metal Leve S.A. (he took office in June 2017 and was reelected in April 2018, April 2019 and May 2020). He is currently an effective member of the Fiscal Councils of the following publicly-held companies: Cia. de Saneamento do Paraná – Sanepar; Cia. Energética de Brasília – CEB; Rumo S.A.; Ser Educacional S.A.; Cia. Saneamento Básico do Estado de S. Paulo - Sabesp; and alternate member of the boards of directors of the following publicly-held companies: Bradesco S.A. ; CPFL Energia S.A.; Fras-Le S.A. He also worked as member of the Audit Committee of Paranapanema S.A. (2017) and of the Fiscal Councils of the following companies: Petrobras S.A.; Iochpe Maxion S.A.; BRF S.A.; Aliansce Shopping Centers S.A.; Cremer S.A.; Movida S.A.; Tecnisa S.A.; Paraná Banco S.A.; Tele Norte Celular Participações S.A.; Unipar Carbocloro S.A.; Bradespar S.A. (alternate member); Companhia Siderúrgica Belgo-Mineira, currently Arcelor Mittal (alternate member); Grendene S.A. (alternate member); Indústrias Romi (alternate member); Grazziotin S.A. (alternate member); SLC Agrícola (alternate member). He is the former president of the Brazilian Association of Capital Market Analysts and Investment Professionals – APIMEC (Associação Brasileira de Analistas e Profissionais de Investimento do Mercado de Capitais), former president of the Brazilian Association of Capital Market Analysts and Investment Professionals – APIMEC (Associação Brasileira de Analistas e Profissionais de Investimento do Mercado de Capitais), São Paulo section. He was one of the authors of the Brazilian Corporate Governance Code - Publicly-Held Companies. He has been a member of the Governance Committee of State-Owned Companies of B3. He is a member of the Fiscal Council of the São Paulo Museum of Modern Art – MAM and former member of the Acquisitions and Mergers Committee – CAF.
Board Committees
On AugustNovember 8, 20182023 our board of directors approved a revision of its internal operating rules (which has been recently updated on October 14th, 2020), as well asand between 2021 and 2023 also updated the board committees’ internal rules (which have been recently updated on March 19th, 2020). An English translation of the internal operating rules of our board of directors and its committees is available on our investor relations website at www.braskem-ri.com.br. Under these revised rules, our bylaws and theBraskem shareholders’ agreement, our board of directors has established four permanent committees and has the power to establish ad-hoc committees. Permanent committees must have at least three and no more than five members. Ad-hoc committees may be convened for a limited period to consider temporary issues and are dissolved when their purpose has been achieved or when the term established upon the creation of such committees expires. The number of members of the ad-hoc committees is defined upon the creation of such committees.An English translation of the internal rules of our board of directors and each of its committees is available on our investor relations website at www.braskem-ri.com.br.
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We currently have the following four permanent committees: (1) the Finance and Investment Committee, (2) the PersonnelPeople and Organization Committee, (3) the Strategy, Communication and CommunicationESG Committee and (4) the Statutory Compliance and Audit Committee. The duties of each permanent committee are established in their respective bylaws,internal rules, all approved by our board of directors. The members of each permanent committee are appointed by the chairman of the board and approved by our board of directors, solely from among its members and alternate members being(except for the Statutory Audit and Compliance Committee as described below), and the committee’s coordinators are appointed by the chairman of the board of directors. The members of the Statutory Compliance and Audit Committee are elected by the board of directors after being appointed by the chairman. Our board of directors does not delegate the power to take actions on behalf of our Company to the permanent committees; rather the role of the permanent committees is to examine certain matters in order to assist in deliberations under the board of directors’ responsibility.responsibility, except the Statutory Compliance and Audit Committee which has certain specific duties.
Finance and Investment Committee
Our Finance and Investment Committee meets at least quarterly and has its duties fixed at its Internal Rules,Rule, such as: (1) to evaluate newanalyze existing policies relating to financial management, insuranceinvestments dividends, interest on equity and securities trading and guarantees, (2) analyze the constant risks in the Corporate Risk Matrix and analyze existing policies, (2)the respective mitigation plans related to evaluate new risk management policies and analyze existing policies,the topics within its competence, (3) to analyze opportunities related to financing and investment transactions that may improve our capital structure, (4) to propose to the chairman the criteria for the annual assessment of the board and its support committees, and of the board secretariat and (5) to analyze guidelines and protocols for our business planning execution cycle. Our Finance and Investment Committee is currently composed of Mrs.Mr. João Pinheiro Nogueira Batista (coordinator), Mrs. Rogério Bautista da Nova Moreira, Mrs.Mr. Héctor Nuñez, Mr. Marcelo Klujsza, Mrs. Marcelo Rossini de Oliveira and Mrs. Daniel Pereira de Albuquerque Ennes.
Mr. Rodrigo Montecchiari.
PersonnelPeople and Organization Committee
Our PersonnelPeople and Organization Committee conducts work meetings at least fivesix times per year and has the following duties: (1) to evaluate new policies and review existing policies relating to personnel matterspeople and organizational issues,matters, (2) to analyze processes relating to identification, training, development and succession of executives for or in strategic positions, (3) to analyze processes relating to the determination of fixed and variable compensation for executives in strategic positions, and (4) to evaluate new policies and review existing policies relating the maintenance and strengthening of our corporate culture.Our Personnelculture. Our People and Organization Committee is currently composed of Mrs. Andrea da Motta ChammaMr. Eduardo Leal Ferreira (coordinator), Mr. André Amaro da SilveiraGuilherme Abreu and Mr. Roberto Faldini.
Strategy, Communication and CommunicationESG Committee
Our Strategy, Communication and CommunicationESG Committee meets quarterlyconducts work meetings at least five times per year and has the following duties: (1) to evaluate determinations relating to the foundation of our business plan, (2) to evaluate the business direction being pursued to achieve objectives defined by our board of directors, (3) to evaluate new policies and review existing policies relating to the capital markets and social responsibility, (4) to evaluate our image projected to and perceived in the market and make recommendations to our board of directors to maintain or to redefine our social communications programs, and (5) to analyze guidelines and protocols for our business planning and execution cycle. Our Strategy, Communication and Communication“ESG” Committee is currently composed of Mr. João Cox NetoJosé Mauro da Cunha (coordinator), Mr. José Mauro Mettrau Carneiro da CunhaLuis Vidal, and Mr. Roberto Lopes Pontes Simões.Ms. Juliana Sá Vieira Baiardi.
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Statutory Compliance and Audit Committee
On May 4, 2016,July 30, 2021, our shareholders approved, at the Extraordinary General Meeting, the transformation of the Compliance Committee into the Statutory Compliance and Audit Committee, with the consequent amendment of the Bylaws to include this provision.
On November 9, 2021, our board of directors approved the constitutionformation of Braskem’s Statutory Compliance and Audit Committee (Comitê de Conformidade e Auditoria Estatutário, the “CCAE”), a permanent advisory body to our board of directors, in compliance with CVM Resolution No. 23/21 and the U.S. Sarbanes-Oxley Act of 2002 (the “SOX”), which allows us to rely on the exemption from the audit committee requirements of the Compliance Committee,SEC contained in paragraph (c)(3) of Rule 10A-3 under the Securities Exchange Act of 1934, as amended, in accordance with our strategy to monitor internal controls and risk exposure and to supervisefollow the preparation of financial reports, without prejudice tobest corporate governance practices. See “Item 16D. Exemptions from the legal duties designated to our fiscal council.Listing Standards for Audit Committees.”
The Statutory Compliance and Audit Committee is a statutory committee which meets at least every two monthsmonthly and has at least three independentfive members, of the Board of Directors, chosenelected by the Board itself pursuant to the nomination made by the chairman of the Board (observed the specificities about external members highlighted below), being one of the nominees indicated as the coordinator of the Statutory Compliance Committee, and Audit Committee. The committee must have in its composition (i) three (3) independent members of the Company's Board of Directors, as defined in the Company's policies; and (ii) two (2) members that are not part of the Board of Directors (external members), which are independent members, pursuant to CVM Resolution No. 23 of 2021, and shall be chosen by said body among those indicated in a list to be submitted by the Chairman of the Board of Directors, prepared by a specialized company, with evidenced experience, provided that the indication of names by the shareholders not being allowed.
The main duties and objectives are to (1) evaluate internal controls, risk exposure and compliance with applicable laws and regulations, (2) monitor investigations related to ethics complaints, (3) approveanalyze and periodically update the Compliance System Policy, the Anticorruption Policy and the Related Party Transactions Policy, (4) opine about the selection and (4)dismissal of the our independent external auditors, (5) monitor the quality and integrity of the quarterly information, interim statements, and financial statements, (6) develop training programs for board members, senior managers and certain employees.employees, and (7) evaluate, prior to the appreciation by the Board of Directors, the appropriateness of transactions subject to the approval of the Board of Directors between the Company and its related parties, as provided for in the Company’s Bylaws and in the Policy of Transactions with Related Parties of the Company, as well as to carry out the monitoring, including the respective evidences, jointly with the Management and the internal audit area. The detailing of the competencies of the Statutory Compliance and Audit Committee can be found in its Internal Rules. Our Statutory Compliance and Audit Committee is currently composed of Mr. Julio Soares de Moura NetoGesner Oliveira (coordinator), Mr. GesnerAndré Amaro, Mr. Charles Lenzi, Mr. José Écio Pereira da Costa Júnior (external member) and Ms. Maria Helena Pettersson (external member).
NYSE rules require that listed companies have an audit committee that (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding audit committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. However, as a foreign private issuer, we only need to comply with the requirement that our CCAE meet the SEC rules regarding audit committees for listed companies.
The SEC has recognized that, for foreign private issuers, local legislation may delegate some of the functions of the audit committee to other advisory bodies. We have established a CCAE as approved at the board of directors meeting held on November 9, 2021. Our CCAE meets the requirements for the exemption available to foreign private issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The CCAE is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority.
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External Members
José Écio Pereira da Costa Junior. Mr. José Écio Pereira da Costa Junior was elected as an effective member of the Company’s Statutory Compliance and Audit Committee on November 9, 2021 and reelected on April 27, 2022 by the Company’s board of directors. He holds a graduate degree in Business Administration and Accounting Sciences. He entered the auditing career in 1974 at Arthur Andersen & Co and was promoted to International Partner in 1986 and later, in June 2002, became a partner at Deloitte Touche Tohmatsu in Brazil, remaining there until May 2007, when he retired. From October 1993 until May 2004 he was the managing partner responsible for the Curitiba office of these auditing and consulting firms. Founding partner of JEPereira Consultoria em Gestão de Oliveira Filho,Negócios S/S, in January 2008, acting with emphasis on consultancies related to: strategic management, consultancy in the preparation of companies and Mr. Paulo Roberto Valestheir shareholders to act in the New Capital Market, besides acting as adviser in Audit Committees with the Boards of Public Companies. He was a member of the Board of Directors of GAFISA S.A. from June 2008 to April 2018 and Coordinator of the Audit Committee from June 2008 to April 2016, becoming a member of the fiscal Council from then until April 2018. He also served as a Member of the Statutory Audit Committee of FIBRIA S.A. from April 2013 to March 2018, and was also Chairman of the Fiscal Council from December 2009 to March 2013. He served as Coordinator of the Audit Committee of VOTORANTIM INDUSTRIAL S.A - VID from June 2012 to June 2014 and served as Coordinator of the Audit Committee of VOTORANTIM METAIS S.A (currently NEXA S.A) from June 2014 to December 2017 and for VE VOTORANTIM ENERGIA S.A from June 2017 until February 2022. He served as Member of the Audit Committee of CESP S.A from April 2019 to April 2021. He also served as a member of the Board of Directors of Ouro Verde Locação e Serviço S.A in the period from October 2018 to June 2019. He also served as a member of the Board of Directors of BRMALLS S.A. (shopping center management company registered with the CVM - Novo Mercado) from April 2010 to April 2014. He also served as a member of the Board of Directors of Grupo NOSTER (privately-held company in the area of public transportation in Curitiba, and power generation) from January 2011 to September 2013. He served as Coordinator of the Audit Committee of VOTORANTIM CIMENTOS S.A from October 2013 to April 2023. He also served as a Coordinator of the Audit Committee at CITROSUCO S.A since December 2014. He serves as Coordinator of the Audit Committee since June 2014 at CBA – COMPANHIA BRASILEIRA DE ALUMÍNIO S.A. He also serves as a member of the Audit Committee at Mobly S.A since June 2021. He also serves as a member of the Board of Directors of Princecampos Participações S.A., elected in April 2010 and as Chairman of the Fiscal Council at Demercado Investimentos S.A., elected in November 2020.
Maria Helena Pettersson. Ms. Maria Helena Pettersson was elected as an effective member of the Company’s Statutory Compliance and Audit Committee on November 9, 2021 and reelected on April 27, 2022. Ms. Maria Helena Pettersson has a bachelor's degree in Accounting and Business Administration with several improvement courses in finance, business management, internal controls, business and asset valuation etc. Board member and senior consultant with 40 years of experience in accounting, financial statements, corporate governance, internal and external financial reporting, internal controls, internal policy compliance, compliance with laws and regulations, risk governance and international accounting. She has served as an audit and consulting partner, coordinating services to large multinational companies, large Brazilian business groups, publicly traded companies in Brazil and SEC-listed companies, in various industries, such as media and entertainment, airlines, telecommunications, manufacturing, retail and trade, services, healthcare, among others. She is currently a member of the Advisory Board of CARLAB at Rutgers University, member of the Audit Committee of Tecnisa S.A., member of the Audit Committee of China Three Gorges Brasil Energia S.A. (CTG Brasil), member of the Board of Directors of U&M Mineração e Construção S.A., and member of the Fiscal Council of Confederação Brasileira de Sousa.Rugby – CBRU and of the Audit Committtee of Associação Umane, both of which are not-for-profit entities. She provides independent consulting services in the areas of corporate governance and compliance for large companies, committee structuring at the Board level, preparation for M&A and IPO due diligence, and professionalization of the management of family-owned companies. She worked for nearly 30 years in independent auditing, led audits of financial statements for local and international purposes, and conducted large and complex consulting engagements, including IPOs, mergers, acquisitions and post-transaction integration, debt restructurings and judicial restructurings. She has experience in the areas of accounting and financial statements, corporate financial reporting, compliance with capital markets laws and regulations, financial planning, business valuation, risk management, internal and external auditing, and masters the Brazilian and international regulatory framework of the auditing profession, in addition to familiarity with global best practices in corporate governance.
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Chief Compliance Officer
Our chief compliance officer, or CCO, has a full-line report directly to the Statutory Compliance and Audit Committee, and dotted-line report to the CEO of the company. Our CCO exercises independent judgment and acts in an impartial manner. Our CCO is responsible for developing a compliance system, assist the CEO in implementing the compliance system and continually monitor developments in this respect. Our CCO is also responsible thefor global activities:activities involving Internal Audit, Corporate Risk Management, Internal Controls, Compliance and Data Protection.
Everson Bassinello. Mr. Bassinello has served as our CCOChief Compliance Officer (CCO) since August 2016 and has led our global initiatives related to risk management, internal controls, compliance, data protection and internal audit. He served in leadership positions at Companies of the Votorantim Group, including VCP and Fibria between June 2000 and July 2016. Mr. Bassinello holds a degree in mechanical engineering from Universidade Federal de Itajubá (UNIFEI), a graduate degree in business administration from Fundação Getúlio Vargas (FGV), an MBA degree from the Business School São Paulo (BSP) and a specialization degree in corporate governance from the Kellogg School of Management.
Ethics Committee
Our Ethics Committee supports our Statutory Compliance and Audit Committee with the enforcement of compliance rules and with matters involving the violation of the commitment to Ethics, Integrityethics, integrity and Transparency.transparency. Our Ethics Committee is formed by our Chief Compliance Officer, who is also its coordinator, and three additional members: vice-presidents in our Legal, People & Organization and Finance areas. The main objectives of our Ethics Committee are to (1) evaluate the results of internal investigations of ethics complaints, (2) submit to the Statutory Compliance and Audit Committee proposed revisions to the Company’s orientation materials, including the Code of Conduct, and (3) provide guidance on questions of ethical conduct and ensure consistent evaluation and treatment of ethical matters.
Fiscal Council
The Brazilian Corporate Law requires us to establish a permanent or non-permanent fiscal council (“conselho fiscal”), with a minimum of 3 and up to 5 members, with alternate members. Our by-laws provide for a permanent fiscal council composed of up to five members and their respective alternate members. The fiscal council is a separate corporate body, independent of our management and our independent directors.
The members of our fiscal council and theirs alternate members are elected by our shareholders at the annual general shareholders’ meeting for one-year terms and are eligible for reelection. The terms of the members of our fiscal council expire at the next annual general shareholders’ meeting, which will be held in 2024. Under the Brazilian Corporate Law, the fiscal council may not contain members who are members of our board of directors or of our board of executive officers or be employees of the Company or of its controlled companies or of companies from the same group, or spouses or relatives, up to third degree of relatives, of any member of our management. To be eligible to serve on our fiscal council, a person must be a resident of Brazil and either be a university graduate or have been an officer or fiscal council member of another Brazilian Company for at least three years prior to election to our fiscal council. Holders of (1) preferred shares without voting rights, or with restricted vote, and (2) non-controlling common shareholders that together hold at least 10.0% of our voting share capital are each entitled to elect, in a separate voting, one member and his or her respective alternate to the fiscal council.
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The responsibilities of a fiscal council are established by the Brazilian Corporate Law. In accordance with the Brazilian Corporate Law, our fiscal council has the right and obligation to, among other things:
· | supervise, through any of its members, the actions of our managers and to verify the fulfillment of their duties; |
· | give an opinion on the annual report of our management, including the supplementary information deemed necessary or useful for deliberation at a general meeting; |
· | at least every three months examine the trial balance sheet and other financial statements periodically prepared by the company; |
· | examine the accounts and financial statements for the financial year and give an opinion on them; |
· | opine on any management proposals to be submitted to a vote of our shareholders related to: |
o | changes in our share capital; |
o | issuances of debentures or rights offerings entitling the holder to subscribe for equity securities; |
o | distributions of dividends; and |
o | transformation of our corporate form and any corporate restructuring, such as takeovers, mergers and spin-offs; |
· | inform our management of any error, fraud or detected and suggest measures we should take in order to protect our primary interests. If our management fails to take the measures required to protect our interests, inform our shareholders at a shareholders’ meeting of these facts; |
· | call general shareholders’ meetings if management delays the general shareholders’ meeting for more than one month and call special shareholders’ meetings in the event that important matters arise; |
· | to attend the Board of Directors’ Meetings in which it must give an opinion on the subjects to be resolved upon the council; |
· | to attend or be represented, by at least one of its members, in the Company’s General Meetings, answering the requests for information made by our Shareholders; and |
· | to request that the Company’s Management, upon request of any of its members, provide clarifications or information about specific facts, provided that they are related to its supervisory duty, under the law and the Company’s Bylaws. |
The following table lists the current members of our fiscal council:
Name | Year of First Appointment |
Ismael Campos de Abreu | 2003 |
Gilberto Braga | 2015 |
Jeferson Gustavo Salerno | 2023 |
Paulo Cicero Silva Neto | 2023 |
Wilfredo João Vicente Gomes | 2023 |
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The following is a summary of the business experience, areas of expertise and principal outside business interests of the current members of our fiscal council and their alternates.
Members of Fiscal Council
Ismael Campos de Abreu. Mr. Ismael Campos de Abreu was elected as an effective member of the Company’s Fiscal Council on April 29, 2003, and he has been appointed by the shareholder Novonor. Mr. Ismael Campos was reelected on April 19, 2022. Mr. Ismael Campos served as an Officer at Kieppe Participações e Administração Ltda. - Em recuperação judicial from April 2011 to May 2017. Between 1995 and March 2011 he served as Controller of Novonor. He was Manager of the tax consulting division of PricewaterhouseCoopers (1978/1985) and of Arthur Andersen (1989/1991). He was a partner at Performance Auditoria e Consultoria Empresarial (1992/1995). He was a member of the Board of Directors of Hospital Cardio Pulmonar and member of the Fiscal Council of several companies operating in the petrochemical sector. Mr. Ismael holds a degree in Accounting from Fundação Visconde de Cairú and a post-graduate degree in Economic Engineering from the Inter-American Development Center. Mr. Ismael Campos de Abreu does not hold a management position in any third sector organization.
Gilberto Braga. Mr. Gilberto Braga was elected as an effective member of the Company’s Fiscal Council on April 9, 2015, and he has been appointed by the shareholder Novonor. Mr. Gilberto Braga was reelected on April 19, 2022. Mr. Gilberto Braga is a business consultant in the areas of finance, capital markets, corporate, tax, forensics and forensic assistance, besides acting as fiscal council, management and audit committee member for publicly held companies and professional associations. He was a member of the CVM's Investment Funds Accounting Standards Advisory Committee, is a university and post-graduation professor of corporate governance at Fundação Dom Cabral, IBMEC, PUC and FGV, a commentator for Radio CBN, Radio Roquete Pinto in Rio de Janeiro and an article writer for the newspaper O Dia. He has a degree in Economics from UCAM Ipanema and Accounting from UGF, a post-graduate degree in Financial Administration from IAG-PUC Rio and a Master’s in Administration (Finance and Capital Markets) from IBMEC-Rio. He is a member of IBGC.
Jeferson Gustavo Salerno. Mr. Jeferson Salerno was elected as an effective member of the Company’s Fiscal Council on April 26, 2023. He was appointed by the shareholder Petróleo Brasileiro S.A. – Petrobras. Mr. Jeferson Salerno started his accounting and tax career in 1987, and holds a degree in accounting sciences, a post-graduation in Controlling and an MBA in Corporate Finance. He has worked in the financial area at Petrobras since 1994, having worked for 17 years in management positions focused on corporate finance. Between 2002 and 2004 he acted as Financial Manager assigned to the subsidiary Refinaria Alberto Pasqualini S.A. – REFAP. He also served as a member of the Fiscal Council at the following companies: Petrobras Negócios Eletrônicos S.A. (2007-2009); Petrobras Distribuidora S.A. (2012-2016); Liquigás Distribuidora S.A. (2016- 2017); Petrobras Transporte S.A. – TRANSPETRO (2017-2019). He is currently Chairman of TRANSPETRO’s Fiscal Council, position he was elected in June 2021.Mr. Salerno does not hold a management position in any third sector organization.
Paulo Cicero Silva Neto. Mr. Paulo Cicero was elected as an effective member of the Company’s Fiscal Council on April 26, 2023. He was appointed by the shareholder Petróleo Brasileiro S.A. – Petrobras. Mr. Paulo Cicero has been a Petrobras employee since 2005, where he has served in several positions, such as: Coordinator of Business Segmentation and Country Corporate Reporting; Accounting Manager of the SP Regional Office; Equity Accounting Manager; Manager of Accounting Standards and Planning; and Manager of Digitalization Optimization of Accounting and Tax Processes. He currently holds the position of Accounting and Tax Manager for E&P Partnerships. He was a member of the Fiscal Council (effective and alternate) in several companies, and his last mandate was in the Companhia Pernambucana de Gás – COPERGÁS, as effective director until July 2022. Mr. Paulo Cicero has 29 years of experience in accounting and tax processes. He has held management and leadership positions for 17 years. He holds a bachelor’s degree in accounting, and an MBA in Accounting Management. Mr. Paulo Cicero does not hold a management position in any third-sector organization.
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Wilfredo João Vicente Gomes. Mr. Wilfredo Gomes was elected as an effective member of the Company’s Fiscal Council on April 26, 2023. He was appointed by the minority shareholders. Since 2003, Mr. Wilfredo has been in command of Multicorp Holding, which brings together the companies OneWG Multicomunicação; Multilíderes – LIDE SC; LIDE Brasil; and Multicompany. Mr. Wilfredo is currently a member of the Fiscal Council at BRADESPAR and a member of the Fiscal Council of Eternit S/A. He has also served as an Independent Director of CELESC (Centrais Elétricas de Santa Catarina) from 2014 to 2015, and of AES Eletropaulo of São Paulo from 2016 to 2017, having been appointed by the minority shareholders led by the Geração LPAR Fund. Mr. Wilfredo Gomes has a degree in Business Administration from Universidade Federal de Santa Catarina and in Finance and Accountability from FEAN- SC, he studied in International School, related to New York University, and holds a specialization in Corporate Governance and in Board of Directors Formation from Fundação Dom Cabral.
Compensation
According to our by-laws, our shareholders are responsible for establishing the aggregate compensation we pay to the members of our board of directors, our board of executive officers and our fiscal council. Our shareholders determine this aggregate compensation at the general shareholders’ meeting each year. Once aggregate compensation is established, the members of the board of directors are responsible for distributing such aggregate compensation individually to the members of our board of directors, our board of executive officers and our fiscal council in compliance with our by-laws.
Compensation and Benefits
The aggregate compensation payable by us in connection with therefers to compensation relating to each fiscal year ended December 31, 2020 to all members of our board of directors, board of executive officers and our fiscal council for services in all capacities was R$67.5 million in 2020, R$63.3 million in 2019 and R$53.8 million in 2018. capacities.
On April 13, 2021,26, 2023, at our annual general and extraordinary shareholders’ meeting, our shareholders establishedapproved the preliminary compensation foramount to be payable to the members of our board of directors, our board of executive officers and the members of our fiscal council for the year 2024 in the aggregate amount of up to R$84 million.
The actual aggregate compensation to be paid relating to the fiscal year ended December 31, 2023, however, depends on certain personal and corporate goals and the final approval of our shareholders. The actual aggregate compensation relating to the fiscal year ended December 31, 2023, will be part of the management proposal for the annual shareholders meeting to be held on April 29, 2024.
The aggregate compensation for the years ended December 31, 2023, is expected to be R$42 million, and for the years ended December 31, 2022 and 2021, ofwas R$73.5 million.61 million and R$75 million, respectively.
The members of the board of directors receive a fixed monthly compensation, which is not affected by the numbers of meetings that take place each month. The coordinators and members of the committees, according to the responsibilities and participation in each committee receive differentiates monthly fees.
The members of the fiscal council receive a fixed monthly compensation, which is not affected by the numbers of meetings that take place each month. The alternate members of the board of directors and of the fiscal council do not receive any compensation.
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Our executive officers receive a fixed monthly, an annual variable compensation and the same benefits generally provided to our employees, such as medical (including dental) assistance, private pension plan and meal voucher. Members of our board of directors and fiscal council are not entitled to these benefits.
Members of our board of directors, board of executive officers and fiscal council are not parties to contracts providing for benefits upon the termination of employment other than, in the case of executive officers, the benefits described above.
Long-Term Incentive Plan
At an extraordinary general meeting held on March 21, 2018, or the March 21 Meeting (Plans 2018 to 2022) and July 28, 2023 or the July 28 Meeting (Plans 2023 onwards) our shareholders approved the Restricted Share Award Plan, or the Incentive Plan. The Incentive Plan establishes the general terms and conditions for the granting of certain restricted shares in our Company to eligible employees.
Eligibility
Persons who are legally employed by us or the companies controlled by us, including officers and non-officers approved by our board of directors, may participate in the Incentive Plan upon execution of an award agreement (such persons, the “participants”).
Administration
Our board of directors administers the Incentive Plan. Our board of directors has, subject to the general conditions of the Incentive Plan and the yearly programs that may be created, approved and / or cancelled by our board of directors and by the governing bodies of the companies controlled by us, as applicable, in observance of the terms and conditions of the Incentive Plan (such programs, the “Programs”), and the guidelines fixed by the March 21 Meeting, (Plans 2018 to 2022) and July 28 Meeting (Plans 2023 onwards) and to the extent fully permitted by law and under our by-laws, full powers to take all measures required and convenient for management of the Incentive Plan and such Programs, including (i) approving the eligible persons, and authorizing the grant of Restricted Shares on such persons’ behalf on the terms and conditions set forth in the corresponding award agreements; (ii) authorizing the disposal or grant of treasury shares to satisfy the delivery of the Restricted Shares under the Incentive Plan, the applicable award agreements and applicable laws and regulations, and (iii) approving objective criteria for the acquisition, by us or companies controlled by us of the Restricted Shares to be delivered to the participants. Our board of directors and the governing bodies of the companies controlled by us, as applicable, may annually approve the grant of Restricted Shares within the scope of each Program, and will determine the eligible persons on whose behalf the Restricted Shares may be granted under the Incentive Plan and such respective Program.
Restricted Shares
The grant of Restricted Shares will be made upon and subject to the execution of award agreements pursuant to the Incentive Plan. Participants may receive shares and/or depositary receipts representing shares issued by us negotiated abroad, representing at most one and a half percent (1.5%) of our entire share capital on the date of the Incentive Plan, subject to adjustment as set forth in the Incentive Plan.
The grant of Restricted Shares is contingent upon the (i) voluntary acquisition by the participants of shares or depositary receipts issued by us (the “Owned Shares”) at the participants’ own expense, from the stock exchanges where such shares are traded within a period of time set out in the applicable award agreements for the acquisition of such Owned Shares and (ii) participants’ continuous employment with us for three years and maintaining uninterrupted ownership of Owned Shares during such time (such three year period, the “Waiting Period”). The minimum investment amount is 10% of the planned gross amount of participants’ short-term income pursuant to our annual profit sharing program, and the maximum investment amount is 20% of such amount.
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The target of the Incentive Plan is to award for each one (1) Owned Share two (2) Restricted Shares. However, our board of directors may define, in an exceptional and justified manner as set forth in the Incentive Plan and pursuant to the terms and conditions of the applicable award agreements, for each Program, a different number of Restricted Shares to be delivered for each Owned Share, in compliance with the minimum of one (1) Restricted Share and the maximum of three (3) Restricted Shares for each one (1) Owned Share, based on an analysis by our board of directors in its sole discretion.
Change of Control
In the event of (i) a Change of Control of our Company (as defined in the Incentive Plan), (ii) a holding of a public offer of closing of our capital (i.e., a “going private” transaction), or (iii) a corporate restructuring that results in a significant decrease of the liquidity of the Restricted Shares, in comparison with the average price and volume traded over the six (6) months prior to the corporate restructuring, the participants will be entitled to receive within sixty (60) days from the occurrence of any of the events set forth in clauses (i) through (iii): (Plans 2018 to 2022) or within thirty (30) days from the occurrence of any of the events set forth in clauses (i) through (iii): (Plans 2023 onwards). (a) all vested Restricted Shares whose rights have vested in the participants, even if the Restricted Shares have not been effectively transferred by us or companies controlled by us; and (b) all unvested Restricted Shares which will become fully vested as a result of automatic vesting acceleration.
Vesting
Under the Incentive Plan, full vesting of the Restricted Shares is contingent upon participants continuously remaining employed by us and maintaining uninterrupted ownership of Owned Shares, in each case, during the Waiting Period.
Termination from the Company
In the event of a termination of a participant for (i) dismissal by us and / or by the companies controlled by us without cause, (ii) removal from the manager position without violation of their duties and responsibilities, or (iii) transfer of the participant to occupy a position in a company in the same group as ours, which is not a participant in the Incentive Plan, the participant will be entitled to receive (a) the vested Restricted Shares, and (b) a pro rata number of unvested Restricted Shares, calculated based on the number of complete months in which such participant worked for us or a company controlled thereby relative to the number of months in the Waiting Period, with the remaining Restricted Shares being automatically terminated on such participant’s termination date, by operation of law, regardless of prior notice or warning, and with no right whatsoever of indemnification to such participant. The delivery of the Restricted Shares to such participant will be made on the original delivery dates (unless delivered earlier in our exclusive direction to the extent permitted under the applicable award agreement). (Plans 2018 to 2022) or thirty (30) days after the termination date for 2023 Plans onwards.
In the event of a termination of a participant (i) upon dismissal for cause or removal from office due to a violation of the duties and responsibilities of a manager, (ii) upon request from such participant (including redundancy / voluntary solicitation or resignation) or (iii) any event of retirement that is not a mutually agreed retirement, such participant will lose any and all rights connected to the Restricted Shares under the Incentive Plan or under any program or award agreement in connection therewith, which will be automatically terminated on the termination date of such participant.
In the event of a termination of a participant by reason of a retirement mutually agreed by such participant and us or companies controlled by us, such participant will be entitled to receive (a) the vested Restricted Shares; and (b) the entirety of the unvested Restricted Shares. The delivery of the Restricted Shares to such participant will be made on the original delivery dates (unless delivered earlier in our exclusive direction to the extent permitted under the applicable award agreement).
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In the event of a termination of a participant due to (i) death or (ii) permanent disability, the legal heirs or successors or the legal representative will be entitled to receive, within sixty (60) days from such event: (a) the vested Restricted Shares of such participant; and (b) all unvested Restricted Shares. (Plans 2018 to 2022) or thirty (30) days for 2023 Plans onwards.
Adjustments of Awards
In the event of change to the number, nature or class of our shares as a result of bonus, splitting, reverse split, or conversion of shares into other nature or class, or conversion of other securities issued by us into shares, our board of directors will assess the need to make adjustments to the Incentive Plan, the applicable and the award agreements in connection therewith, so that the relationship between the parties remains balanced without any material windfall or detriment to the participants.
Amendments and Termination
Our board of directors may propose any amendments to the Incentive Plan and, in case necessary, submit such amendments for approval in an extraordinary general meeting. The Incentive Plan will remain in force until the delivery of the Restricted Shares granted pursuant to award agreements executed in the fifth year of the - Plan.
The right to receive the Restricted Shares under the Incentive Plan and applicable program and award agreement in connection therewith will automatically terminate with no right to indemnification, ceasing all effects, if we are wound up, liquidated or adjudicated bankrupt.
Corporate Governance Practices
The significant differences between our corporate governance practices and the standards of the NYSE are described in “Item 16G. Corporate Governance.”
Share Ownership of Directors and Officers
As of the date of this annual report, no member of Braskem’s board of directors or executive officer owned more than 0.1% of Braskem’s share capital. All shares owned by our directors and executive officers were purchased at market prices through the B3.
Employees
The following table sets forth the number of our employees by geographic location at the end of each year indicated.
Number of Employees by Geographic Location | 2020 | 2019 | 2018 |
State of Bahia | 1,593 | 1,637 | 1,692 |
State of Rio Grande do Sul | 1,528 | 1,537 | 1,589 |
State of São Paulo | 2,027 | 1,971 | 1,978 |
State of Alagoas | 554 | 511 | 512 |
State of Rio de Janeiro | 384 | 389 | 397 |
Other Brazilian states | 2 | 5 | 5 |
Brazil | 6,088 | 6,050 | 6,173 |
United States | 764 | 759 | 754 |
Germany | 151 | 202 | 188 |
Mexico | 831 | 830 | 812 |
Other countries | 159 | 99 | 81 |
Total | 7,993 | 7,940 | 8,008 |
We do not employ a material number of temporary employees.
In March 2020, in view of the progression of the COVID-19 outbreak, we formed a crisis committee with the aim of establishing global procedures focusing on the health of our team members and the continuity of our operations. We have taken the following measures, among others: (i) recommended that all team members and contractors work remotely; (ii) established a minimum team in industrial areas to ensure safety and operational continuity matters; and (iii) prohibited all national and international business travel, apart from exceptional cases.
Number of Employees by Geographic Location | 2023 | 2022 | 2021 |
State of Bahia | 1,609 | 1,628 | 1,611 |
State of Rio Grande do Sul | 1,571 | 1,567 | 1,545 |
State of São Paulo | 2,167 | 2,226 | 2,114 |
State of Alagoas | 661 | 672 | 646 |
State of Rio de Janeiro | 409 | 398 | 390 |
Other Brazilian states | 2 | 2 | 2 |
Brazil | 6,419 | 6,493 | 6,278 |
United States | 817 | 831 | 758 |
Germany | 178 | 172 | 155 |
Netherlands | 191 | 177 | 146 |
Mexico | 922 | 959 | 939 |
Other countries | 42 | 36 | 36 |
Total | 8,569 | 8,668 | 8,312 |
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Employees in Brazil
In Brazil, both employees and employers have the right to organize into unions. Employees belong to a specific “professional category” and employers constitute a specific “economic category” and they may be represented by a single union in a particular geographic area. Individual unions generally belong to statewide union federations, which in turn belong to nationwide union confederations. Braskem is part of the Petrochemicals, Chemicals and Synthetic Resins Industries Union of the States of Bahia, Alagoas, Rio de Janeiro, Rio Grande do Sul and São Paulo, and our employees are organized within the Petrochemicals Industries Workers’ Unions in each of these states. As of December 31, 2020, 26,15%2023, 27.1% of our employees in Brazil were union members.
Braskem maintains a good relationship with the employee union. We have not experienced a strike in Brazil since Trikem was privatized in 1995. In general, our current collective bargaining agreements and conventions establish, with each trade union, clauses valid for up two years, being able to negotiate economic clauses annually. The clauses of collective labor instruments signed with the unions cover all Members, whether they are union members or not.
Post-Employment Benefits in Brazil
Vexty Defined Contribution Plan
The majority of our employees (91,5%) participate in the Vexty Pension Plan (former Odebrecht Previdência). We pay part of the monthly payments made by our employees to Vexty. This pension fund is a defined contribution plan that pays pension and retirement amounts that supplement those paid by the Brazilian government’s pension system and are intended to provide its members with income upon retirement. In 2020, we paid2023, the number of active participants in Vexty was 6,004, and the contributions made by the sponsors in the year amounted to R$45.7 million into this fund.59.4 million.
Other Benefits in Brazil
Our employees in Brazil and their dependents receive medical and dental assistance through a network of accredited doctors in an insurance company. We pay most of the costs for these services, with a small monthly portion being paid by our employees. A small fee is also charged to our employees according to the use of some medical services (copayment system). In 2020,2023, we spent R$105.4150 million on this benefit.
Employees in the United States
The employees of Braskem America are not represented by any union, other than employees of Braskem America Neal, West Virginia plant. As of December 31, 2020, 30.5%2023, 7% of the employees of this plant were represented by the United Steel, Paper & Forestry, Rubber, Manufacturing, Energy Allied-Industrial & Service Workers International Union. The collective bargaining agreement with this union expires on May 3, 2023.2029.
Post-Employment Benefits in the United States
Braskem America administers a closed defined benefit pension plan and during 2020plan. In 2023, there were 3735 active participants, compared to 38 participants in 2019. Additionally, for 2020 there were 15129 employees with deferred benefits along with 17098 employees receiving benefits as stated within the current year actuarial report. Due to the current funding levels of the pension plan, Braskem America was not required to contribute to the plan during thesince 2020 plan year and, as a consequence, there were no additional cash contributions made in 2020.2023. Additionally, there were no participant contributions in 2020.
2023.
We offer a 401(k) savings plan, which, as of December 31, 2020, had total assets of R$880.3 million (US$169.4 million), including R$44.7 million (US$8.6 million) in participant contributions made in 2020.
Other Benefits in the United States
Braskem America offers its employees the ability to participate in a variety of health and welfare benefit plans, including medical, dental vision, life and disability coverage.
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Employees in Germany
Employees of Braskem Europe GmbH in Germany are not represented by any union. However, they are represented by local works councils (Betriebsrat).
Post-Employment Benefits in Germany
Pension Plan Germany
In October 2011, the obligations of Dow under German pension plans were assumed by Braskem Europe as a result of the Dow Polypropylene Acquisition. Acquisition and for that pension plans Braskem has 82 active participants, which have in total 96 active plans, 59 participants with deferred benefits and 25 participants receiving benefits.
In 2013, Braskem EuropeGermany implemented a new defined contribution pension plan.plan (PP2013). As of the date of this annual report, we have 41 active participants in this new pension plan.the plan has 62 participants.
Other Benefits in Germany
Braskem GmbH offers its employees the ability to participate in benefit plans, including pension, life and disability coverage.
Post-Employment Benefits in the Netherlands
Pension plan Netherlands
In the Netherlands, Braskem started a pension plan in 2009 with Delta Lloyd in a defined contribution scheme. In January 2021, Braskem in the Netherlands has a pension plan with Nationale Nederlanden, a pension plan with a defined contribution scheme. Participation is mandatory for locals that reside in NL. As of the date of this annual report, we have 95December 31, 2023, Nationale Nerderlanden plan has 145 participants.
In additional, Braskem BV also has 8 active participants in the plan.of pension plan from Germany (PP2013).
Other Benefits in the Netherlands
Braskem BV offers its employees the ability to participate in benefit plans, including pension, life and disability coverage, health insurance (by reimbursement).
Employees in Mexico
Post-Employment Benefits in Mexico
Braskem Idesa employees are granted a government retirement benefit plan when they retire or reach retirement age. On December 31, 2020, all of the 8312023, 922 employees of Braskem Idesa were active participants in this government retirement plan. In May 2018,2023, the contributions made by Braskem Idesa implementedin the year amounted to R$5.8 million.
Mexican Labor Law Reform
On April 23, 2021, amendments to the Mexican Federal Labor Law and other Mexican statutes were published in the Official Gazette of the Federation (Diario Oficial de la Federación) (the “Subcontracting Amendments”). The Subcontracting Amendments sets a private pension plan (definednew general rule that prohibits the subcontracting of employees or personnel; that is, for a company (the “operating company”) to contract or engage another company (the “service company”) to provide or make available employees of the service company for the benefit obligation);of the operating company.
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On July 22, 2021, Braskem Idesa undertook an employer replacement (sustitución patronal) permitted by the endSubcontracting Amendments, which requires the mere delivery of 2019 we hadindividual notices to each of the participation of 362 employees and by the end of 2020, we had the participation of 381 out of 825 employees.Braskem Idesa.
Other Benefits in Mexico
Braskem Idesa offers other benefits, including saving plans, food coupons, meals vouchers, canteen, and life and health insurance.
Performance-Based Employee Compensation Plan
We have adopted and applied a personnel management philosophy which emphasizes a performance related pay structure and a decentralized management structure. Employees in each of our business units participate in setting and achieving their business unit’s annual objectives. As a result, employees in those business units that meet or exceed their goals share in our financial performance through performance-based employee compensation plans. During 20202023, 2022 and 2019,2021, we recorded expensesprovisioned the amounts of R$487418.0 million, R$421.5 million and R$320.5802.7 million, respectively, related to this program with respect to 8,3629,273 employees and former employees, including our executive officers. The members of our board of directors do not participate in this program.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
As of December 31, 2020,2023, we had a total share capital of R$8,043,222,8,043,222,080 equal to 797,218,554797,207,834 total shares (including treasury shares), consisting of 451,668,652 common shares, 345,049,672345,060,392 class A preferred shares and 500,230478,790 class B preferred shares. As of December 31, 2020,2023, all of our authorized shares were issued, and outstanding, other than 1,224,87827 class A preferred shares held in treasury. All of our share capital is fully paid. All of our shares are without par value.
Generally, only our common shares have voting rights. Our preferred shares have voting rights only in exceptional circumstances.
As permitted by the Brazilian Corporate Law, our by-laws specify that no less than 25% of our adjusted net profitsAdjusted Net Income for each fiscal year must be distributed to shareholders as dividends or interest attributable to shareholders’ equity. Under our by-laws, our preferred shareholders are entitled to an annual non-cumulative preferential dividend, or the Minimum Preferred Dividend, equal to 6% of their pro rata share of our capital before dividends may be paid to our common shareholders. Distributions
Pursuant to our by-laws, all of dividendsour shares are entitled to tag along rights equivalent to 100% of the price paid in any yearthe event of a change of control, subject to certain exceptions set forth in article 12 of our by-laws. Notwithstanding the provisions of our by-laws, pursuant to the Brazilian Corporate Law, our common shares are made:entitled to tag along rights equivalent to at least 80% of the price paid for such common shares in the event of a change of control.
Our class B preferred shareholdersIn addition, in the event of our liquidation and following the payment of all of our outstanding liabilities, holders of our shares are not entitled to receive their pro rata interest in any additional dividend amounts after theyremaining assets, in accordance with their respective participation in our capital.
Our shareholders have receivedpreemptive rights to subscribe for new shares issued by us, pursuant to the Minimum Preferred Dividend. IfBrazilian Corporate Law, but are not obligated to subscribe for future capital increases. Pursuant to the Minimum Preferred DividendBrazilian Corporate Law, our by-laws provide that the preemptive right may be excluded in the event of an issuance of shares to be sold on a stock exchange or publicly subscribed, except if involving voting shares or securities convertible into voting shares.
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Pursuant to the Brazilian Corporate Law, neither our by-laws nor actions taken at a shareholders’ meeting may deprive a shareholder of: (i) the right to participate in the distribution of net income; (ii) the right to participate equally and proportionally in any residual assets in the event of liquidation of the Company; (iii) preemptive rights in the event of issuance of new shares, convertible debentures or subscription warrants, as per Brazilian Corporate Law, except as described in the preceding paragraph; (iv) the right to hold management accountable in accordance with the provisions of the Brazilian Corporate Law; and (v) the right to withdraw from us in the cases specified in the Brazilian Corporate Law, including merger with another company or consolidation in a transaction in which our Company is not paid for a period of three years, holders of preferred shares will be entitled to full voting rights.the surviving entity.
The following table sets forth information concerning the ownership of our common shares and class A preferred shares as of January 31, 2021February 29, 2024, by each person whom we know to be the owner of more than 5.0% of our common shares and our class A preferred shares, and by all of our directors and executive officers as a group. Our principal shareholders have the same voting rights with respect to each class of our shares that they own as other holders of shares of that class.
Common Shares | Class A Preferred Shares | Total | ||||
Number of Shares | % | Number of Shares | % | Number of Shares | % | |
Novonor | 226,334,623 | 50.1 | 79,182,498 | 22.9 | 305,517,121 | 38.3 |
Petrobras | 212,426,952 | 47.0 | 75,761,739 | 22.0 | 288,188,691 | 36.1 |
Norges Bank | — | — | 20,292,226 | 5.9 | 20,292,226 | 2.5 |
Alaska Investimentos Ltda . | — | — | 18,464,800 | 5.4 | 18,464,800 | 2.3 |
All directors, fiscal council members, their alternates and executive officers as a group (35 persons) | 722 | * | 237,767 | * | 238,489 | * |
Common Shares | Class A Preferred Shares | Total | ||||
Number of Shares | % | Number of Shares | % | Number of Shares | % | |
Novonor | 226,334,623 | 50.1 | 79,182,498 | 22.9 | 305,517,121 | 38.3 |
Petrobras | 212,426,952 | 47.0 | 75,761,739 | 22.0 | 288,188,691 | 36.1 |
Other(1) | 12,907,077 | 2.9 | 190,116,155 | 55.1 | 203,502,022 | 25.5 |
All directors, fiscal council members, their alternates and executive officers as a group (34 persons) | 898 | * | 501,794 | * | 502,692 | * |
(*) (1) | Less than 1% The amounts regarding shares from directors, fiscal council, their alternates and executives officers are also being considered in Other. |
We currently have no management or employee option plans or management or employee options outstanding, we have only the Long-Term Incentive Plan described above. See “Item 6. Directors, Senior Management and Employees—Compensation—Long-Term Incentive Plan.”
On December 15, 2021, our shareholders Novonor and Petrobras sent us a joint communication, which we made public the following day, on December 16, 2021, regarding the progress of discussions for the potential sale of their equity interest in Braskem. In such communication, they informed us that they entered into an agreement on December 15, 2021 formalizing their commitment to take the measures necessary to: (i) sell the class A preferred shares of Braskem that they hold, directly or indirectly, in a secondary public offering; (ii) migrate the listing of our common shares to the Novo Mercado segment of the B3, including necessary corporate governance changes, which are subject to applicable corporate approvals at the appropriate time and the negotiation of a new shareholders’ agreement to conform rights and obligations set forth therein to such amended governance structure; and (iii) sell the remaining common shares that they hold, directly or indirectly, in a subsequent secondary public offering once the migration to the Novo Mercado segment is completed.
On January 14, 2022, we launched an offering of up to 154,886,547 class A preferred shares of Braskem S.A. to be sold by NSP Investimentos S.A. – Em Recuperação Judicial (Under Judicial Reorganization) and Petróleo Brasileiro S.A. – Petrobras, in a global offering that consisted of an international offering outside Brazil and a concurrent public offering in Brazil. On January 27, 2022, the global offering was cancelled. Despite the cancelation of the offering, our shareholders Novonor and Petrobras ratified their interest in resuming the offering in the future and taking all necessary measures to enable the migration of Braskem’s common shares to the Novo Mercado segment of the B3, as disclosed in the material fact notice made public on January 28, 2022.
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On November 3, 2022, we received a correspondence from Novonor, informing that, due to the discussions and analysis currently underway relating to a possible transaction, it may be necessary for Braskem to interact with potential interested parties, for which Novonor asked for our support and for that of our officers. Novonor further informed that, at that moment, there was no exclusivity agreement with any interested party, no binding offer, and no definition or decision on the structure to be adopted or on any alternative related to the disposal process.
Shareholders’ AgreementsOn May 8, 2023, we received the information from Novonor that they have received a non-binding proposal from Apollo Management X, L.P. (together with Apollo Global Management, Inc. and its affiliates, as representatives of certain funds under its management) ("Apollo") and ADNOC International Limited - Sole Proprietorship L. L.C. ("ADNOC" and, together with Apollo, the "Prospective Investors") for the indirect acquisition of the interest held by Novonor in the Company, the shares of which are fiduciarily disposed of to the creditor banks. With respect to price, the non-binding proposal received by Novonor establishes R$47.0 per share with the usual adjustments for this type of transaction, which may represent 4% between signing and closing of the transaction. The price per share is divided into: (i) R$20.0 paid in cash; (ii) R$20.0 paid with perpetual debentures issued by the acquiring vehicles, at a rate of 4% per year; and (iii) approximately R$7.0 with deferred payment in the form of a warrant. Novonor further informed that, at that moment, the offer was under evaluation and emphasized that no decision, even if preliminary, has been made with respect to it. Also, the non-binding proposal depends on evaluation and negotiation with Petrobras and its effectiveness is subject to compliance with certain conditions that are usual for this type of transaction, including but not limited to the realization of a due diligence process and approval by the competent bodies of the companies involved.
On June 1, 2023, we requested clarification to Petrobras about news published in the media, regarding Petrobras´s shareholding participation in Braskem. Petrobras confirmed that it had met with executives from the Apollo fund and Adnoc, in which occasion it discussed Petrobras' position in the Brazilian petrochemical sector, which is currently under analysis as part of the preparation of its Strategic Plan 2024-28. Petrobras also reaffirmed that it was not conducting any sale transaction structuring in the private market and that no decision has been made by the Executive Board or the Board of Directors in relation to the process of divesting or increasing its stake in Braskem.
On June 12, 2023, we requested clarification to Novonor due to the Material Fact disclosed by Unipar Carbocloro S.A and the news published in the media regarding Novonor’s equity interest in Braskem. Novonor informed that it had received from Unipar Carbocloro S.A. (“Unipar”), on June 10, 2023, a non-binding proposal for the acquisition of shares of Braskem that represent a controlling stake. With respect to the terms of the proposal, Unipar proposed acquiring 34.366% of the total shares issued by Braskem (ex-treasury), with each share valued at R$36.5; and Novonor S.A remaining with a minority interest, indirectly representing 4% of the total shares issued by Braskem.
On July 10, 2023, we received information from Petrobras that they requested access to Braskem's virtual data room, on the same date, thus starting the due diligence process, according to the rules provided for in the Braskem Shareholders Agreement signed between Petrobras and Novonor S.A., for the possible exercise of tag along or preemptive rights, in the event of sale of shares held by Novonor S.A. - Em Recuperação Judicial in the Company. Petrobras also informed that, at that time, there was no decision by the Executive Board or the Board of Directors regarding the process of divestment or increase of stake in Braskem, this being only a necessary step regarding the tag-along and preemptive rights provided for in the Shareholders' Agreement.
On July 12, 2023, we requested clarification to Novonor due to the news published in the media regarding Novonor´s shareholding participation in Braskem. Novonor informed that it received from J&F Investimentos S.A. (“J&F”), on July 11, 2023, together with the fiduciary creditor institutions (“Financial Creditors”) of the shares of Braskem S.A. directly and indirectly owned by Novonor S.A. - Em Recuperação Judicial, a proposal (“Proposal”) for the acquisition of all credits held by Financial Creditors against their wholly-owned subsidiary, NSP Investimentos S.A. – Under Judicial Recovery (“NSP Inv”) (“Credit Rights”). According to the terms of the proposal, for a period of 120 (one hundred and twenty) days, J&F, may acquire all of the Credit Rights for the amount of R$10.0 billion, subject to the usual conditions in transactions of this nature. Novonor also informed that, at that time, there was no decision, even if preliminary, taken regarding the Proposal.
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On November 8, 2023, we received a correspondence sent by Adnoc International Limited - Sole Partnership L.L.C. (“ADNOC”) to Novonor S.A. - Em Recuperação Judicial and to certain creditors holding the fiduciary lien of Braskem S.A. shares owned by Novonor (“Financial Institutions”), containing a non-binding offer for the acquisition of the interest held by Novonor in the Company. In summary, the proposal contemplated: (i) in consideration of Novonor’s 38.3% equity interest in the Company, the payment of an Equity Value of R$10.5 billion, Novonor retaining an economic equity interest in the Company post Closing up to 3% of the total shares currently issued by Braskem, which implies a value of R$37.29 per share; and (ii) the amount of R$10.5 billion will be delivered by ADNOC directly to the Financial Institutions as follows: (i) 50% cash to be paid by ADNOC on Closing; and (ii) the remaining 50% converted into US dollars, on the closing date of the transaction, and paid as a cash equivalent deferred payment senior to ADNOC’s equity, with a maturity of 7 years, with annual coupons of 7.25% that are paid in-kind until the end of the 3rd year and paid in cash from the 4th year onwards. The proposal is also conditioned, among other customary conditions in transactions of this nature, to (i) satisfactory conclusion by ADNOC of Due Diligence; (ii) investigation of possible additional liabilities arising from the event in Alagoas; (iii) no existence of unaccounted for or unreported material contingent liabilities; (iv) execution of a new shareholders' agreement with Petrobras.
Shareholders’ Agreements
Braskem S.A. Shareholders’ Agreement
Novonor, formerly called Odebrecht, OSPNovonor; NSP Inv.,; Petrobras; and Petrobras andQuímica S.A. – Petroquisa, or Petroquisa, with Braskem S.A. and BRK Investimentos Petroquímicos S.A., or BRK, as intervening parties, entered into thea shareholders’ agreement, or Braskem S.A. Shareholders’ Agreement, effective February 8, 2010, which has a term of 35 years.years, as amended on September 21, 2018 and on December 15, 2021. The Braskem S.A. shareholders’ agreementShareholders’ Agreement superseded the Shareholders’ Agreementshareholders’ agreement that formerly governed the relationship between Petrobras, Petroquisa, Novonor and NorquisaNordeste Química S.A. regarding our shares.
Under the Braskem S.A. Shareholders’ Agreement, for so long as Petrobras has the right to designate:owns a direct or indirect stake in us:
· | six members of our board of directors and their alternates shall be designated by Grupo Novonor; and (ii) four members of our board of directors and their alternates shall be designated by Petrobras for so long as |
· | six members of our board of directors and their alternates shall be designated by Grupo Novonor; and (ii) three members of our board of directors and their alternates shall be designated by Petrobras for so long as |
· | two members of our fiscal council and their alternates shall each be designated by Grupo Novonor and Petrobras, one of which will serve as president and be designated by Petrobras, for so long as |
· | two members of our fiscal council and their alternates shall be designated by Petrobras for so long as they own, directly or indirectly, an aggregate of 18%, but less than 30%, of our voting share capital and for so long as Grupo Novonor has the right to elect more than a majority of the members. |
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For asIn any of the abovementioned events, for so long as Petrobras hasGrupo Novonor owns, directly or indirectly, an aggregate of 50.1% of our voting share capital, the right to designate three or fourdesignation of at least the absolute majority of members of our board of directors oneshall always be secured.
Under the Braskem S.A. Shareholders’ Agreement, Grupo Novonor is entitled to elect the chairman of these designees will servethe board of directors, and Petrobras, as long as it holds a direct and indirect stake in excess of 18% of our voting share capital, is entitled to elect the vice president of our board of directors.
Under the Braskem S.A. Shareholders’ Agreement, Grupo Novonor is entitled to nominate our chief executive officer.officer, and the parties to it shall make the members of the board of directors appointed by them vote to ratify the appointment made by Grupo Novonor. Our chief executive officer must choose our chief financial officer from among three nominees submitted by Grupo Novonor and the executive officer responsible for our investment and portfolio area from among three nominees submitted by Petrobras.Petrobras, whereas Grupo Novonor and Petrobras shall cause the members of the board of directors appointed by them to vote so as to ratify the choices made by the chief executive officer. Our chief executive officer has the power to nominate the other members of our board of executive officers. After being submitted to the People and Organization Committee for review and after these nominations, the officers will be elected at a board of directors’ meeting.
Under the Braskem S.A. Shareholders’ Agreement, Novonorthe simple majority of the members of the board of directors has the sole power to approve our business plan. However, for so long as Petrobras owns, directly or indirectly, an aggregate of less than 30% and more than 18% of our voting share capital, we are prohibited from taking certain strategic actions unless a consensus regarding those actions is reached between Grupo Novonor and Petrobras, including, among others:
· | actions affecting our share capitalization or the rights of holders of our shares; |
· | mergers, spin-offs or similar transactions; |
· | investments and purchases of non-current assets with a value in excess of 30% of our non-current assets; |
· | dispositions of non-current assets with a value in excess of 10% of our non-current assets; |
· | creation of liens on our non-current assets with a value in excess of the lesser of R$350 million and 20% of our non-current assets; and |
· | actions that would result in our violating specified |
Under the Braskem S.A. Shareholders’ Agreement, we have agreed that investments that we make to increase our capacity in petrochemical inputs, resins and other products must be supported by an evaluation demonstrating profitability under standards such as net present value or internal rate of return. PetrobrasEach of the parties to it has granted a right of first refusal to us with respect to the development of any petrochemical project that Petrobras proposessuch parties propose to pursue. In the event that we decide not to participate in any such proposed project, Petrobraseach of such parties has agreed that we will have the right to market the products produced by the proposed project on conditions satisfactory to us and Petrobras.
such parties.
On December 15, 2021, Novonor, NSP Inv. and Petrobras entered into a second amendment to the Braskem S.A. Shareholders’ Agreement and agreed that, if Braskem’s migration to the Novo Mercado segment of the B3 is not implemented, the rights and obligations provided for in the Braskem S.A. Shareholders’ Agreement related to the right of first refusal granted to us with respect to the development of any petrochemical project shall lapse by October 31, 2024. Under the Braskem S.A. Shareholders’ Agreement, Petrobraseach party to it has the right to sell a pro rata portion of theirits common shares of us in connection with any direct or indirect sale of our common shares by the Novonor Groupother party to a third party.
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Under the Braskem S.A. Shareholders’ Agreement, each of the parties to it has agreed:
· | subject to certain exceptions, not to grant any liens on any of its Braskem shares held by each of them; to grant a right of first refusal and tag along rights to the other parties to the Braskem S.A. Shareholders’ Agreement with respect to any sale of its Braskem shares; |
· | in the event that a party’s interest in our voting share capital is diluted in a transaction involving one or more of the other parties to the Braskem S.A. Shareholders’ Agreement, the diluted party will have the right, but not the obligation, to purchase shares of Braskem from the diluting parties in an amount that would, after giving effect to such purchase, result in the diluted party holding the same percentage interest in our voting share capital that it held immediately prior to the dilution event; and |
· | in the event that any party acquires or receives a right to acquire common shares of Braskem from a third party, to offer to sell to the other parties to the Braskem S.A. Shareholders’ Agreement an amount of common shares of Braskem that would, after giving effect to such sale, result in each of |
In 2016, OSP Inv. entered into agreements with certain financial institutions, through which OSP Inv. granted all shares issued by Braskem and held thereby in guarantee.
On July 18, 2017, our shareholders, Petrobras and Novonor, have entered into negotiations to revise the terms and conditions of the Braskem S.A. Shareholders’ Agreement to improve our corporate governance and the ownership relationship among the parties, with the goal of creating value for all our shareholders.
On May 25, 2018, we became aware that OSP Inv. gave all of the shares issued by Braskem and held by it as a guarantee in connection with financing operations, by means of a fiduciary assignment (alienação fiduciária).
On October 24, 2018, we were informed by OSP Inv. about the execution of an amendment to the shareholders’ agreement of February 8, 2010, to extend tag along rights pursuant to clause 7.12 of such agreement to preferred shares held by Petrobras S.A.
On January 31, 2019, we were informed by Novonor S.A., then called Odebrecht S.A., our indirect controlling shareholder, of the corporate reorganization approved by the Novonor Group on December 31, 2018, with the main purpose of segregating its businesses, whereby all common and preferred shares issued by Braskem and held by OSP Inv., and all liabilities (comprised of the purchase and Sale agreement of debentures no. 16.2.0023.1, entered into on March 16, 2016 between BNDES Participações S.A. – BNDESPAR and OSP Inv., and other intervening parties, as amended) and the other operating activities of OSP Inv. have been merged into OSP Investimentos S.A. Considering that the corporate reorganization took place within the Novonor Group,Novonor S.A. continues to be Braskem’s indirect controlling shareholder.
Related Party Transactions
As provided for in our bylaws, our board of directors has the exclusive power to decide on any contract with related parties that exceeds the amount of R$20 million per transaction or R$60 million in the aggregate, per fiscal yearyear. This is valid for contracts between Braskem and its subsidiaries and: (i) direct or indirect subsidiaries of Braskem in whose capital an interest is held by the controlling shareholder, by any direct or any of their indirect subsidiaries or by key personnel of such entities; (ii) affiliates of Braskem and subsidiaries of such entities; and (iii) joint ventures in which Braskem participates and any of their subsidiaries.
Prior to the appreciation by the board of directors, our Statutory Compliance and Audit Committee is responsible to assess the appropriateness of transactions subject to the approval of the board of directors between the Company and its related parties.
Pursuant to the Brazilian Corporate Law, officers and directors are prohibited from: (i) entering into any transaction using the company’s assets and in its detriment; (ii) intervening in any operations in which these officers and directors have a conflict of interest with the company or in resolutions in which they participate; and (iii) receiving, based on their position, any type of personal advantage from third parties, directly or indirectly, without first obtaining an authorization pursuant to our bylaws or at a shareholders’ meeting.
As part of our controls to identify related parties, we require key personnel to annually inform whether they, or their close relatives, hold full or shared control of any company.
Under the Brazilian Corporate Law, each of our directors, their alternates and our executive officers cannot vote on any matter in which they have a conflict of interest and such transactions can only be approved on reasonable and fair terms and conditions that are no more favorable than the terms and conditions prevailing in the market or offered by third parties. In addition, pursuant to our Policy on Ethics, Compliance and Transparency none of our shareholders or any other individual with authority over our activities may participate in the negotiation and decision-making process of a transaction in which they have a conflict of interest.
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We have engaged in extensive transactions with our principal shareholders and their affiliates and we expect to continue to do so in the future. We also have commercial relationships with some of our affiliates and, as a result, record trade accounts receivable and current and long-term liabilities mainly from purchases and sales of goods and services at prices and on terms equivalent to the average terms and prices of transactions that we enter into with third parties. In addition, we have entered into financial and other transactions with our principal shareholders and their affiliates, including, among others, as a party to three shareholders’ agreements or memoranda of understanding with our shareholders. See “—Major Shareholders—Shreholders—Shareholders’ Agreements.”
The following summarizes the material transactions that we have engaged inentered into with our principal shareholders and their affiliates since January 1, 2020.2021.
The Novonor Group (formerly (formerly called Odebrecht Group)
Alliance Agreement
In May 2014, we entered into an alliance agreement with CNO, or the Alliance Agreement, under which we have appointed CNO as a non-exclusive provider with respect to maintenance services and efficiency enhancement projects at each of our plants. This agreement was unanimously approved by our board of directors. The services are contracted through Specific Activity Agreements (Termo de Atividade Específica), or TAE, which are signed for each specific service or project. The amount of each TAE includes all costs to be incurred with the performance of the services to be rendered by CNO, including any costs with third parties that may be contracted to provide materials and services, as well as CNO’s compensation. CNO’s compensation for the execution of the TAE’s under the Alliance Agreement is capped at R$121 million, calculated as a percentage of the value of the agreement, subject to bonuses and discounts in accordance with certain metrics.
The aggregate amount of services we purchased under the Alliance Agreement was R$0.18 million in 2020 and R$2.8 million in 2019.
The Alliance Agreement was terminated in May 2018. Specific activity agreements entered into until this date will continue to produce effects until the fulfillment of their scope.
Industrial Maintenance, Operation and Loads Machines Maintenance Services
In December 2017, weFebruary 2022, the Company entered into an industrial maintenance serviceselectromechanical assembly service agreement with CNO, assigned to Tenenge Montagem e Manutenção Ltda on July 2020, that encompassed boilers andexpand the weldingproduction capacity of tubing and static equipment, as well as operational and maintenance services on cargo machinery to be performed at the Braskem UnitsEthylene-Ethanol Unit located in Trunfio, Rio Grande do Sul.Sul with Tenenge, with duration from February 9, 2022 to July 31, 2023. The agreement has an estimated maximum amount of R$120 million and is valid through December 2021.
The aggregate amount of services purchased under thisthe agreement was R$16.7 million in 2020.
Furnaces, Boilers and Tanks Maintenance205 million.
In 2019, we conducted a bid process that selected Tenenge Montagem e Manutenção Ltda as a non-exclusive provider of maintenance services and efficiency enhancement projects for furnaces, boilers and tanks at each of our industrial plants. Such agreement was unanimously approved by our board of directors in December 2019. Services to be provided under this agreement were contracted through pre-defined maintenance scopes and a list of unit prices per activity. TENENGE’s compensation for the execution of the services under the agreement is capped at R$669.0 million. The agreement became effective in February 2020 and is valid until January 2027.
The aggregate amount of services purchased under this agreement was R$45.4 million in 2020.
Acquisition of Cetrel
In October 2012, we entered into an agreement with Cetrel for the purchase of 4 million cubic meters per year of recycled water by sites located in the Industrial Pole of Camaçari. The agreement expires in April 2028 and has a total value of R$120.0 million. In July 2016, we entered into a services agreement with Cetrel under which we appointed Cetrel as an exclusive service provider for the treatment of liquid effluents produced in our industrial units located at the Camaçari petrochemical complex. Such agreement was initially limited to the maximum amount of R$77 million and with a term until December 31, 2019, but it was amended in June 2020 to extend its to September 2020 and increase the maximum amount up to R$78.5 million. The aggregate amount of services we purchased under this agreement was R$15.3 million in 2019, and R$15.4 million in 2020. In March 2013, we entered into an agreement for the supply of industrial water with Distribuidora de Águas de Camaçari S.A, incorporated by Cetrel, a subsidiary of Novonor, formerly called Odebrecht. This agreement expires in March 2043 and has an estimated total value of R$2,250 million. The aggregate amount we purchased under this agreement was R$92.7 million in 2020.
In December 2017, we entered into a services agreement with Cetrel as a service provider for incineration of hazardous industrial waste produced in our industrial units located at the Camaçari/BA petrochemical complex. Service expenses under the agreement are capped at R$61 million, and the agreement expires in December 2020. The aggregate amount of services we purchased under this agreement was R$21 million in 2020.
On January 27, 2017, our board of directors authorized the execution of a purchase agreement with Odebrecht Utilities S.A., through which Braskem undertook to purchase all shares held by the seller in Cetrel S.A., which represented 63.7% of its voting capital, for the aggregate amount of R$610 million, to be paid upon the consummation of the transaction. The acquisition was approved by relevant shareholders, in accordance with Article 256 of Brazilian Corporate Law in the meeting held on September 29, 2017. This acquisition closed on October 2, 2017, when Braskem acquired 1,269,290 shares, or 63.7%, of the voting capital stock of Cetrel S.A.
Petrobras
Commercial Transactions with Petrobras
We have entered into the following supply contracts with Petrobras:
· | An agreement for the purchase and sale of a chain of refinery off gas that Quattor Química S.A. which was merged into Quattor Participações S.A., formerly known as Braskem Qpar, before it merged into us on December 1, 2014 and Petrobras entered into in January 2005. See “Item 4—Information on the Company—Supply Contracts and Pricing of |
· |
Five propylene supply agreements that Braskem Petroquímica (formerly known as Quattor Petroquímica, which was merged into our Company in November 2017) and Petrobras signed between September 1997 and February 2006. See “Item 4—Information on the Company— |
· | In October 2021, we entered into a purchase agreement with Petrobras for 108 kton per year of polymer-grade propylene from the Alberto Pasqualini Refinery (“REFAP”), with delivery to Braskem’s polypropylene industrial units, PP1 and |
· | In December 2021, we entered into a purchase agreement with Petrobras for |
· | In December 2021, we entered into a purchase agreement with Petrobras for 120 kton per year and 40 kton per year of polymer-grade propylene from Refinaria Henrique Lage (REVAP), with delivery to Braskem’s PP3 and PP4 industrial units, respectively. This agreement is in force from January 1, 2022 to May 3, 2028 for the first 120 kton/year and from May 4, 2028 to June 30, 2029 for the remaining 40 kton/year. The maximum amount of the agreement is estimated at R$4.7 billion. In the fiscal year ended December 31, 2023, transactions under the agreement amounted to R$484 million; |
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· | In December 2021, we entered into a purchase agreement with Petrobras for 150 kton per year of polymer-grade propylene from Refinaria Presidente Getúlio Vargas (REPAR), with delivery to Braskem’s PP3 and PP4 industrial units. The agreement is in force from January 1, 2022 to December 6, 2029. The maximum amount of the agreement is estimated at R$6.8 billion. In the fiscal year ended December 31, 2023, transactions under the agreement amounted to R$145 million; |
· |
· | In December 2021, we entered into a purchase agreement with Petrobras for 140 kton/year of polymer-grade propylene from Refinaria Capuava (RECAP), with delivery to Braskem’s PP4 industrial unit (“PP4”) in Mauá, São Paulo. The agreement is in force from January 1, 2022 to May 17, 2026. The maximum amount of the agreement is estimated at R$3.3 billion for the purchase of propylene. In the fiscal year ended December 31, 2023, transactions under the agreement amounted to R$484 million. |
· | In June 2023, we entered into a purchase agreement with Petrobras for the purchase of 900 tons of polymer-grade propylene from Refinaria Alberto Pasqualini (REFAP). The agreement was in force between June 15th and September 30, 2023, and in October, 2023 we entered into a new purchase agreement with Petrobras for the purchase of 565 tons of polymer-grade propylene from Refinaria Alberto Pasqualini (REFAP). The agreement was in force between October 1st and December 31, 2023. In the fiscal year ended December 31, 2023, transactions under these agreements amounted to R$171 million; |
· | We entered into an agreement with Petrocoque S.A. Indústria e Comércio in 2008 for the supply of steam, which was amended in September 2020 to extend its term until March 2021. |
· | A two-year contract, entered into in November 2018, which was amended in June 2020 to extend the term of the agreement |
· | A two-year contract, |
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· | A two-year contract, entered into in November 2018, which was amended |
· | In |
· | In September 2019, we signed an amendment to our agreement with Gás de Alagoas S.A. |
· | In December 2019, we signed an amendment to our natural gas purchase agreement with Companhia de Gás da Bahia |
· |
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· | In June 2020, the Company entered into |
· | In June 2020, the Company entered into a sales option agreement for up to 2,850 kton/y of petrochemical naphtha to Petrobras with mandatory purchase by Braskem. The term of the agreement is from January 1, 2021 to December 31, 2025. The estimated amount of the agreement is R$30 billion. |
· | In December 2020, the Company entered into a sale agreement with Petrobras for up to 2 million tons of petrochemical naphtha per year, for our industrial unit in the State of São Paulo. This term of the agreement is from December 23, 2020 to December 31, 2025. The estimated amount under the agreement is R$25 billion. In the year ended December 31, |
· | In December 2020, the Company entered into an agreement with Petrobras to purchase ethane and propane to produce up to 580,000 tons of ethylene equivalent and sell up to 58.4 million |
Braskem (i) purchased raw materials, finished goods services and utilities from Petrobras and its subsidiaries in the aggregate amount of R$15,540.1 million in 2018, R$12,584.2 million in 2019 and R$14,566.8 million in 2020, and (ii) sold products to Petrobras and its subsidiaries in the aggregate amount of R$1,225.4 million in 2018, R$665.4 million in 2019 and R$182.5 million in 2020.
Other Related Party Transactions
Our Jointly Controlled Company
Refinaria de Petróleo Rio-grandense S.A. (“RPR”)
The revenue from the sale of gasoil, gasoline, blendstocks, fuel oil, BTE oil and solvents to RPR and from the purchase of turpentine from RPR was approved in 2020 for a total amount of R$845.0 million per year. Purchase and sales prices are determined on a spot basis. Additionally, in 2020,2023, Braskem provided an aggregate of R$93.64.4 million of gasolineblendstocks and gasoilsolvents to RPR.
Fábrica Carioca de Catalisadores S.A. (“FCC”)
On August 1, 2019, Braskem and FCC entered into an agreement (R$21.0 million for the sale of caustic sodayear ended on December 31, 2022, and R$100 for a period of two years. The aggregate amount throughout the term of the agreement is approximately R$50 million. Additionally, in 2020, Braskem provided an aggregate of R$31.6 million of caustic soda to FCC.year ended on Decembere 31, 2021).
Our Associated Companies
Borealis Brasil S.A.
We sellIn February 2020, we executed the fifth amendment to the polypropylene and polyethylene to Borealis, in which we have a 20.0% interest.thermoplastic resins sales agreement with Borealis. The agreement has an estimated maximum amount of R$1,260.0 and is valid through December 2025. We recorded net revenue to Borealis of R$242.7243 million in 2018, R$175.9 million in 2019 and R$213.8 million in 2020.2023. We account for Borealis under the equity method of accounting.
On March 1, 2018, Braskem and Borealis entered in an agreement (R$303 million for the rendering by Braskem of certain services related toyear ended on December 31, 2022, and R$436 million for the set up and management of Borealis’ energy portfolio. This agreement was subsequently amendedyear ended on November 1, 2019 to extend it until February 28, 2021. This agreement was terminated on November 18, 2020, and the aggregate amount of the services provided under the agreement was R$200.6 thousand.December 31, 2021).
Non-controlling shareholders of Braskem Idesa
As of December 31, 2020,2023, we had R$3,222.52,490 million in outstanding indebtedness relating to a loan payable to the non-controlling shareholder of Braskem Idesa, maturing in December 2029 and accruing interest at 7% p.a., whose proceeds were used by Braskem Idesa to fund its construction project. (R$2,498 million for the year ended on December 31, 2022, and R$3,646 million for the year ended on December 31, 2021).
Related Party Transactions Policy
In December 2018, we adopted a related party transactions policy, or the Related Party Transactions Policy, which lays out the procedures for approving transactions with our controlling shareholder and shareholder that has Material Influence over Braskem, controlled entities and certain other parties. Pursuant to our bylaws and the Related Party Transactions Policy, (i) our Board of Directors is responsible for approving certain related party transactions and revisions to the Related Party Transactions Policy, (ii) our Complianceand Audit Committee is responsible for evaluating related party transactions prior to submission for approval to our Board of Directors, if applicable, as well as ensuring that the provisions contained in the Related Party Transactions Policy are observed by our other areas, and (iii) our Ethics Committee is responsible for evaluating related party transactions that do not require approval by our Board of Directors. Pursuant to this policy, we have, and may in the future, engage in transactions with our controlling shareholder and shareholder that has Material Influence over Braskem or controlled entities with respect to our services or products, or other related party transactions, as defined in our Related Party Transactions Policy.
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ITEM 8. FINANCIAL INFORMATION
Consolidated Statements and Other Financial Information
Reference is made to Item 1923 for a list of all financial statements filed as part of this annual report.
Legal Proceedings
We are and may be in the future, involved incurrently a party to numerous tax, civil and labor disputes, among others, involving monetary claims. If anyclaims arising in the normal course of these legal proceedings were decided adversely to us, we do not believe that our results of operations or financial condition would be materially and adversely affected.
For some of these lawsuits, we have not established any provision on our balance sheet nor have we established provisions only for partbusiness. Any changes in the court’s understanding of the amounts claimed, basedposition could cause future impacts on our judgments asthe financial statements of the Company due to the outcomes of these lawsuits.such proceedings.
Tax Proceedingsproceedings
We are engaged ina party to several legal proceedings with tax authorities for which we have established provisions in an aggregate amount of R$692.7677 million as of December 31, 2020.2023, related to tax claims for which our management, based on its assessment and the opinion of our external legal advisors, considers that the likelihood of loss is probable. In addition, there are currently certain legal proceedings pending in which we are involved for which we have not established provisions, since there is no trigger in accordance to IAS 37 to record such provisions. If any of these legal proceedings were decided adversely to us, we do not believe that our results of operations, cash flows or financial condition would be materially and adversely affected. The aggregate amount of tax contingency proceedings was R$11,911.726,216 million as of December 31, 2020, with respect to2023, which our management believes, based on the opinion of our outside legal counsel, that the risk of loss is possible.are described below:
IR/CSLL Tax Assessment NoticesTaxing Entity: Federal Government
In 2013, 2014 and 2017, we received tax assessment notices from the Federal Brazilian Revenue Service claiming that the amortization of the goodwill, from 2007 to 2013, recorded in 2002 in connection with the purchase of shares of certain companies related to the formation of Braskem was not deductible for purposes of calculating our income tax and social contribution. After definitive reductions at the administrative level, the amount claimed is R$1.0 billion, including interest and fines. We challenged these assessment notices because we believe that these claims are based on a misinterpretation of both the applicable law and facts by the tax authorities (the equity interests were acquired with effective payment, business purpose and the participation of independent parties) and that the statute of limitations has expired. We believe that a loss of these claims is possible and our external legal counsel expect that the administrative discussions will end in 2022 and, the only case in the judicial level, 2030. As of December 31, 2020, we had made no provision with respect to these claims and there is no deposit or guarantee related to the administrative proceedings. We offered guarantee in the amount of the judicial litigation.
In 2009 and 2017, we received deficiency notices from the Brazilian federal tax authority claiming that the tax losses offset in the taxable year were in excess of the limitation of 30% of the taxable profits of a given year, as imposed by Brazilian tax law. The amount under discussion is R$352.0 million, including interest and fines. We challenged these assessment notices because we believe that the 30% limitation is not applicable in the event of the merger of the taxpayer and that the statute of limitations for one of these claims has expired. We believe that the risk of loss is possible and our external legal counsel expect that the judicial discussions will end in 2030. As of December 31, 2020, we had made no provision with respect to these claims and there is no deposit related to the processes We offered guarantee that supports the integrality of the amount charged and already in judicial litigation
In 2017, we received a tax assessment notice from the Federal Brazilian Revenue Service claiming income tax and social contribution debts due to the following: (i) commissions paid by Braskem in 2011 were not considered deductible for purposes of calculating income tax and social contribution; (ii) commissions paid by Braskem INC in 2013 and 2014 were also not considered deductible for purposes of calculating income tax and social contribution; (iii) we did not withhold the income tax over the payments of the aforementioned commissions; and (iv) marketing expenses in 2013 were not considered deductible for purposes of calculating income tax and social contribution. We challenged this assessment notice in Administrative Court due to the following reasons: (i) the statute of limitations has expired for the year of 2011, and tax authorities are claiming the payment of income tax and social contribution without taking into consideration that the right to deduct some expenses for purposes of calculating income tax and social contribution is still under discussion in other tax proceedings; (ii) Braskem INC has already recalculated its income tax which only resulted in the decrease of its tax losses; (iii) the net interest paying company is non-resident in Brazil; and (iv) marketing expenses are related to our activities. The amount under discussion is R$138.6 million, including interest and fines. We believe that a loss of this claim is possible and our external legal counsel expect that the administrative discussion will end in 2022. As of December 31, 2020, we had made no provision with respect to this claim and there is no deposit or guarantee related to it.
In December 2017 and in December 2020, we received tax assessment notices from the Federal Brazilian Revenue Service claiming unpaid income tax and social contribution in connection with exchange variation losses recorded by Braskem in the elapsed time between the due date of naphtha import invoices and their payments. The Federal Brazilian Revenue Service considered that these losses, recorded in 2012 and in 2015, respectively, were not deductible for purposes of calculating income tax and social contribution. In relation to the calendar-year of 2012, the assessment resulted in the recalculation of our tax losses and social contribution negative tax base. With respect to 2015, the tax credit was accompanied by a qualified fine corresponding to 150% of the assessment amount. The notice issued in December 2020 also resulted in partial disallowance of the cost of naphtha imported from its subsidiary abroad, in an amount corresponding to the profit margin earned by the subsidiary in the naphtha resale operations, in the years 2014 and 2015. We challenged this assessment notice in Administrative Court and for the following reasons the chances of loss are possible: (i) regular use of trading companies in import operations; (ii) exchange variation expense is ancillary to the principal and, therefore, deductible; (iii) the fluctuation of exchange rates is not predictable; and (iv) there are mistakes in determining the profit margin of the subsidiary. Our external legal counsel expect the administrative discussion to end by 2026. As of December 31, 2020, we had made no provision with respect to this claim and there is no deposit or guarantee related to it. The adjusted amount as of December 31, 2020 of said uncertain tax treatment was R$997.3 million.
1) | Income taxes: Tax assessments related to calendar years 2015, 2016, 2018 and 2019, due to non-recognition of application of Agreement to avoid double taxation, signed between Brazil and Netherlands, which establishes that profits from Dutch companies are not taxable in Brazil at the end of every year. The notification for the calendar years 2018 and 2019, received in 2023, also involved non-deductibility of interest due to a different understanding regarding the sub-capitalization limit and its tax effects. The inflation-adjusted amount of uncertain tax treatment includes periods mentioned or not mentioned in tax assessments. In view of the calculation of tax losses by the Company in calendar years 2022 and 2023, the amounts related to these periods were calculated considering only the principal amount, excluding fines and interest rates. The amount related to the calendar year 2017 was excluded from this lawsuit due to its time-barring. In addition to including the amount related to calendar year 2023, the lawsuit also considers the amount related to calendar year 2020, due to the issue of financial statements of Dutch entities under local GAAP. The lawsuits are under administrative phase. As of December 31, 2023, the amount relating to this lawsuit was R$18,552 million. |
2) | Non-cumulative PIS and COFINS taxes: Charge related to calendar years 2004 to 2018, arising from use of credits on acquisition of goods and services consumed in the production process. The lawsuits are under administrative and legal phase, and the Company pledged performance bonds and deposits at their full amount. As of December 31, 2023, the amount relating to this lawsuit was R$1,507 million. |
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3) | Income taxes: Tax assessments arising from deducted amortization charges, between 2007 and 2013, from goodwill originated from equity interests acquired during 2002. The lawsuits are under administrative and legal phases, and the Company pledged performance bonds at their full amount. The amount related to fine was reclassified to remote loss, in compliance with Article 8 of Federal Law 14,689/23, leading to a reduction of R$150 million. As of December 31, 2023, the amount relating to this lawsuit was R$1,027 million. |
4) | Income taxes: Tax assessments related to calendar years 2012 and 2015, arising from disallowances of exchange variation expenses with naphtha import transactions, incurred after the due date of commercial invoices. The lawsuits also address inflation adjustment in income tax losses and social contribution tax loss carryforwards and partial disallowance of cost of naphtha imported from subsidiary abroad. The amount related to fine was reclassified to remote loss, in compliance with Article 8 of Federal Law 14,689/23, leading to a reduction of R$198 million. The lawsuits are under administrative phase. As of December 31, 2023, the amount relating to this lawsuit was R$1,000 million. |
5) | IR/CSL tax: Tax assessments related to the offset of credits from income tax losses and social contribution tax loss carryforward with IR and CSL debits, in merger events carried out in November 2007 and August 2013, exceeding the limit of 30%. The lawsuits are under legal phase, and the Company pledged performance bonds at their full amount. The amount related to fines was reclassified to remote loss, in compliance with Article 8 of Federal Law 14,689/23, leading to a reduction of R$150 million. As of December 31, 2023, the amount relating to this lawsuit was R$346 million. |
6) | Income taxes rate: Tax assessments arising from deducted amortization charges, between 2020 and 2021, from goodwill originated from equity interests acquired during 2012, by Cetrel and DAC. The lawsuits are pending in the administrative sphere in higher courts. As of December 31, 2023, the amount relating to this lawsuit was R$212 million. |
7) | Income taxes rate: Charges due to the non-approval of offsets made using credits arising from negative balance. The lawsuits are under administrative and legal phases, and the Company pledged performance bonds at their full amount. As of December 31, 2023, the amount relating to this lawsuit was R$185 million. |
8) | Social security contributions: Charge of additional contribution for Occupational Environmental Risk to fund the special retirement plan due to the alleged exposure of workers to hazardous agents from January 2016 to July 2018, from November 2000 to January 2001 and from November 2001 to June 2002. The lawsuits are under administrative and legal phases, and the Company pledged performance bonds at their full amount. As of December 31, 2023, the amount relating to this lawsuit was R$183 million. |
We are discussing the rejection by the Federal Brazilian Revenue Service of Clearing Statements that aimed at the discharge of federal taxes with credits arising from negative balance of income tax and social contribution. The amount under discussion, corresponding to taxes whose compensation was not ratified, is R$182 million, including interest and fines. We challenged these debts because we believe that there are reasonable grounds on which we can successfully defend against these charges, based on favorable precedents and considering the documents provided. We believe that a loss of this case is possible and our external legal counsel expect the administrative discussion to end by 2024 and the judicial cases by 2023. As of December 31, 2020, we had made no provision with respect to this claim. There is no deposit or guarantee related to the processes that still are in administrative discussion phase. We presented a guarantee in the amount of the judicial litigations.
9) | PIS and COFINS taxes: Charges arising from alleged undue offsets using credits from other federal taxes. The lawsuits address credits arising from: i) prepayments of IR tax, ii) FINSOCIAL and COFINS taxes, iii) tax on net profit, and iv) PIS-Decree-Laws 2,445 and 2,449. The lawsuits are under legal phase, and the Company pledged bank guarantees and performance bonds at their full amount. As of December 31, 2023, the amount relating to this lawsuit was R$142 million. |
In July 2020, we received a tax assessment notice from the Federal Brazilian Revenue Service for failing to offer taxation the profit earned abroad by the subsidiary Braskem America Inc. for the year 2015, due to the disregard of tax credits collected by this subsidiary abroad. The assessment also involves the allegation of undue compensation for tax loss from the negative CSLL tax base for 2016, due to the lack of balances, due to disallowances arising from tax assessments and uses in special installments. We challenged this assessment notice in Administrative Court due to the following reasons: (i) there was enough payment to deduct the tax payable on profits obtained abroad; and (ii) the reported lack of tax loss balances arises from other administrative proceedings that are still under discussion. As of December 31, 2020, the updated amount of taxes levied and the tax consequences of the disallowance of tax losses and negative basis of calculation of CSL through said tax assessment notices represents the amount of R$278.6 million. We believe that a loss of this claim is possible and our external legal counsel expect the administrative discussion to end by 2025. As of December 31, 2020, we had made no provision with respect to this claim and there is no deposit or guarantee related to it, as it is still under administrative discussion.
In November 2020, we received a notice from the Federal Revenue Service of Brazil related to the disagreement in the application of the Agreement to avoid double taxation signed between Brazil and the Netherlands, which establishes that profits of Dutch companies are not taxed in Brazil. The object of the assessment refers to the profits of the subsidiary in the Netherlands in the years 2015 and 2016. We challenged this assessment notice in Administrative Court considering that the profits earned by its subsidiary abroad are protected from taxation in Brazil under Article 7. of the aforementioned Agreement to avoid double taxation signed between Brazil and the Netherlands. We believe that a loss of this claim is possible and our external legal counsel expect the administrative discussion to end by 2025. As of December 31, 2020, we had made no provision with respect to this claim and there is no deposit or guarantee related to it. The adjusted amount as of December 31, 2020 of such uncertain tax treatment was R$3.7 billion.
IOF
We were involved in judicial and administrative proceedings due to tax assessment notices issued by the Federal Brazilian Revenue Service claiming that the following operations are subject to Financial Operations Tax (IOF): (i) related to AFAC and current accounts made between Quattor Participações S.A and Quattor Química S.A and (ii) the transfers of financial resources under cash pooling and current account agreements made between Quattor Participações S/A, Quattor Química S/A and Braskem and between Braskem and CPN Incorporated from May 2002 to April 2004. In April 2020, an administrative decision became final that dismissed the assessment in which the characterization of the loan in AFAC and current accounts was discussed, which implied a reduction of this contingency by R$108 million. The amount claimed is R$59 million. We believe that these operations do not constitute loans under Brazilian legislation and, as such, are not subject to IOF. We believe that a loss in this claim is possible and our external legal counsel expect that the judicial discussion will end in 2027. We present a guarantee that supports the entire amount in judicial litigation.
10) | Income taxes rate: Tax assessment arising from disallowance of advertising and commission expenses, paid by Braskem and Braskem Inc., and the lack of payment of withholding tax on them. The lawsuit is under administrative phase. The amount related to fines was reclassified to remote loss, in compliance with Article 8 of Federal Law 14,689/23, leading to a reduction of R$28 million. As of December 31, 2023, the amount relating to this lawsuit was R$138 million. |
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11) | PIS and COFINS taxes: Charges due to the non-approval of offsets using credits from Cide-Combustíveis, as authorized by Federal Law 10,336/2001. The lawsuits are under legal phase, and the Company pledged performance bonds at their full amount. As of December 31, 2023, the amount relating to this lawsuit was R$128 million. |
ICMS Tax Assessment NoticeTaxing Entity: State Government of Alagoas
From 1999 to 2020, the internal revenue department
12) | ICMS tax: Tax assessments related to calendar years 2015 to 2019, due to lack of ICMS reversal on output with tax deferral. The lawsuits are under administrative phase. As of December 31, 2023, the amount relating to this lawsuit was R$698 million. |
Taxing Entity: State Governments of the States of Bahia, Alagoas, Pernambuco, São Paulo, Rio de Janeiro, Bahia, Pernambuco, Rio Grande do Sul and Rio de Janeiro issued tax assessment notices against Braskem claiming unpaid ICMS taxes in the amount of R$883 million, retrospectively revised by inflation and the benchmark rate, in connection with several alleged violations of certain provisions of the ICMS tax legislation, including, among others: (1) inappropriately claiming ICMS credits for the acquisition of goods that the internal revenue department considers for use and consumption; (2) inappropriately claiming ICMS credits for the acquisition of assets not related to production; (3) transfer of goods below the cost of production; (4) differences in stock of final products; (5) lack of evidence that we exported goods; (6) failure to pay taxes on the sale of products subject to tax substitution and inappropriately claiming ICMS tax credits on the purchase of products subject to tax substitution; (7) failure to register invoices; (8) unpaid ICMS taxes on charges for electricity transmission; and (9) for the use of a calculation base relating to ICMS tax lower than that required by law, in connection with internal transfers of the product crude dichlorethane to another unit in the State of Alagoas from January 2013 to May 2016, which were not subject to deferral. We challenged these assessment notices in the administrative court because we believe that there are reasonable grounds on which we can successfully defend against these assessments. The administrative cases are expected to be resolved by 2025 and the judicial cases by 2030. There is no deposit or guarantee related to the processes that still are in administrative discussion phase. We presented guarantees in the amount under discussion. We believe that a loss of these claims is possible and, as of December 31, 2020, we had not recognized any provision with respect thereto.
In 2009, tax assessment notices were issued by the internal revenue department of the State of São Paulo against Braskem Qpar claiming unpaid ICMS taxes and related fines in connection with several alleged violations of certain provisions of the ICMS tax legislation, including:
(1) Inappropriately claiming ICMS credits: (i) in the amount of R$53.5 million from February 2004 to August 2005, November 2005 to February 2006, and September 2006 to January 2008, related to the acquisition of “acrylonitrile” sold by Acrinor Acrilonitrila do Nordeste S.A.; (ii) in the amount of R$1.6 million from December 2004 to August 2005, related to credits informed in invoices issued by Proquigel Química S.A.; and (iii) in the amount of R$3.1 million from August 2004 to November 2005, related to credits informed in invoices issued by Proquigel Química S.A. for export, not subject to ICMS;
(2) A fine of 100% of the taxes assessed was imposed in all cases above;
(3) Error in the issuance of invoices under CFOP code 6.905 without the circulation of goods – a fine of 30% of the amount of the invoices (R$480.4 million) was assessed; and
(4) Fine assessed due to the default in answering to notification of tax authorities to present documents to a tax audit.
The proceedings were closed in the administrative court in 2015, with partial reduction of the contingency, and the remaining debt is under discussion in the judiciary. As of December 31, 2020, we had established related provisions, due to business combination, in the amount of R$305.7 million. We offered a guarantee to the debts and our external legal counsel expect the cases to be resolved by 2026.
In July and in December 2020, we received tax assessment notices from the State of Alagoas due to the lack of ICMS payment due to the alleged lack of reversal of the tax credited in operations prior to the departures with deferred tax. The amount claimed is R$569 million. We challenged these assessment notices in Administrative Court based on the favorable precedents at the judicial administrative level, considering that there are some mistakes regarding the debt calculation and because keeping the credits even if with a deferred tax is something authorized by Alagoas legislation.
We believe that a loss of this claim is possible and our external legal counsel expect that the administrative discussion will end by 2025. As of December 31, 2020, we had made no provision with respect to this claim and there is no deposit or guarantee related to it.
PIS and COFINS Non-Cumulative Tax Assessment Notice
13) | ICMS tax: Charges of tax underpayments. The lawsuits refer to (i) use of tax credits to acquire property, plant and equipment, goods considered as for use and consumption and products subject to tax replacement; (ii) transfers of finished products at amount below the production cost; (iii) non-payment of tax due to: input or output omissions; charges related to electricity operations and sale of products subject to tax replacement; (iv) lack of evidence of export of goods; and (v) fines for lack of registration of invoices. The lawsuits are under administrative and legal phases, and the Company pledged bank guarantees, performance bonds and judicial deposits at their full amount. Part of the amount related to the use and consumption matter was reclassified to remote loss, in accordance with decision 1.775.781/SP issued by EAREsp, leading to a reduction of approximately R$147 million. As of December 31, 2023, the amount relating to this lawsuit was R$623 million. |
We received assessment notices from the federal internal revenue department alleging that we had inappropriately claimed certain PIS and COFINS credits in relation to: (1) wastewater treatment; (2) charges for electricity transmission; (3) freight related to the storage of finished goods; (4) credits claimed at inappropriate times, relating to various acquisitions; and (5) fixed assets. As of December 31, 2020, the amount in dispute in connection with these claims was R$1.3 billion. We challenged these assessment notices because we believe that there are reasonable grounds on which we can successfully defend against these assessments. We believe that a loss of these claims is possible and our external legal counsel expect that the administrative discussions will end in 2025 and the judicial discussion will end in 2030. There is no deposit or guarantee related to the processes that are in administrative discussion phase. We presented a guarantee in the amount under discussion.
14) | Sundry tax lawsuits: As of December 31, 2023, the amount relating to these lawsuits was R$1,477 million. |
Civil lawsuits
1) | Lawsuit filed by Resibril: former reseller of solvents, claiming alleged breach of a tacit distribution agreement. The lawsuit is awaiting judgment. As of December 31, 2023, the amount relating to this lawsuit was R$340 million. |
2) | Alagoas Civil Lawsuits: As of December 31, 2023, the amount relating to this lawsuits were R$8.821 million. For more information, please see “Item 8. Financial Information—Legal Proceedings— Alagoas – Mining Activities.” |
3) | Sundry civil lawsuits: As of December 31, 2023, the amount relating to these lawsuits was R$400 million. |
Social security lawsuits
1) | Lawsuits over withdrawal of sponsorship of Petros plan: Currently, the portfolio is composed of 743 lawsuits filed by former team members of Braskem or merged companies, beneficiaries of Petros plans (Copesul, Copene and PQU), related to sundry matters arising from withdrawal of sponsorship of the plan, whose claims include: Difference of Individual Withdrawal Fund, additional of 90%, and Objection to legality of Withdrawal of Sponsorship. The increase in the amount involved during the year is mainly due to (i) the new lawsuits resulting from Petros' notice requesting reimbursement of amounts from Braskem as per the withdrawal agreement, and (ii) a valuation of lawsuit involving a significant amount. As of December 31, 2023, the amount relating to this lawsuit was R$668 million. |
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The Federal Brazilian Revenue Service did not recognize the compensation of PIS and COFINS credits in the years 2005 to 2010 and in the period from 2012 to 2016 for the following reasons:
A loss of this claim is likely and our external legal counsel expects that the administrative discussion will end in 2025. As of December 31, 2020, we had established related provisions in the amount of R$197.7 million. There are no deposits or guarantees related to these claims.
PIS and COFINS Tax Assessment Notice
Braskem is involved in several judicial and administrative proceedings related to the payment of PIS and COFINS, including (1) unpaid COFINS from March 1999 to December 2000, February 2001 to March 2002, May 2002 to July 2002 and during September 2002, (2) inappropriately claimed credits due to the additional 1% in the COFINS rate; (3) undue compensation of PIS and COFINS debts with PIS credits (Decree-Law Nos. 2,445 and 2,449) which were considered to have expired by the tax authorities; and (4) an omission in the base revenue resulting from exchange gains earned due to successive reductions of our associated capital. We challenged these assessment notices because we believe that there are reasonable grounds on which we can successfully defend against these assessments. We believe that a loss of these claims is possible and our external legal counsel expect the cases in the administrative level to be resolved by 2023 and, for those in the judicial level, 2030. As of December 31, 2020, we had established related provisions, due to business combination, in the amount of R$65 million. We offered guarantee in the amount of the judicial litigations.
In 2014, we received a tax assessment notice from the Federal Brazilian Revenue Service claiming that the fines and interests exonerations afforded in installments of the MP No.470/09 are taxable. We challenged this assessment notice because we believe that these claims are based on a misinterpretation of both the applicable law and facts by the tax authorities, especially because exonerations are not taxable income and, even if they were financial income, at the time, they were taxed at zero rate. As of December 31, 2020, the amount claimed was R$892 million. We believe that a loss of this claim is possible and our external legal counsel expect that the administrative discussion will end in 2021. There are no provision, deposit or guarantee related to this claim.
We and our affiliates are involved in several other judicial and administrative proceedings related to the alleged undue compensation of PIS and COFINS debts with the following credits: (1) Corporate Income tax; (2) FINSOCIAL; (3) tax on net profits; (4) PIS (Decree-Law Nos. 2,445 and 2,449); and (5) COFINS from overpayments. As of December 31, 2020, the amount in material disputes relating to PIS and COFINS was R$129.8 million. We offered guarantee that supports the integrality of the amount of the judicial litigation that supports the entire amount claimed. We believe that a loss of this claim is possible and our external legal counsel expect that the judicial discussions will end by 2024. As of December 31, 2020, we had not recognized any provision with respect to these proceedings.
We are involved in lawsuits related to the payment of PIS and COFINS offsetting with Cide-Combustíveis credits, as authorized by Law No. 10,336/2001. As of December 31, 2020, the aggregate amount of these cases was R$116.5 million. We believe that a loss of this claim is possible and our external legal counsel expect that the discussion will end in 2030. We constituted a guarantee in the amount under discussion.
2) | Social security lawsuits: As of December 31, 2023, the amount relating to these lawsuits was R$156 million. |
Isolated Fine Tax Assessment NoticesEnvironmental lawsuits
1) | Public-Interest Civil Action (Hashimoto): filed in June 2018 by the São Paulo State Prosecution Office against the Company and other firms that operate in the Capuava Petrochemical Complex, whose claims include the reparation and/or remediation of environmental damages. After Braskem filed its defense in December 2020, there were no changes, and the lawsuit remains awaiting expert evidence. As of December 31, 2023, the amount relating to this lawsuit was R$225 million. |
2) | Public-Interest Civil Action filed by the Local Government of Ulianópolis, Pará: Public-Interest Civil Action filed in September 2011 by the Local Government of Ulianópolis, Pará, against Braskem and other companies, whose claims include the reparation and/or remediation of environmental damages allegedly resulting from the improper delivery of waste. The companies filed a response, however, a decision was rendered determining the temporary dismissal of the action for one year. As of December 31, 2023, the amount relating to this lawsuit was R$397 million. |
3) | Sundy environmental lawsuits: As of December 31, 2023, the amount relating to these lawsuits was R$67 million. |
From 2016 to 2020, we received tax assessment notices from the federal internal revenue department imposing isolated fines due to the use of credits of: (i) non-cumulative PIS/COFINS; (ii) negative Balance of IRPJ/CSLL; (iii) REINTEGRA and (iv) other credits, offset and not homologated. As of December 31, 2020, the amount claimed was R$344.6 million. We believe that a loss of these claims is possible and our external legal counsel believe that the administrative proceedings will end in 2025 and, in the judicial level, 2030. There are no deposits or guarantees related to the processes that still are in administrative discussion phase. We offered guarantee in the amount of the judicial litigation. As of December 31, 2020, we had made no provision with respect to these claims. Other lawsuits
1) | Polialden Lawsuit: The Company is party to writ of debt filed against it in 1988, currently under liquidation of award. Polialden Petroquímica S.A. (“Polialden”), merged into Braskem, received unfavorable decision to distribute remaining profits to the plaintiffs (preferred shareholders) that were non-controlling shareholders. The lawsuit awaits accounting evidence of amounts due. As of December 31, 2023, the amount relating to this lawsuit was R$287 million. |
2) | Sundy other lawsuits: As of December 31, 2023, the amount relating to these lawsuits was R$137 million. |
Social Security Contributions – Harmful Agents
We are involved in several judicial and administrative proceedings related to the payment of social security contributions in which the following issues are discussed: (i) the collection through tax assessments of the additional Occupational Accident Risk (“RAT”) for the costing of special retirement, due to the alleged exposure of workers to harmful agents, in addition to a fine for non-disclosure of this information in GFIP (in the period from April 1999 to February 2006); (ii) the collection through tax assessments of the additional RAT due to the exposure of workers to harmful agents (noise and carcinogens) in the period from January 2016 to July 2018; and (iii) the requirement, in terms of tax enforcement, of additional RAT (in the period from November 2000 to January 2001, and from November 2001 to June 2002). The aggregate amount of these claims, as of December 31, 2020, was approximately R$182.0 million. We believe that a loss of these claims is possible and our external legal counsel expect that the discussions at the administrative level will be concluded in 2024 and in 2028 at the judicial level. There is no deposit or other type of guarantee for the proceedings that are still under administrative discussion and the only one that is under judicial discussion is guaranteed in the entire amount.
Braskem Idesa - Foreign Exchange Gains and Deduction of Interest Paid to Related Parties
In November 2020, the Mexican Tax Administration Services issued an opinion on tax audit performed for the fiscal year 2016 on Braskem México Proyectos S.A. de C.V., SOFOM ENR, regarding two matters: (i) the calculation of foreign exchange gains; and (ii) the deduction of interest paid to foreign related parties. The Mexican tax authority has not issued a tax assessment. As of December 31, 2020, the amount of this proceeding was R$96 million.
Contingent Assets
Contingent assets are potential assets whose existence will be confirmed by the occurrence or non-occurrence of uncertain future events that are not wholly within the Company’s control. Contingent assets are not recognized but are disclosed when it is more likely than not that an inflow of benefits from such assets will occur. However, when the inflow of benefits is virtually certain, an asset is recognized in the financial position statement because that asset is no longer considered contingent.
Exclusion of ICMS from PIS and COFINS calculation base
Our main federal tax liability refers to the exclusion of ICMS from the PIS/COFINS calculation base. We and our merged companies filed various lawsuits claiming recognition of the right to exclude ICMS from the calculation base for PIS and COFINS and the consequent repetition of undue payment. The oldest period of the lawsuit dates back to 1991. In 2020, the final and unappealable decisions of the lawsuit filed by Braskem S.A. itself and of another lawsuit filed originally by a merged company were certified. As a result of these decisions, during 2020, the amount of R$438.0 million (R$2,048.8 million in 2019) related to surpluses of PIS and COFINS tax liabilities was recognized, of which R$310.6 million was recorded under “Other operating income (expenses)” (R$1,904.2 million in 2019) and R$127.5 million under “Financial income” (R$207.6 million in 2019).
1) | Compulsory loans: Centrais Elétricas Brasileiras S.A. (“Eletrobras”): The compulsory loan in favor of Eletrobras was established by Federal Law 4.156/62, to finance the energy industry and remained effective until 1993. It was collected through the energy bills of industrial consumers with monthly consumption equal to or higher than 2000kwh and, after successive amendments to the law, the reimbursement was extended to 20 years, plus compensatory interest of 6% per year, which can be anticipated through conversion of credits into shares issued by Eletrobras. |
Of the total liability recorded by the Company related to this topic, since 2019, R$2,067.2 million already has been offset. On December 31, 2020, the balance was R$1,002.6 million, recorded under current liabilities.
With regard to the lawsuits with final and unappealable decisions, certain decisions involve expressly the credit calculation criteria, while others were more generic, only determining the exclusion of this tax. The Company, assisted by specialized third party consulting firm, proceeded with the measurement of these tax liabilities, basically considering the amount of ICMS stipulated on the sales invoices and other tax information on the accessory obligations to ensure the consistency of the calculations, grounded in the legal opinion.
The Company has other lawsuits about the same topic that are still pending a final and unappealable decision. The oldest period of these lawsuits pending decisions dates back to 1999, for which the Company estimates future recognition of R$2.0 billion.
Compulsory loans to Eletrobrás – Centrais Elétricas Brasileiras S.A.
The compulsory loan in favor of Eletrobrás was established by Federal Law No. 4,156/62, to finance the energy industry and remained effective until 1993. It was collected through the energy bills of industrial consumers with monthly consumption equal to or higher than 2000kwh and, after successive amendments to the law, the reimbursement, plus compensatory interest of 6% per year, was extended to 20 years, which can be anticipated through conversion of credits into shares issued by Eletrobrás.
Between 2001 and 2009, the companies merged into Braskem S.A.with us filed proceedings seeking the recovery of amounts related to differences in the inflation adjustment of the compulsory loan, interest on arrears and compensatory interest and other related payments.
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The Company obtained a favorable final and unappealable decisionIn August 2023, we entered into an assignment contract in the casesamount of R$127 million, with no right of indemnity, of a portfolio of credit rights arising from lawsuits, among which those filed by us that requested the merged companies Alclor Química de Alagoas Ltda., Companhia Alagoas Industrial – Cinal, Companhia Petroquímica do Sul S.A. – Copesul and Trikem S. A., which arerestitution of Eletrobras mandatory loans, in the execution phase, discussing the amounts to be effectively returned. The casesamount of the merged companies Ipiranga Petroquímica S.A., Petroquímica Triunfo Ltda. and Quattor Química S.A are in the initial phase.R$41 million.
The term, form and amount to be realized are still uncertain, so it is not possible to determine the amount to be received and, for such reason, the asset does not meet the conditions to be recorded in the financial statements.
Class Action Proceedings
In July 2015, two putative class action lawsuits were filed against us and certain of our then-current and former officers and directors or the Defendants, in the United States District Court for the Southern District of New York. The lawsuits were subsequently consolidated under the caption In re Braskem, S.A. Securities Litigation, No. 15-cv-5132. In November 2015, Boilermaker-Blacksmith National Pension Trust, or the Lead Plaintiff,lead plaintiff, filed a consolidated class action complaint, which asserted claims under Section 10(b) and Section 20(a) of the Exchange Act, on behalf of a putative class of purchasers of our ADSs, from June 1, 2010 to March 11, 2015. In the operative complaint, the Lead Plaintiff allegeslead plaintiff alleged that the Defendantsdefendants made misrepresentations or omissions that inflated the price of our stock in violation of U.S.United States securities laws. We filed a motion to dismiss on July 6, 2016. On March 31, 2017, the court ruled on the motion to dismiss, granting it in part and denying it in part. The parties have signed a proposed settlement agreement on September 14, 2017 and the U.S. court granted final approval to the settlement and entered a judgment to dismiss the action and discharge the claims of the class members on February 21, 2018. Under the terms of the settlement, we paid US$10 million (R$31.7 million) to resolve all claims of the settlement class consisting of purchasers of our ADSs during the period from July 15, 2010 through March 11, 2015, that arise out of or relate to the subject matter of the class action. We paid the settlement amount into an Escrow Accountescrow account (which is subject to the jurisdiction of the Court) on October 2, 2017 and the Claims Administrator shall arrange its distribution after the entry by the court of a class distribution order. We have made no admission of any wrongdoing or liability as part of the settlement.
On August 25, 2020, a classan action was filed against usBraskem and some of ourits current and former executives in the U.S.US District Court for the District of New Jersey, in the United States, on behalf of an alleged class of investors who acquired Braskem’s shares between March 21, 2019 and July 8, 2020.Braskem's shares. The action iswas grounded in the U.S. Securities Exchange Act of 1934 and its rules, based on allegations that the defendants made false statements or omissions related to the geological event in Alagoas.
On December 15, 2022, the parties entered into an agreement to terminate the Class Action via payment of R$16 million (US$3 million) which was paid in January 15, 2021,2023. On May 5, 2023, the Court named two plaintiffscourt ratified the agreement without exceptions. On May 25, 2023, the Order of Dismissal was issued, recognizing that there were no objections to act as leading plaintiffs in the action. On April 28, 2021,agreement and determining the lead plaintiffsconclusion of the action filed a consolidated complaint with its initial arguments. We engaged a U.S. law firm to represent us incase involving Braskem and the class action.
Our management, based on its assessment and that of its external legal advisors, and given the initial phaserelated parties. The allocation of the potential class action mentioned above, it is not possible atamounts paid by reason of the moment to reliably estimateagreement was ratified by the potential amount involved.court on December 13, 2023.
Braskem cannot reliably predict the future developments of this matter or the expenses arising from it, including rates and costs in solving the dispute. The Company may be named as a defendant in other legal actions.
Global Settlement
In the context of allegations of improperundue payments in connection with the so-called Operation Car Wash (Operação Lava Jato) in Brazil, we engaged independent expert firmsthe Company hired external experts to conduct an independent investigation into such allegations (the “Investigation”(“Investigation”) and to report their findings. We have cooperated
In December 2016, the Company entered into Leniency Agreements with governmental authorities in several jurisdictions, including the U.S. Department of Justice, or the DoJ, the U.S. Securities and Exchange Commission, or the SEC, Brazil’s Federal Prosecutor’sProsecution Office (Ministé(Ministério Público Federal)Federal, or the MPF,hereinafter “MPF Agreement”) and Switzerland’s Office of the Attorney General, or the OAG. On December 14, 2016, we entered into a leniency agreement with the MPF, or the Leniency Agreement, which was ratified by the competent Brazilian court on June 6, 2017. On December 21, 2016, we filed a plea agreementU.S. and Swiss authorities (“Global Settlement”), in the United States District Court foramount of R$3.1 billion (US$957 million, at the Eastern District of New York undertime), which we agreed to plead guilty to a one-count criminal information charging us with conspiracy to violatewere duly ratified. Further, the anti-bribery provisions of the U.S. Foreign Corrupt Practices Act, or the FCPA. On the same date, we consented to the entry of a final judgmentCompany engaged in a civil action brought by the SEC based on civil violationsprocess of the anti-bribery, bookscooperation and records and internal accounting controls provisions of the FCPA. The competent federal courts in the United States approved the DoJ and SEC resolutions on January 26, 2017 and February 28, 2017, respectively. In addition, on December 21, 2016, the OAG closed its investigation of these matters. We refer to these actions as the Global Settlement. Under the Global Settlement, we agreed to pay to the governmental authorities in these jurisdictions an aggregate amount of US$957 million (equivalent to R$3.1 billion), based on the exchange rate of R$3.27 per U.S. Dollar, applicable at the time of the negotiation.
The MPF will distribute the majority of the amount it receives as restitution to third parties for damages caused by the misconduct. Pursuant to the Global Settlement, the MPF agreed to communicate with other public authorities or entities, as well as stated-owned companies and mixed-capital companies with which Braskem enters into discussions to address the facts under the Global Settlement and avoid making duplicate restitution payments. In this context, as announced to the market on July 10, 2018, and disclosed in a material fact on May 27, 2019, we have cooperated and engaged in negotiationsnegotiation with the Ministry of Transparency and Controllership (CGU)the Office of The Federal Controller General (Controladoria-Geral da União, hereinafter “CGU”) and the Office of the Attorney General (AGU)(Advocacia-Geral da União, hereinafter “AGU”), which culminated in Brazil, and our Boardthe execution of Directors approved the signing of a leniency agreement with the CGU and the AGU (the “CGU/such authorities on May 31, 2019 (“CGU/AGU Agreement”).
The CGU/AGU Agreement, in and, jointly with the amount of R$2.9 billion, to be adjusted by the SELIC rate,Global Settlement, “Agreements”), which addresses the same facts that are the objectsubject of the Global Settlement executed in December 2016 with the Brazilian Federal Prosecution Office (MPF), the U.S. Department of Justice (DoJ), the U.S. Securities and Exchange Commission (SEC) and the Swiss Office of the Attorney General (the “Global Settlement”). Of this amount, R$2.5 billion will be offset by the amount that Company already had undertaken to pay under the scope of the Global Settlement, resulting inprovides for an additional disbursement of R$410 million.million due to the calculations and parameters adopted by CGU/AGU. In addition, in 2019, the State Prosecution Office of Bahia and the State Prosecution Office Rio Grande do Sul adhered to the MPF Agreement. Therefore, no additional payments are expected to be made by the Company.
As of December 30, 2020, we had paid R$2.7 billion of the total fine established in the Global Settlement, in the following manner:
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Since 2016, The Company has paid R$3,071 million, distributed as shown below:
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The outstanding amount of R$1.1 billion related to the Global Settlement and also the CGU/AGU Agreement will be paid in the following manner:
Other authorities with jurisdiction over us may seek to impose monetary sanctions or fines on, or to initiate investigative proceedings against, us. As a result of entering into the Global Settlement, Braskem may be prevented from entering into certain agreements with government entities and may be subject to increased operating costs for being under the obligation to improve its governance and anti-corruption practices and procedures, including the cost of external monitorships.
Under the terms of the Global Settlement,In August 2023, we were required to cooperate with these governmental authorities and improve our governance and anti-corruption compliance practices. We were also subject to external monitorship for a period of three years from 2017, which ended in March 2020, during which time the monitor assessed compliance with the Global Settlement, including the effectiveness of our internal controls, policies and procedures to reduce the risk of any anti-corruption violations.
On May 13, 2020, the MPF, the DoJ and the SEC confirmed the conclusion of the independent compliance monitorship at Braskem, which had been established in the settlement agreements entered intonotified by Braskem, the DoJ and the SEC on December 21, 2016. The decision of the DoJ and the SEC was based on a final report from the independent monitors, who certified that the Company implemented all of the recommendations regarding the structure and execution of its compliance program and concluded that the Company meets the standards set out in the settlement agreements entered into with the DoJ and the SEC. FollowingCGU about the end of the independent monitorshipmonitoring period of our integrity program, and also presented the certificationclosing of the monitorship.
In January 2023, we offered our own and third-party registered warrants to pay the fourth installment under the Leniency Agreement (due on January 30, 2023). The payment confirmation was subject to analysis by the MPF, the DoJ and the SEC,relevant authorities. Hence, the Company has complied withreduced the amount to be paid regarding this portion of the Leniency Agreement, thereby creating a liability against third parties and reducing its obligations established inown precatory debt. However, the administrative rule governing this settlement procedure was revoked, and no new regulation on this matter was enacted prior to the expiration of the agreements entered into with these authorities and has successfully concluded the three-year monitorship.
We believe we are fully in compliance with our obligations under the Global Settlement.
Labor Proceedings
Employment and Occupational Health and Safety Proceedings
We have provisioned R$280.1 million, asfor acquisition of third-parties registered warrants (on December 31, 2020, with respect to employment and occupational health and safety proceedings, relating to 529 labor proceedings, including cases of occupational health and safety (in 2019, there were 604 proceedings)2023). Our external legal counsel estimate that the time for completion of each of such proceedings in Brazil is more than five years. Estimates related to the completion of the proceedings and the possibility of future disbursement may change as result of new decisions of higher courts.
Social Security
In 2012, the Company withdrew its sponsorship of the pension plans Petros Copesul and Petros PQU, both managed by the pension fund Petros, and assumed obligation outstanding under the sponsorship withdrawal instrument to pay the mathematical reserves of beneficiaries pursuant to Complementary Law No. 109/2001, which was met in 2015. However, after the payment, several beneficiaries filed individual and collective actions regarding various claims, including relating to: (i) differences of the individual withdrawal fund; (ii) change to the base date; (iii) age limit; (iv) 90% supplement; (vi) return of contributions; (vii) difference in savings account reserve; (viii) objection against legality of sponsorship withdrawal.
Currently, this portfolio is comprised of 801 active cases representing an estimated disbursement of R$326.7 million in the aggregate as of December 31, 2020. Our management, based on the opinion of our external legal counsel, believes that the chance of loss relating to these lawsuits is possible.
Civil Proceedings
Caustic soda transportation
We are the defendant in civil lawsuits filed by the owner of a former distributor of caustic soda and by the shipping company that provided services to this former distributor. The plaintiffs seek indemnity for damages related to the alleged non-performance of the distribution agreement by the Company. In June 2020, the parties entered into an agreement in which Braskem agreed to pay, as indemnification, the amount of R$7.4 million. The agreement was approved and paid in October 2020 and, for such reason, the proceedings were dismissed.
Excess weight
A civil class action was filed by the Federal Prosecutor’s Office in Brasilia seeking to hold us liable for damages caused to federal roads by trucks carrying excess weight. The action claims damages to the federal government arising from material damages and collective pain and suffering, in the amount of R$61.8 million, as of December 31, 2020. The lawsuit was dismissed in the lower court, and the decision dismissing it was confirmed by a higher court. A special appeal has been filed by the Federal Prosecutor’s Office and is currently pending before the Superior Court of Justice (STJ).
Resale of solvents
In January 2017, we became the defendant in a civil lawsuit filed by a former reseller of solvents, claiming alleged breach of a distribution agreement. As of December 31, 2020, the damages claimed in the lawsuit amounted to R$222,8 million and an award was not rendered by the lower court yet. Based on the opinion of external legal counsel, our management believes that the lawsuit has a possible risk of loss. As a result, no provision has been made by us. No judicial deposit or other formthe Company returned this installment amount to the payable balance under the Leniency Agreement, while the requirement to pay such 2023 installment remains suspended, awaiting the enactment of guarantee was constituted for this lawsuit.
Redress proceeding
A compensatory lawsuit was filednew regulations by the insurer of one of our customers.competent authorities. The insurer seeksamount payable under the reimbursement of the amount paid to a customer pursuant to an insurance agreement entered into with the customer. As ofLeniency Agreement, at December 31, 2020, the amount involved in this proceeding was2023, is R$84,91,016 million, of which R$840 million is registered under current liabilities and an award was not rendered by the Lower Court yet. According to the insurer, the losses incurred by the customer, for which it was reimbursed, were caused by the supply of non-conforming products by Braskem. Our management, based on the opinion of external legal counsel, considers that the lawsuit may be dismissed in a period of up to eight years. As a result, no provision has been made by us. No judicial deposit or other form of guarantee was constituted for this lawsuit.R$176 million under non-current liabilities.
Corporate Related Proceedings
As of December 31, 2020, one of our most significant corporate claims is related to an ordinary collection claim combined with a request for damages for losses, requesting the payment of dividends and a share bonus arising from the class “A” preferred shares of the dissolved company Salgema Indústrias Químicas S.A. Dividends and bonus related to fiscal years prior to 1987 were considered to have become time-barred by lower courts and therefore not owed by Braskem. However, the Alagoas state Court of Appeals reviewed the decision and considered that amounts prior to such period are also owed. Braskem filed an appeal against the decision with the Superior Court of Justice (STJ), which was partially granted. It is possible that the statute of limitations could be applied to part of the claim once the request for liquidation is reviewed by the Superior Court of Justice (STJ). During fiscal year 2020, Braskem established a provision of R$66.9 million for this lawsuit and there is no guarantee related to this claim.
We are also currently subject to the liquidation of an award related to a lawsuit filed in 1988, which ordered Polialden Petroquímica S.A., which merged into Braskem on May 31, 2006, to pay to its non-controlling preferred shareholders certain remaining profits. The purpose of the liquidation proceeding is to determine the value of the award calculated in accordance with the judicial order issued on April 15, 2016, which will occur through an arbitration procedure, as determined by the court, and was appealed. The procedure is awaiting the beginning of the expert analysis.
Based on the opinion of our external legal counsel, as of December 31, 2020, the nominal amount in dispute was R$223.2 million, Braskem established a provision of R$16.8 million for this lawsuit and there is no guarantee related to this claim.
Hashimoto Civil Action
A civil class action was filed in June 2018 by the Public Prosecutor’s Office of the State of São Paulo against us and other companies that operate in the Capuava Petrochemical Complex, seeking the reparation and/or remediation of environmental damages supposedly arising from the emission of air pollutants, as well as a joint judgement against companies that comprise such complex, seeking environmental moral damages in in the inflation-adjusted amount of R$144.4 million. Braskem filed its defense in December 2020. The defense of the other defendants and the subsequent decision of the judge is pending. Our management, based on its assessment and of that of our outside legal counsel, believes that the lawsuit possibly will be dismissed within a period of eight years.
Environmental
A public interest civil action was filed in September 2011 by the municipality of Ulianópolis, in the State of Pará, against Braskem and other companies, claiming reparation and/or remediation of environmental damages allegedly resulting from the delivery of waste to the company CBB, which were allegedly not disposed of properly, polluting an area of the municipality Ulianópolis, as well as joint and several liability of these companies for the payment of indemnification for environmental damage in the adjusted amount of R$277.3 million. The companies filed their reply and a decision is pending. Our management, based on the opinion of our outside legal counsel, believes that the lawsuit will be dismissed within a period of eight years.
Alagoas – Mining Activities
In April 2019, the Alagoas State Prosecutor’s Office (Ministério Público do Estado de Alagoas) and the State Public Defender’s Office (Defensoria Pública do Estado de Alagoas) filed a lawsuit (public-interest civil action or ação civil pública) that was further joined by the Federal Prosecutor’s Office (Ministério Público Federal) and the Federal Public Defender’s Office (Defensoria Pública da União) seeking to freeze our assets in an amount of up to R$6.7 billion to secure funds allegedly required to ensure remediation and compensation for environmental, property and personal damages potentially resulting from a geological incident related to our mining activities in the city of Maceió (“ACP of Residents”). A preliminary decision ordered the freezing of R$100 million in our bank accounts.
In addition, the Alagoas State Court of Appeals (Tribunal de Justiça do Estado de Alagoas) ordered the suspension of the distribution of dividends for the fiscal year 2018 that had been proposed in the amount of R$2.7 billion, or, alternatively, the freezing of assets in the same amount of the proposed dividend distribution. This decision was subsequently reversed by a decision of the Superior Court of Justice (Superior Tribunal de Justiça, or STJ), which authorized the distribution of dividends upon posting of a judicial bond in the same amount. The Alagoas State Prosecutor’s Office and the Alagoas State Public Defender’s Office amended their claim to exclude the request for indemnification for the alleged environmental damages and reduce the amount of assets to be frozen to R$3.7 billion, which according to their allegations would be equivalent to the actual damages caused to the residents of the districts affected by the geological event. On June 26, 2019, the Presiding Judge of the Alagoas State Court of Appeals (Tribunal de Justiça do Estado de Alagoas) issued a decision ordering an amount of R$3.7 billion to be frozen. This decision was also subsequently reversed by the Superior Court of Justice (STJ), which ordered the frozen amount of R$3.7 billion to be returned to our bank accounts after posting another judicial bond in an equivalent amount.
On May 8, 2019, we became aware of the Report No. 1, prepared by the Mineral Resources Research Company, (Companhia de Pesquisa de Recursos Minerais), or CPRM, an entity of the Brazilian Energy and Mining Ministry, (Ministério de Minas e Energia), onindicating that the geological events that occurredphenomenon observed in the city of Maceió. Such report indicated the occurrence of: (i) destabilization of caverns resulting from sodium chloride, or salt, extraction, which created a dynamic situation that reactivated pre-existing geological structures and deformations in the districts of Pinheiro, Mutange and Bebedouro; and (ii) instability in the Pinheiro district, which was aggravated by the erosive effects caused by an increase in the infiltration of stormwater runoff in pre-existing fractures in extremely erodible soil and accelerated dueregion, could be related to the lack of an effective stormwater runoff drainage network and of adequate basic sanitation, among other factors.rock salt exploration activities developed by Braskem. In this context, due to the developments from the report’s publication of Report No. 1 by CPRM,and in accordance with applicable safety standards, on May 9, 2019, we suspended all salt extraction and, consequently,temporarily, the operations of the chlor-alkali and dichloroethane plants located in the district of Pontal da Barra in Maceió, state of Alagoas.
In view of this event, we are engaged in several legal proceedings and investigations:
Public-Interest Civil Action (“ACP”) filed by the Alagoas State Prosecution Office and also reducing production in the Camaçari Petrochemical Complex inAlagoas State Public Defender’s Office – Reparation for Residents:
In June, 2019, we became aware that the state of Bahia, since they are integrated into the production chain. Given that, Braskem put in place a non-integrated business model according to which the Company will import: (i) caustic soda to supply the Brazilian market using its logistics structureAlagoas State Prosecutors’ Office (“MPE”) and terminals along the Brazilian coast; (ii) EDC to continue to operate its PVC plants in the states of Alagoas and Bahia, in Brazil; and (iii) sea salt to supply the Chlorine Soda plant in the State of Bahia. We have continuously cooperatedAlagoas Public Defenders’ Office (“DPE”) filed a public-interest civil action claiming the payment of compensation for property and personal damages caused to buildings and residents of areas affected in the Pinheiro district and surroundings (“ACP of Residents”), in the minimum amount of R$6.7 billion, with relevant authoritiesan initial request for provisional measures to freeze Company’s assets in the same amount. The case was sent to the Federal Court, when the Federal Prosecutors’ Office (“MPF”) and the local community.Federal Public Defenders’ Office (“DPU”) joined as plaintiffs.
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Parties to the ACP of Residents entered into a first agreement on January 3, 2020, to establish cooperative actions to vacate properties in risk areas, defined by the Civil Defense of Maceió, State of Alagoas, (“Civil Defense Map”), providing the necessary support to relocate people from those areas and provide financial compensation for them under the Financial Compensation and Support for Relocation Program (“PCF”) implemented by Braskem. After updates of the Civil Defense Map, two legal instruments were signed by parties, in July and October 2020, to include properties in the PCF. On December 30, 2020, a second amendment to the agreement was signed to terminate the public-interest civil action (“Agreement for Compensation of Residents”), including the area currently affected by the geological event, according to the Civil Defense, and the areas with potential future impacts indicated in the independent technical and specialized studies engaged by the Company on the potential impact of the geological event on the surface of the region (the risk area encompasses a total of approximately 15,000 properties).
To implement the Agreement for Compensation of Residents, the Company assumed the obligation to deposit a total of R$2.7 billion (R$1.7 billion under the Agreement) in a checking account, with minimum working capital of R$100 million, whose transactions will be verified by an external audit company and also agreed to create a technical group to monitor the geological event and study the areas adjacent to the Civil Defense Map for a period of five years and maintain a performance bond in the amount of R$615 million. The Agreement for Compensation of Residents was ratified by Court on January 6, 2021, which resulted in the termination of ACP of Residents.
Public-Interest Civil Action (ACP) filed by the Federal Prosecution Office, Federal Public Defender’s Office and Alagoas State Prosecution Office - Reparation for Residents – Map Version 5:
On November 30, 2023, we were informed of the Public-Interest Civil Action filed by the Federal Prosecutors’ Office (“MPF”), State Prosecutors’ Office (“MPE”), the Federal Public Defender’s Office (“DPU”) against the Municipality of Maceió and Braskem, with a request for a injunctive relief based on evidence, against the Municipality of Maceió: (i) the disclosure of the new Map of Priority Action Lines, Version 5, and (ii) preparation of the Action Plan to address issues related to the identification of the roads and public equipment located in the region. Against Braskem, they request through a preliminary injunction: (i) inclusion of the new criticality area 00 of Version 5 of the Civil Defense Map in the PCF implemented by Braskem in Maceió – AL and making feasible the optional inclusion of all residents affected whose properties are located in the criticality area 01 of Version 5 of the Map, with inflation adjustment corresponding to the amounts adopted by the Program; (ii) establishment, with the permission of the affected party of the criticality area 01, of a Program for Reparation of Damage to Properties resulting from the alleged depreciation of the property, as well as the alleged pain and suffering resulting from the inclusion of the property in the Map; (iii) engagement of independent and specialized firm to identify the alleged damage to properties if the affected party decides to remain in the area of criticality 01 of Version 5 of the Civil Defense Map; and (iv) engagement of independent and specialized technical advisory to provide support to the affected parties in the analysis of the scenarios and decision-making of their relocation or staying in the area. On the merits, they request confirmation of the preliminary injunctions.
On November 30, 2023, the judge rendered a decision granting the injunctive relief based on evidence of the plaintiffs. Against this decision, we proposed suspension of the preliminary injunction and filed an interlocutory appeal. On January 22, 2024, the decision rendered in the interlocutory appeal determined “the immediate suspension of the provisory execution determined by the trial court”, decision was maintained by the full court until the final and unappealable judgment of the interlocutory appeal.
The amount assigned to the case by the plaintiffs in the lawsuit is R$1 billion.
Public-interest civil action filed by the Labor Prosecutors’ Office of the State of Alagoas – ACP Labor:
On July 25, 2019, we were informed of anothera public-interest civil action filed against us by the Labor Prosecutor’sProsecutors’ Office of the State of Alagoas, or MPT-AL, requesting a compensation of R$3.6 billion for damages that workers affected by the geological event might have suffered and an injunctive relief to freeze the amount of R$2.5 billion to guarantee payment of any actual damages that workers affected by the geological event may suffer (“ACP Labor”). Parties reached an agreement on February 14, 2020, to terminate the claim, with the commitment from Braskem to invest R$40.0 million to fund a Business Recovery and Promotion of Educational Activities Program for residents and workers in the districts of Mutange, Bom Parto, Pinheiro and Bebedouro in Maceió, in the state of Alagoas. Such program consists in constructing day care centers and schools, implementing vocational training programs and providing support to the Civil Defense authorities in hiring qualified personnel for continuing the process of monitoring the areas at risk in these districts. Braskem fulfilled its obligation on March 3, 2020, and the ACP Labor was terminated.
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Public-Interest Civil Action filed by the Alagoas State Federal Prosecution Office – Social-environmental reparation:
In April, 2020, we became aware of the filing of another public-interest civil action by the Federal Prosecutors’ Office (“MPF”) against us and other parties, requesting indemnification for socio-environmental damages and other collectives damages, as well as the adoption of corrective and environmental compliance measures, with preliminary injunction requiring the freezing of assets and profits not yet distributed, the set-up of a fund of R$3.1 billion for the benefit of social and environmental programs and emergency measures to be carried out, the posting of bonds in the amount of R$20.5 billion, the suspension of government financings and government incentives, as well as acceleration of existing indebtedness with BNDES (Federal Development Bank), among other obligations (“ACP Socio-environmental”). Parties reached an agreement to terminate the claim against Braskem on December 30, 2020 (“Agreement for Socio-environmental Remediation”).
According to the Agreement for Socio-environmental Remediation, the Company commits, primarily, to (i) adopt the necessary measures to stabilize the cavities and monitor the soil; (ii) repair, mitigate or compensate potential environmental impacts and damages resulting from salt mining activities (salt extraction) in the city of Maceió, defined after the conclusion of the Environmental Diagnosis, to be conducted by a specialized and independent company; and (iii) repair, mitigate or compensate for potential socio-urbanistic impacts and damages resulting from mining activities (salt extraction) in the city of Maceió, as detailed below.
Under the Agreement for Socio-environmental Remediation, the Company undertook the following measures:
· | with respect to the stabilization of the cavities and monitoring of the soil, the Company will continue with the implementation of the measures of the mine closure planning presented by Braskem and approved by the ANM, whose measures can be adjusted until the stability of the subsidence phenomenon resulting from salt mining is verified; |
· | with respect to potential environmental impacts and damages resulting from the salt extraction activities in the city of Maceió a well-known expert and independent company was engaged to assess and recommend measures for repairment, mitigation or compensation of the environmental impacts that may be identified as a result of the salt extraction activities in the city of Maceió. The study and the second opinion report on the environmental planning were delivered to the MPF on June 30, 2022 and December 7, 2022, respectively, and will follow the procedures as per the agreement for final consolidation of the actions to be adopted in the mutual agreement between the Company and the MPF, but it is not possible to predict the outcome or if it will result in additional amounts other than those already recorded in the provision.. In February 2023, MPF expressed its agreement with this environmental plan, incorporating the suggestions provided in the additional report. Braskem initiated the actions foreseen by the plan, implementing the commitments established in the agreement and sharing the results of its actions with the authorities. Also it was agreed that the environmental diagnosis will be updated in December 2025. As one of the developments of the cavity 18 event, occurred in December, 2023, although alteration in lagoon's water quality has not been identified, according to the Agreement for Social-Environmental Reparation, the specialized company will prepare an amendment to the current environmental diagnosis report. |
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· | with respect to socio-urbanistic impacts and damages resulting from the salt extraction activities in the city of Maceió, the Company will allocate the total amount of R$1.28 billion to implement actions and measures in the vacated areas, and actions relating urban mobility and social compensation. For these social compensation actions and measures, on June 30, 2022, the Company filed with the MPF the report and the respective plan of social action that will be used as base to define the measures to be adopted. As of December 31, 2023, a total of 23 actions had already been approved, of which 2 are being implemented. |
· | moreover, the Company agreed under the Agreement for Socio-environmental Remediation: (i) to allocate the additional amount of R$300 million for social damages and collective moral damages indemnification and for eventual contingencies related to actions in the vacated areas and urban mobility actions; (ii) with the constitution of a secured interest on certain of the Company's assets in the amount of R$2.8 billion to replace the surety bond previously presented by Braskem to the Court in the amount of R$1 billion, as Material Fact disclosed on January 3, 2020; and (iii) to engage specialized consultants to support the definition of the measures established in the Agreement for Socio-environmental Remediation and to update the socio-environmental compliance program of the Company. |
Public-Interest Civil Action filed by the Federal Public Defender’s Office (“DPU”): refusal of insurance within the scope of Housing Financial System (“SFH”):
On November 9, 2021 we were notified of a Public-interest Civil Action filed by Federal Public Defenders’ Office against insurers linked to SFH, financial agents, the regulatory agency and Braskem, questioning the denial of necessary insurance for contracts under the SFH to acquire properties located within a radius of 1 km outside the risk area defined by the version 4 map of Civil Defense authorities, which is the subject matter of the Residents PCA agreement. The main claim is only against the insurers, financial agents and the regulatory agency on the grounds that the refusal to contract the insurance is abusive and has no technical or legal grounds. There is a secondary and eventual claim to sentence Braskem to pay indemnification in an amount to be settled in the future, if the judge understands that the refusal somehow has grounds due to in the subsidence phenomenon. On January 10, 2024, a decision was rendered partially ordering the insurance companies to: (i) refrain from applying the safety margin beyond the risk area defined by the Civil Defense and engaging in unfair pricing and increases to avoid contracting insurance coverage for properties out of and next to the risk area, declaring that there were no denials/decreases in the insurance coverage based exclusively on the safety margin, (ii) call everyone who is interested to reassess the request for housing insurance. Braskem was not found guilty, however an appeal against this decision is possible. It is not possible to estimate the indemnification amount, which will depend on the evidence of damages submitted by people whose insurance was denied.
Public-Interest Civil Action filed by the Alagoas State Public Defender’s Office – Review of terms of the Flexal Agreement:
In October, 2022 we entered into an agreement for the implementation of socioeconomic measures for the requalification of the Flexais region (“Flexais Agreement”) with the Federal Prosecutors’ Office (“MPF”), State Prosecutors’ Office (“MPE”), the Federal Public Defender’s Office (“DPU”) and the Municipality of Maceió for the adoption of actions for the requalification of the Flexais region, compensation to the Municipality of Maceió and payment of indemnification to the residents of this region. On October 26, 2022, the 3rd Federal Circuit in the State of Alagoas ratified the Flexais Agreement. As of December 31, 2023, the amount of this action is R$1.9 billion.
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In March 2023, a public-interest civil action was filed by the State of Alagoas Public Defenders’ Office (“DPE”) against the Company, the Brazilian federal government, the State of Alagoas and the Municipality of Maceió seeking, among other claims, the revision of certain terms and conditions of the Flexais Agreement and requesting the inclusion of residents of the Flexais region who so choose, with the consequent reallocation of these residents and payment of compensation to such residents for moral and material damages. The amount attributed to this lawsuit MPT-AL furtheris R$1.7 billion. On January 19, 2024, a decision was rendered judging partially valid the requests made by the DPE. The judge determined the following:
(i) | deny the request for annulment of the clauses of Flexais Agreement, stating, however, that the settlement described in the agreement must be interpreted as a settlement until the date of execution of the agreement, and does not cover property damages related to real estates and their depreciation; |
(ii) | deny the request for payment of collective pain and suffering; |
(iii) | grant the payment for pain and suffering while the effects of social isolation persist. The judgment validated the parameters of the program provided in the Flexais Agreement, however it understood that the amounts paid in the program correspond to the period between October 2020 and the date the Flexais Agreement was entered into, therefore payments must continue until the effective requalification of the Flexais region; |
(iv) | grant the request for indemnity for property damages resulting from the real estate depreciation to be estimated during the phase of fulfillment of the judgment; |
(v) | determine the development of the case to adjudicate the request for relocation of residents, among others. |
Public-Interest Civil Action filed by the Federation of Fishermen of the State of Alagoas (“FEPEAL”) and National Confederation of Fishermen and Aquaculturists (“CNPA”): Fishermen Reparation:
In August 2023, we were informed of the Public-Interest Civil Action filed by FEPEAL and CNPA (jointly the “Associations”) against the Company, seeking compensation for material damages (damages and loss of profit) and homogeneous individual and collective morals damages for the Associations and each of the alleged 8,493 affected fishermen represented by the Associations.
Among other requests, the Associations claim the payment of: (i) compensation for (a) individual and homogeneous moral damages suffered, in the amount of R$50,000 and (b) material damages in the form of individual and homogeneous loss of profits, in the amount of R$132,000 in both cases for each of the allegedly affected fishermen; (ii) compensation for collective moral damages for the Associations, in the amount of R$100,000; (iii) compensation for collective material damages to the Associations, in the amount of R$750,000; and (iv) attorney fees in the amount of 20% on the value of the award.
Public-Interest Civil Action filed by the Federation of Fishermen of the State of Alagoas (“FEPEAL”): Fishermen Financial Assistance:
On December 13, 2023, we became aware of the ACP, with request for advance relief, filed by FEPEAL, which requested the payment of an emergency financial assistance to the fishermen who work in Mundaú Lagoon, in the monthly amount of R$1,946.75, while the prohibition imposed by Administrative Rule 77/CPAL of navigating in part of the Lagoon remains. As a result of negotiations between the parties of ACP and other institutions, started in December 2023, to enter into agreement about the topic, on February 7, 2024, the Agreement between Braskem, FEPEAL, CNPA and DPU was approved for the payment of indemnification for fishermen and shellfish collectors temporarily affected by restricted traffic of vessels in Mundaú Lagoon, in the perimeter determined by the Port Authority of Alagoas, for safety reasons. The agreement provides for the payment by Braskem the equivalent of three minimum wages to up to 1,870 professionals who are registered in the Ministry of Fishing and Agriculture (“MPA”) and can provide evidence of their work in the region. The approval led to dismissal of said ACP with substantive examination.
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Action against the Violation of a Constitutional Fundamental Right (“ADPF”) filed by the Alagoas State Governor:
On December 18, 2023, we were informed of the action claiming the violation of a constitutional fundamental right (ADPF) filed by the Alagoas State Governor before the Federal Supreme Court due to some clauses of the agreements entered into out-of-court and ratified in the records of the cases ACP Reparation for Residents, ACP Social-Environmental Reparation and Flexais Agreement, which deal with the settlement to the Company, as well as the acquisition and exploration of vacant properties.
On December 18, 2023, we presented a statement applying for the denial of the ADPF continuance. On January 10, 2024, the judge rapporteur determined the testimony of Braskem, Municipality of Maceió, State of Alagoas Prosecution Office, Alagoas State Defender’s Office and Federal Public Defender’s Office and the statement of the Office of the Attorney General and Office for the General Counsel for the Federal Government.
Indemnity Claim: Companhia Brasileira de Trens Urbanos (“CBTU”):
On February 2, 2021, we were notified of the filing of a lawsuit by Companhia Brasileira de Trens Urbanos (CBTU), initially requesting only a preliminary injunction for maintaining the terms of the cooperation agreement previously signed by the parties. The request was denied in lower and appellate courts, given the fulfillment of the obligations undertaken by Braskem. On February 24, 2021, CBTU filed an amendment to the initial request claiming the payment of compensation for losses and damages in the amount of R$222 million and for moral damages in the amount of R$500 thousand, as well as the imposition of obligations, including the construction of a new rail line to workers for painreplace the stretch that passed through the risk area. On December 31, 2023, the updated value of this lawsuit was R$1.46 billion. Braskem entered into a memorandum of understanding with CBTU to seek a consensual solution and suffering. On October 10, 2019,suspend the trial court deniedlawsuit during the injunctive relief request.negotiation period and has made progress in the technical understanding about the topic. As a result of a joint petition filed by the parties, the lawsuit was suspended until June 2024.
Indemnity Claim: Pinheiro District Property:
On July 29, 2019, the Company waswe were notified of an individual claim filed by Construtora Humberto Lobo,, a construction company, seeking the payment of approximately R$151 million for damages related to the termination of a property purchase contract celebrated with Braskem and allegedly due to the geological event. A previous decision, on July 4, 2019, had issued a freeze order of R$4.8 million from Braskem’s assets. On October 15, 2019, the Court partially decided the claim to determine the immediate payment of R$4.5 million to the plaintiff. Braskem’s appeal against such decisions awaits ruling by the Court of Appeal. The remaining partAppeal and on July 5, 2023, a decision was rendered in favor of Braskem. It did not recognize the existence of the claim proceeds before Courtalleged loss of profits and alleged damage to evidentiary stage.
On August 19, 2019, we became awarethe contractor’s image, only ordering the return of R$3 million by Braskem to the filing of another public-interest civil action filed by the Federal Prosecutor’s Office (Ministério Público Federal) against us and other parties, requesting the following injunctive reliefs: (i) the set-up of a fund of R$3.1 billion for the benefit of social and environmental programs and emergency measuresplaintiff, plus inflation adjustment, to be carried out, anddeducted from the maintenance in said fundamounts already received by Humberto Lobo during the lawsuit, amounting to R$4.5 million. The lawsuit is ongoing (on December 31, 2023, it amounts to R$500 thousand).
Indemnity Claim: State of working capital in the amount of at least R$2.0 billion or, after a financial schedule is approved for such fund, an amount equivalent to 100% of the expenses projected for the subsequent 12 months; (ii) the posting of bonds in the amount of R$20.5 billion; (iii) prohibition on us to encumber or dispose of any of our fixed assets and to distribute profits, in the form of dividends, interest on shareholders’ equity or any other form; (iv) freezing of any profits not yet distributed; and (v) suspension of receipt of government financings and government incentives, as well as acceleration of existing indebtedness with BNDES (a federal development bank) (“ACP Socio-environmental”). On January 15, 2020, the trial court denied the injunctive relief requests.Alagoas:
On November 14, 2019, as informed to the market, we submitted to the Brazilian National Mining Agency (Agência Nacional de Mineração, or ANM) a plan with measures to permanently end salt extraction activities in Maceió and close all of its wells. We proposed to the ANM the creation of a protection area around certain wells, which would involve resettling people, vacating properties and taking certain additional monitoring measures. These measures were based on a study conducted by the Institute of Geomechanics of Leipzig (IFG), Germany, which is a global reference in geomechanics of salt wells, and is expected to be implemented in coordination with Brazilian civil defense and other authorities. Our preliminary estimates, that were to be confirmed with relevant authorities, indicated that the protection area would cover an area of approximately 400 properties and 1,500 people. For certain other wells, the recommendation was that additional monitoring measures be taken, without the need to vacate properties and resettle residents.
On January 3, 2020, we entered into an agreement with the Alagoas State Public Defender’s Office (Defensoria Pública do Estado de Alagoas), the Federal Prosecutor’s Office (Ministério Público Federal),In March 2023, the State of Alagoas Prosecutor’s Office (Ministério Público do Estado de Alagoas) and the Federal Public Defender’s Office (Defensoria Pública da União) with respectfiled against us a lawsuit requesting compensation for alleged damages caused to the ACP of Residents, to supportState. In addition, as a preliminary injunction, the relocation of, and indemnification to, residents in the areas at risk located in the districts of Mutange, Bom Parto, Pinheiro and Bebedouro in the city of Maceió, in the stateState of Alagoas as set forth inrequested the agreement, which was ratified by the Federal Judge of the 3rd District Court in the state of Alagoas.
Based on such agreement, the plaintiffs agreed to: (i) release the amountcautionary blocking of R$3.71.1 billion that had been frozen,in our bank accounts as a guarantee to indemnify for material and non-material damages resulting, among others claims, from the loss of which R$1.7 billion was transferred to a bank account of Braskem specifically for funding a Financial Compensation and Support for Relocation Program (“PCF”), which must maintain at minimum balance of R$100 million, subject to auditproperties within the risk area defined by an external auditor; and (ii) substitute the surety bonds that had been presented by Braskem in the approximate aggregate amount of R$6.4 billion for two new surety bonds in the approximate aggregate amount of R$3.0 billion to guarantee both the ACP of Residents and the ACP Socio-environmental.
On February 14, 2020, we entered into an agreement with the Labor Prosecutors’ Office in the state of Alagoas (Ministério Público do Trabalho do Estado de Alagoas) to terminate the ACP Labor, with the commitment to invest R$40.0 million to fund a Business Recovery and Promotion of Educational Activities Program for residents and workers in the districts of Mutange, Bom Parto, Pinheiro and Bebedouro in Maceió, in the state of Alagoas. Such program consists in constructing day care centers and schools, implementing vocational training programs and providing support to the Civil Defense authorities in hiring qualified personnel for continuing the process of monitoring the areas at risk in these districts. As a consequence of the settlement, the ACP Labor was terminated.
On June 19, 2020, the Company became aware of a public civil inquiryMaceió, alleged investments initiated by the State of Alagoas Prosecutor’s Office (Ministério Público do Estado de Alagoas) intoand that would have become void unusable due to the extentevacuation of the urban damage causedrisk area and alleged loss of tax revenue, with a request that such damages to be determined by a court appraiser. On April 19, 2023, this injunction relief request was accepted by the geological event, seeking solutions for recovery and utilizationcourt, which ordered a cautionary blocking of approximately R$1.1 billion in our bank accounts. Upon presentation of a performance bond by us, on April 23, 2023, the Appellate Court suspended the effectiveness of the area,decision to block Braskem bank accounts, as previously issued by the Lower Court. On October 10, 2023, the trial court handed down summary judgment ordering Braskem to reimburse the amounts invested, public equipment and assessing liabilitylosses in tax collection as required by the State of Alagoas. The indemnity amounts must be set in the award calculation phase. The Company filed an appeal against the decision. On December 31, 2023, the amount of this action is R$1.4 billion. There is a performance bond pledged by the Company for possible reparations for damages caused (“Urban Damage Civil Inquiry”).this lawsuit in the amount of R$1.4 billion.
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As publicly announced by the Company on July 9, 2020, Braskem received a letter from the plaintiffs of the ACP of Residents providing an update on the Map of Damage Sectors and Priority Action Lines by the Civil Defense of Maceió ("Civil Defense Map"), which included additional properties in the districts of Mutange, Bom Parto, Pinheiro and Bebedouro in the City of Maceió, in the State of Alagoas, that need to be vacated. After further negotiation and to ensure the safety of the residents in the region, the parties agreed to an amendment to the previous agreement to include additional properties to be vacated in the districts of Mutange, Bom Parto, Pinheiro and Bebedouro, in the City of Maceió, State of Alagoas, in connection with the PCF, as publicly announced by the Company on July 15, 2020. The amendment was ratified by the Court.
In September 2020, specialized and independent technical studies commissioned by the Company and carried out by internationally recognized entities (the “Studies”) were concluded. The Studies presented the potential impacts from the geological event on the surface of the region, bringing an analysis of scenarios in the short and long terms, which included, among other, the areas identified by the Civil Defense Map of June 2020. The Studies were submitted to the competent Authorities for definition of possible actions to be taken under mutual agreement. Given the update of the Civil Defense Map, in September 2020, the Company and the Authorities agreed to include additional properties in the Financial Compensation and Support for Relocation Program (“PCF”), with the execution of the Instrument of Resolutions in October 2020Regarding the mine closure planning, with the National Mining Agency (“ANM”) authorization, Braskem has been implementing actions consisting of backfilling four salt wells with solid material, a process that is expected to take three years, and conventional closure and monitoring of our remaining salt wells. These actions were defined based on the recommendations of studies carried out by independent institutions and nationally and internationally recognized experts, which have been shared with ANM.
On November 26, 2020, we became aware of an ANM letter - Ofício nº 116/2020/GER-AL (“ANM Letter”) determining the closure of the mine including the backfilling with solid material of a number of additional salt wells, as informed to the market. For the implementation of the measures defined by ANM and taking into account the preliminary information that we obtained to date we estimated approximately R$3.0 billion in costs and expenses in addition to the amounts already recorded. Such incremental costs and expenses, if confirmed, would be incurred in the long term due to the complexity of the technical aspects. Our actual costs may be materially different than this preliminary estimate based on a variety of factors, including, but not limited to, the result of the monitoring and backfilling actions of the wells, potential future determinations by ANM, unforeseen technical difficulties or costs, or other factors. Braskem presented an appeal against such decision with a request for reconsideration and for a motion to stay.
On December 11, 2020, the Civil Defense of Maceió updated the Map of Sectors of Damage and Priority Action Lines to consider, among others, most of the areas with potential future impacts on the surface in the long term as provided in the Studies.
On December 30, 2020, the Company was informed that the requested order to stay was granted by ANM, suspending the effects of the ANM Letter until further technical evaluation of the appeal and of the motion for reconsideration. Considering this decision, the above indicated additional provision (R$3.0 billion) was not necessary.
On December 30, 2020, Braskem and plaintiffs of the ACP of Residents signed a second amendmentOther individual actions: Indemnifications related to the first agreementimpacts of January 3, 2020 ("Agreement to Compensate Residents"), by means of which the Parties agreed to terminate the ACP of Residents upon: (i) thesubsidence and relocation of residents of additional areas defined by both the most recent version of the Civil Defense Map and the Studies and their inclusion in PCF; (ii) the creation of a technical group with the objective of monitoring the geological event and studying the areas adjacent to the Civil Defense Map for a period of five years; (iii) the transfer of an additional R$1 billion to a bank account of Braskem specifically for funding the PCF; and (iv) the reduction of the surety bond already presented by Braskem to the Court, as Material Fact disclosed on January 3, 2020, by R$200 million to the total reduced amount of approximately R$1.8 billion. The Agreement to Compensate Residents was ratified by Court January 6, 2021, with the termination of the ACP of Residents.
Also on December 30, 2020, Braskem and the Federal Prosecutor’s Office (Ministério Público Federalaffected:), with the State of Alagoas Prosecutor’s Office (Ministério Público do Estado de Alagoas) as an intervening party, entered into an agreement to terminate the ACP Socio-environmental against the Company ("Agreement for Socio-environmental Remediation").
According to the Agreement for Socio-environmental Remediation, the Company commits, primarily, to (i) adopt the necessary measures to stabilize the cavities and monitor the soil; (ii) repair, mitigate or compensate potential environmental impacts and damages resulting from the mining activities (salt extraction) in the city of Maceió, defined after the conclusion of the Environmental Diagnosis, to be conducted by a specialized and independent company; and (iii) repair, mitigate or compensate for potential socio-urbanistic impacts and damages resulting from mining activities (salt extraction) in the city of Maceió, as detailed below.
(i) For the stabilization of the cavities and monitoring of the soil, the Company will continue with the implementation of the measures of the mine closure planning presented by Braskem to ANM and subject to its approval.
(ii) With respect to potential environmental impacts and damagesresulting from the salt extraction activities in the city of Maceió an well-known expert and independent company was engaged to assess and recommend measures for repairment, mitigation or compensation of the environmental impacts that may be identified as a result of the salt extraction activities in the city of Maceió. After the completion of such study, the Company will implement and fund the potential measures recommended by such study with the previous accordance of the Federal Prosecutor’s Office (Ministério Público Federal).
(iii) With respect to socio-urbanistic impacts and damagesresulting from the salt extraction activities in the city of Maceió, the Company will allocate the total amount of R$1.28 billion to implement actions and measures in the vacated areas, and actions relating urban mobility and social compensation.
Additionally, the Company and the Federal Prosecutor’s Office (Ministério Público Federal), agreed: (i) to allocate the additional amount of R$300 million for social damages and collective moral damages indemnification and for eventual contingencies related to actions in the vacated areas and urban mobility actions; (ii) with the constitution of a secured interest on certain of the Company's assets in the amount of R$2.8 billion to replace the surety bond previously presented by Braskem to the Court in the amount of R$1 billion, as Material Fact disclosed on January 3, 2020; and (iii) to engage specialized consultants to support the definition of the measures established in the Agreement for Socio-environmental Remediation and to update the socio-environmental compliance program of the Company.
The Agreement for Socio-environmental Remediation was ratified by Court on January 6, 2021, resulting in the termination of the ACP Socio-Environmental claim against Braskem, and the same shall happen to related civil inquiries, including the Urban Damage Civil Inquiry.
The actions to repair, mitigate or offset potential environmental impacts and damages, as provided for in the Agreement for Socio-environmental Remediation, to be financed by Braskem, will be defined after the conclusion of the Environmental Diagnosis, to be conducted by a specialized and independent company. At this time, it is impossible to predict the outcome of these Environmental Diagnosis studies or their potential implications for additional disbursements relating to the amounts already provisioned by the Company. Furthermore, the Agreement for Socio-environmental Remediation sets forth the potential adherence by other parties, including the municipality of Maceió, which is under negotiation and will continue over the coming months. To date, the Company cannot predict the results of any discussions or any of their associated costs.
Other aspects relating to the settlement agreements are the uncertainties relating to the geological phenomenon in Maceió, which include: actions to close and monitor the wells, future studies by experts, modifications relating to the dynamics of the geological event, implementation of the relocation plan for risk areas, individual lawsuits and demands by public service concessionaires (water, electric power, natural gas, telecommunication, etc).
The Company will keep the market informed of material developments concerning the environmental impact study and will continue with the monitoring of the region, following the dynamics of the geological phenomenon.
In February 2021, ANM granted our motion requesting that ANM reconsider its order directing the implementation of additional measures for the mine closure plan proposed by the Company. ANM’s decision maintained the implementation of the measures contemplated in the mine closure plan originally proposed by the Company, for which the amount of R$1.6 billion had already been provisioned. Lastly, considering that the mine closure plan is a dynamic process with complex execution, ANM will continue to oversee the results of the measures that are being taken by the Company for closing and monitoring the mine and, accordingly, further evaluations, requirements and provisions may be necessary in the future.
The Company is implementing all the actions approved by ANM. The provisions are based on current estimates and assumptions and may be updated in the future due to new facts and circumstances, including: changes in execution time and the extension and way of action plans execution; the conclusion of current and future studies that indicate recommendations of experts, and other new developments on the topic.
On February 2, 2021 the Company was notified of a preliminary injunction requested by the Brazilian Company of Urban Trains (Companhia Brasileira de Trens – CBTU) to maintain the terms of the cooperation agreement previously entered into by the parties. The request was denied in the first and second instances, given the fulfillment of the obligations undertaken by Braskem. On February 24, CBTU presented an amendment to the preliminary injunction to claim the payment of damages in the amount of R$222.1 million, as well as obligations to do, including the construction of a new rail line to substitute the stretch that passes through the vacated area. CBTU attributes to the claim the approximate amount of R$1.3 billion. No judicial deposit or any other type of guarantee has been made. Our management, supported by the opinion of our external legal counsel, classifies the probability of loss in this case as possible.
As of December 31, 2020,2023, Braskem was a defendant in several individual claims, that, in aggregate, involveinvolved the amount of approximately R$573 million,1.4 billion, filed by individuals in Brazil and abroad, seeking the payment of indemnifications directly or indirectly related to the geological event in Maceió.
Administrative Proceeding: Tax Assessment Notice issued by the Environment Institute of Alagoas State (“IMA”)
On December 4, 2023, the Environment Institute of Alagoas State (“IMA”) issued a fine of R$70 million to the Company due to the alleged environmental degradation resulting from the soil displacement in the region where the mining front is closed in the municipality of Maceió. Considering that in 2019 Braskem had already been fined for the same event and legal grounds, a defense to the tax assessment notice was filed for bis in idem. The original tax assessment notice of 2019 was closed with the signature of the Consent Decree (TAC) on December 23, 2023.
Instrument of Global Agreement with the Municipality of Maceió:
On July 21, 2023, it was ratified a Global Agreement with the Municipality of Maceió, which establishes, among other things: (a) payment of R$1.7 billion as indemnity, compensation and full reimbursement for any property and non-property damages caused to the Municipality of Maceió; (b) adherence of the Municipality of Maceió to the terms of the Socio-environmental Agreement, including the Social Actions Plan (PAS).
Parliamentary Inquiry Commission (“CPI”):
On December 13, 2023, the Federal Senate established a Parliamentary Inquiry Commission (“CPI”) regarding the geological event in Alagoas. The Company has been monitoring the matter.
Federal Police Investigation:
An investigation has been carried out under secrecy by the Federal Police in Alagoas for around four years. In December 2023, the Federal Police conducted search and seizure of documents under this investigation, named Salt Tears Operation. In this sense, we inform that it is committed to fulfilling alland has always been at the disposal of its obligations under the agreementsauthorities and that it has signed and to a continuous dialogue withbeen providing all the authorities and the community in order to support measures that may guarantee the safety and well-being of those involved in the event. For more information related to Alagoas – Mining Activities, see note 26 to our audited consolidated financial statements included elsewhere in this annual report.salt mining during the investigation.
Dividends and Dividend Policy
Payment of Dividends
Our dividend distribution policy has historically included the distribution of periodic dividends, based on annual balance sheets approved by our board of directors. When we pay dividends on an annual basis, they are declared at our annual shareholders’ meeting, which we are required by the Brazilian Corporate Law and our by-laws to hold by April 30 of each year. When we declare dividends, we are generally required to pay them within 60 days of declaring them unless the shareholders’ resolution establishes another payment date. In any event, ifIf we declare dividends, we must pay them by the end of the fiscal year for which they are declared. Any holder of record of shares at the time that a dividend is declared is entitled to receive dividends.dividends, unless another record date is approved. Our payment of annual dividends is based on our audited financial statements prepared for our preceding fiscal year. Pursuant to Brazilian Corporate Law, our by-laws and our dividend distribution policy, we have historically distributed annual dividends (except in years in which we have not had Adjusted Net Income or our management has informed the annual shareholders’ meeting that such payment is incompatible with our financial condition).
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Our Finance and Investments Committee will review, prior to the review by our board of directors, any management proposal regarding the distribution of dividends or interest on capital stock.
Our board of directors may declare interim dividends based on the accrued profits recorded or the realized profits in our annual or semi-annualinterim financial statements approved by our common shareholders.statements. In addition, we may pay dividends approved by our board of directors from net income based on our unaudited quarterlyinterim financial statements. TheseWe may pay dividends based on quarterly interim financial statements, provided that the sum of the dividends maypaid in each semester does not exceed the amounts included in our capital reserve accounts. We may set off any payment of interim dividends against the amount of the mandatory distributable amount for the year in which the interim dividends were paid.
The following table sets forth the dividends and/or interest attributable to shareholders’ equity paid to holders of our common shares, class “A” preferred shares and “class B” preferred shares since January 1, 20182020 in reais and in U.S. dollars translated from reais at the commercial market selling rate in effect as of their respective payment date.
Nominal Brazilian Currency per | US$ equivalent per | Nominal Brazilian Currency per | US$ equivalent per | |||||||||||
Year | Payment Date | Common | Class A | Class B | Common | Class A | Class B | Payment Date | Common | Class A | Class B | Common | Class A | Class B |
2018 | December 30,2019 | 0.84 | 0.61 | 0.21 | 0.15 | |||||||||
2021 | May 2, 2022 | 1.7 | — | 0.33 | — | |||||||||
2021 | December 20, 2021 | 7.54 | 0.61 | 1.32 | 0.11 |
The following discussion summarizes the principal provisionsBefore any allocation of thedividends is made, 5% of Adjusted Net Income is allocated in accordance with Brazilian Corporate Law and our by-laws relating to the legal reserve, subject to the limits established in Brazilian Corporate Law. Our shareholders will be entitled to receive as mandatory dividend 25% of the Adjusted Net Income for the fiscal year, in accordance with Article 202 of Brazilian Corporate Law, except in a year in which our management has informed the annual shareholders’ meeting that such payment is incompatible with our financial condition, in which case such retained amount shall be allocated to a special reserve and distributed as soon as our financial condition permits unless it is absorbed by subsequent losses.
Dividends are allocated to preferred shares as follows: (i) class A and class B preferred shares have the same priority in the distribution, in each fiscal year, of non-cumulative dividends corresponding to 6% of their unit value (as defined below); (ii) common shares are entitled to dividends only after payment of the priority dividend referred to in item (i) above; (iii) only common shares and class A preferred shares participate in the distribution of shares resulting from the incorporation of reserves into capital; and (iv) the “unit value” of shares is calculated by dividing the capital by the total outstanding shares (considering, for such effect, the total shares issued by the Company, including shares held in treasury).
The value of the priority dividend is calculated for the purposes of the mandatory dividend, but it is not limited by it, in accordance with Article 203 of Brazilian Corporate Law. Therefore, the priority dividend must be paid in full even if it is greater than the mandatory dividend, being limited only by the amount of net profit eligible for distribution.
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After payment of the priority dividend, if there is any remaining dividend to be distributed (mandatory and/or complementary), the remaining amount of the dividend will be allocated successively as follows: (i) upon payment to the common shares of a dividend up to the limit of the priority dividend, i.e., upon payment to each common share of up to 6% of the unit value (as defined above) of the shares; and (ii) if there is still an amount remaining, upon payment to the common shares and class A preferred shares, under equal condition, so that each common share or class A preferred share receives the same dividend. Class B preferred shares do not participate in the distribution of remaining amounts after payment of the priority dividend.
The annual shareholders meeting is responsible for considering and voting on the allocation of the Company’s net profit for the year, determined annually based on the audited financial statements, which must be held within the four months following the end of the fiscal year, based on proposal of our management. The Company may, as decided by the board of directors, declare interim dividends, as described above, subject to certain conditions established in section 5.2 of our dividend policy, as referred to above, including the requirement that a proposal for complementary dividend distribution must take into account the impact of such distribution on the Net Debt/EBITDA ratio of the Company measured in U.S. dollars and that such ratio, after any distribution, may not be greater than 2.5 times in the year of the distribution and in the two subsequent years, based on long- term projections of the Company, considering the risks of theses projection being lower. Without prejudice to the aforementioned, the Net Debt/EBITDA ratio may remain temporarily above 2.5 times during a period in which the Company is making strategic investments that create value for shareholders and there is an expectation of generating future cash flow that contributes to this leverage ratio returning to a level not greater than 2.5 times. In this scenario, the management of the Company will not make a proposal for complementary distributions.
The Company also may, by decision of the board of directors, pay interest attributableon capital payable to its shareholders, in accordance with Article 9, paragraph 7, of Brazilian Law No. 9,249/95 and the pertinent legislation.
Unless decided otherwise at the shareholders’ equity.meeting, the interim dividends and interest on capital payable (the latter based on the amount net of withholding income tax) are calculated towards the priority dividend and the mandatory dividend.
Pursuant to the Brazilian Corporate Law, dividend entitlements lapse after three years from the date their payment was due.
Calculation of Adjusted Net ProfitsIncome
At each annual shareholders’ meeting, our board of directors is required to recommend how to allocate our net profits for the preceding fiscal year, which recommendation our board of executive officers initially submits to our board of directors for approval. This allocation is subject to approval by our common shareholders. The Brazilian Corporate Law defines “net profits” for any fiscal year as our net income after income taxes for that fiscal year, net of any accumulated losses from prior fiscal years and any amounts allocated to employees’ participation in our net profits in that fiscal year. Under the Brazilian Corporate Law, our adjusted net profitsAdjusted Net Income available for distribution areis equal to our net profits in any fiscal year, reduced by amounts allocated to our legal reserve and other applicable reserves, and increased by any reversals of reserves that we constituted in prior years.
Reserve Accounts
Under the Brazilian Corporate Law and our by-laws, we are required to maintain a legal reserve. In addition, we are permitted by the Brazilian Corporate Law to establish the following discretionary reserves:
Allocations to each of these reserves (other than the legal reserve) are subject to approval by our common shareholders voting at our annual shareholders’ meeting.
Legal Reserve Account
Under the Brazilian Corporate Law and our by-laws, we must allocate 5% of our net profits for each fiscal year to our legal reserve until the aggregate amount of our legal reserve equals 20% of our paid-in capital. However, we are not required to make any allocations to our legal reserve in a fiscal year in which our legal reserve, when added to our other reserves, exceeds 30% of our shareholders’ equity. At the end of the fiscal year 2020, the Company used the balance of this reserve to absorb the adjusted loss in 2020.
Dividend Preference of Preferred Shares
Under our by-laws, our preferred shareholders are entitled to a Minimum Preferred Dividend, equal to 6% of the bookunit value (as defined above) of such shares, before dividends may be paid to our common shareholders. Distributions of dividends in any year are made:
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· | first, to the holders of preferred shares, up to the amount of the Minimum Preferred Dividend for such year; |
· | then, to the holders of common shares, until the amount distributed in respect of each common share is equal to the amount distributed in respect of each preferred share; and |
· | thereafter, to the holders of our common shares and our class A preferred shares on a pro rata basis. |
Our class B preferred shareholders are not entitled to receive any additional dividend amounts after they have received the preferential dividend.Minimum Preferred Dividend. If the Minimum Preferred Dividend is not paid for a period of three years, holders of preferred shares will be entitled to full voting rights.rights until the Minimum Preferred Dividend is paid.
Mandatory Distributions
As permitted by the Brazilian Corporate Law, our by-laws specify that no less than 25% of our adjusted net profitsAdjusted Net Income for each fiscal year must be distributed to shareholders as dividends or interest attributable to shareholders’ equity. We refer to this amount as the mandatory distributable amount.
Under the Brazilian Corporate Law, the amount by which the mandatory distributable amount exceeds the “realized” portion of net income for any particular year may be allocated to the unrealized profit reserve, and the mandatory distribution may be limited to the “realized” portion of net income. The “realized” portion of net income is the amount by which our net income exceeds the sum of (1) our net positive results, if any, from the equity method of accounting for earnings and losses of our subsidiaries and certain associated companies, and (2) the profits, gains or income obtained on transactions maturing after the end of the following fiscal year. As amounts allocated to the unrealized profit reserve are realized in subsequent years, and if not absorbed by subsequent losses, such amounts must be added to the dividend payment relating to the year of realization.
The Brazilian Corporate Law permits us to suspend the mandatory distribution if our board of directors reports to our annual shareholders’ meeting that the distribution would be incompatible with our financial condition at that time, provided that this does not affect the payment of the Minimum Preferred Dividend. Our fiscal council must opine on any suspension of the mandatory distribution. In addition, our management must report the reasons of any suspension of the mandatory distribution to the CVM. We must allocate net profits not distributed by us as a result of a suspension to a special reserve and, if not absorbed by subsequent losses, we must distribute these amounts as soon as our financial condition permits. In case our profits reserves, as defined in the Brazilian Corporate Law, exceed our share capital, the excess must be credited to shareholders’ equity or used for the payment of distributions.
Interest Attributable to Shareholders’Shareholders’ Equity
Brazilian companies, including us, are permitted to pay interest attributable to shareholders’ equity as an alternative form of payment of dividends to ourtheir shareholders. These payments may be deducted when calculating Brazilian income tax and social contribution tax. The interest rate applied to these distributions generally cannot exceed the TLPlong-term interest rate (Taxa de Juros de Longo Prazo – TJLP) for the applicable period. The amount of interest paid that we can deduct for tax purposes cannot exceed the greater of:
· | 50% of our net income (after the deduction of the provision for social contribution tax and before the deduction of the provision for corporate income tax) before taking into account any such distribution for the period for which the payment is made; and |
· | 50% of the sum of our retained earnings and profit reserves. |
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Any payment of interest attributable to shareholders’ equity to holders of common shares, preferred shares or ADSs, whether or not they are Brazilian residents, is subject to Brazilian withholding tax at the rate of 15%, except that a 25% withholding tax rate applies if the recipient is a resident of a tax haven jurisdiction. A tax haven jurisdiction is a country (1)(i) that does not impose income tax or whose income tax rate is lower than 20% or (2)(ii) which does not permit disclosure of the identity of shareholders of entities organized under its jurisdiction. See “Item 10. Additional Information—Taxation—Brazilian Tax Considerations.” Under our by-laws, we may include the amount distributed as interest attributable to shareholders’ equity, net of any withholding tax, as part of the mandatory distributable amount.
Public Tender Offer upon Sale of Control
Pursuant to our by-laws, all of our shares are entitled to tag along rights equivalent to 100% of the price paid in the event of a change of control, subject to certain exceptions set forth in article 12 of our by-laws. Notwithstanding the provisions of our by-laws, pursuant to the Brazilian Corporate Law, our common shares are entitled to tag along rights equivalent to at least 80% of the price paid for such common shares in the event of a change of control.
Significant Changes
Other than as disclosed in this annual report, no significant change has occurred since the date of the audited consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING
Markets for Our Equity Securities
The principal trading market for our common shares, class A preferred shares and class B preferred shares is the B3, where they are traded under the symbols “BRKM3,” “BRKM5” and “BRKM6,” respectively. Our common shares and class A preferred shares began trading on the B3 (formerly the BM&FBOVESPA) on November 11, 1980, and our class B preferred shares began trading on the B3 on August 19, 1983.
On December 21, 1998, ADSs representing our class A preferred shares began trading on the NYSE. Our ADSs are traded under the symbol “BAK.” As of December 31, 2020,2021, there were 14,634,18931,233,303 ADSs outstanding, representing 29,268,37862,466,606 class A preferred shares, or 8.5%23.5% of our outstanding class A preferred shares. Each ADS represents two class A preferred shares.
On October 8, 2003, we listed our class A preferred shares on the LATIBEX, a stock market for Latin American issuers that is quoted in Euros on the Madrid Stock Exchange, under the symbol “XBRK.” Our class A preferred shares are traded on the LATIBEX in lots of one share.
Regulation of Brazilian Securities Markets
The Brazilian securities markets are regulated by the CVM, which has regulatory authority over the stock exchanges and the securities markets generally, the National Monetary Council and the Central Bank, which has, among other powers, licensing authority over brokerage firms and which regulates foreign investment and foreign exchange transactions. The Brazilian securities markets are governed by (1) Law No. 6,385, as amended and supplemented, which is the principal law governing the Brazilian securities markets and which we refer to as the Brazilian Securities Law; (2) the Brazilian Corporate Law; and (3) the regulations issued by the CVM, the National Monetary Council and the Central Bank.
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Trading on the B3
Overview of the B3
In 2000, the Bolsa de Valores de São Paulo S.A. – BVSP (the São Paulo Stock Exchange), or BOVESPA was reorganized through the execution of memoranda of understanding by the Brazilian stock exchanges. Following this reorganization, the BOVESPA was a non-profit entity owned by its member brokerage firms and trading on the BOVESPA was limited to these membermembers brokerage firms and a limited number of authorized nonmembers. Under the memoranda, all securities are now traded only on the BOVESPA, with the exception ofexcept for electronically traded public debt securities and privatization auctions, which are traded on the Rio de Janeiro Stock Exchange.
In August 2007, the BOVESPA underwent a corporate restructuring that resulted in the creation of BOVESPA Holding S.A., a public corporation, whose wholly owned subsidiaries were (1) the BOVESPA, which is responsible for the operations of the stock exchange and the organized over-the-counter markets, and (2) the Brazilian Settlement and Custodial Company (Companhia Brasileira de Liquidação e Custódia), or CBLC, which is responsible for settlement, clearing and depositary services. In the corporate restructuring, all holders of membership certificates of the BOVESPA and of shares of CBLC became shareholders of BOVESPA Holding S.A. As a result of the corporate restructuring, access to the trading and other services rendered by the BOVESPA is not conditioned on stock ownership in BOVESPA Holding S.A. In May 2008, the BOVESPA merged with the Commodities and Futures Exchange (Bolsa de Mercadorias & Futuros) to form the BM&FBOVESPA. In November 2008, the CBLC merged with the BM&FBOVESPA. As a result, the BM&FBOVESPA performed its own settlement, clearing and depositary services.
On March 30, 2017, the BM&FBOVESPA merged with CETIP, a provider of financial services for the organized over-the-counter market, to form the B3 – Brasil Bolsa Balcão S.A., or B3.
Regulation of Foreign Investments
Trading on the B3 by a holder not deemed to be domiciled in Brazil for Brazilian tax and regulatory purposes or a non-Brazilian holder,(a “non-Brazilian holder”) is subject to certain limitations under Brazilian foreign investment regulations. With limited exceptions, non-Brazilian holders may trade on the B3 only in accordance with the requirements of Resolution No. 4,373 of the Brazilian National Monetary Council. Resolution No. 4,373 requires that securities held by non-Brazilian holders be maintained in the custody of, or in deposit accounts with, financial institutions that are authorized by the Brazilian Central Bank and the CVM. In addition, Resolution No. 4,373 requires non-Brazilian holders to restrict their securities trading to transactions on the B3 or qualified over-the-counter markets. With limited exceptions, non-Brazilian holders may not transfer the ownership of investments made under Resolution No. 4,373 to other non-Brazilian holders through private transactions. See “Item
ITEM 10. Additional Information—Exchange Controls” for further information about Resolution 4,373, and “Item 10. Additional Information—Taxation—Brazilian Tax Considerations—Taxation of Gains in Brazil” for a description of certain tax benefits extended to non-Brazilian holders who qualify under Resolution No. 4,373.ADDITIONAL INFORMATION
Description of Our By-laws
The following is a summary of the material provisions of our by-laws and of the Brazilian Corporate Law. In Brazil, a company’s by-laws (estatuto social) is the principal governing document of a corporation (sociedade por ações).
Corporate Purposes
Article 2 of our by-laws establishes our corporate purposes to include:
· | the manufacture, trading, import and export of chemical and petrochemical products and petrochemical derivatives; |
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· | the production, distribution and trading of utilities such as: steam, water, compressed air, industrial gases, as well as the provision of industrial services; |
· | the production, distribution and trading of electricity for its own consumption and that of other companies; |
· | holdings of equity stakes in other companies, pursuant to the Brazilian |
· | the manufacture, distribution, trading, import and export of gasoline, diesel oil, |
· | the transportation, representation and consignment of petrochemical products and by-products, compounds and derivatives, such as polypropylene, polypropylene films, polyethylene, elastomers and their respective manufactured products; |
· | the free lease or loan of assets that are owned or possessed thereby because of a commercial leasing agreement, provided that this is carried out as an ancillary activity to the main corporate purpose of our Company; and |
· | the provision of services related to the activities |
Board of Directors
Under the Brazilian Corporate Law, any matters subject to the approval of our board of directors can be approved by a simple majority of votes of the members present at a duly convened meeting, unless our by-laws otherwise specify. Under our by-laws, our board of directors may only deliberate if a majority of its members are present at a duly convened meeting. Any resolutions of our board of directors may be approved by the affirmative vote of a majority of the members present at the meeting; provided, however, that certain matters may only be approved by mutual agreement between the parties under the Braskem S.A. Shareholders’ Agreement. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders Agreements—Braskem S.A. Shareholders’ Agreement.” The majority of the members of our board of directors are elected by the Novonor Group.Novonor. However, at least 20% of the members of our board of directors must be independent directors. In addition, any director appointed by a shareholder pursuant to a shareholdersshareholder’s agreement is bound by the terms of such agreement. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders Agreements.” The members of our board of directors are elected at general meetings of shareholders for concurrent two-year terms. Our by-laws do not require the members of our board of directors to be a resident in Brazil or become our shareholders. The Brazilian Corporate Law requires each of our executive officers to be residents of Brazil. Under our by-laws, the shareholders of our common shares approve the aggregate compensation payable to our directors, executive officers, and members of our fiscal council. Subject to this approval, our board of directors establishes the compensation of its members and of our executive officers. See “Item 6. Directors, Senior Management and Employees—Compensation.” Neither the Brazilian Corporate Law nor our by-laws establish any mandatory retirement age for our directors or executive officers.
Compliance
Our by-laws provide for a Compliance and Audit Committee comprised of at leastof: (i) three (3) independent members of our board of directors whichunder the terms of the Company’s own policy; and (ii) two (2) members that are appointed by ournot also members of the board of directors.directors, and who must be independent members, under the terms of CVM Resolution No. 23/21, or any other regulation that may replace it, and will be chosen by the board of directors among those nominees indicated on a list to be submitted by the Chairman of the board of directors, prepared by a specialized company with recognized experience. Shareholders are not allowed to nominate members. In addition, our compliance department, led by our Chief Compliance Officer, has a full-line report directly to the Compliance and Audit Committee and a dotted-line report to the CEO of our Company. See “Item 6—Directors, Senior Management and Employees—Directors and Senior Management—Board Committees—Compliance Committee.”
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Share Capital
Under the Brazilian Corporate Law and under our by-laws, the number of issued and outstanding non-voting shares or shares with limited voting rights, such as our class A preferred shares and class B preferred shares, may not exceed two thirds of total share capital. Each of our common shares entitles its holder to one vote at our shareholders’ meetings. Holders of our common shares are not entitled to any preference in respect of our dividends or other distributions or otherwise in case of our liquidation. Our class A preferred shares and class B preferred shares are non-voting, except in limited circumstances, and have priority over our common shares in the case of our liquidation. See “—Voting rights” rights”for information regarding the voting rights of our preferred shares, “—Liquidation” for information regarding the liquidation preferences of our preferred shares, and “Item 8. Financial Information—Dividends and Dividend Policy—Calculation of Adjusted Net Profits”Income” and “Item 8. Financial Information—Dividends and Dividend Policy—Dividend Preference of Preferred Shares” for information regarding the distribution preferences of our preferred shares.
Shareholders’ Meetings
Under the Brazilian Corporate Law and our by-laws, we must hold an annual shareholders’ meeting by April 30 of each year in order to:
· | approve or reject the management financial plan (prestação de contas) and financial statements approved by our board of directors and prepared by the board of executive |
· | approve or reject the allocation of net profits and distribution of |
· | elect members of our board of directors (upon expiration of their two-year term) and members of our fiscal council, subject to the right of minority shareholders to elect members of our board of directors and our fiscal council; and |
· | approve or reject the annual aggregate compensation of our executive officers and directors, as well as the compensation of the members of the Company’s fiscal council. |
In addition to the annual shareholders’ meetings, holders of our common shares have the power to determine any matters related to changes in our corporate purposes and to pass any resolutions they deem necessary to protect and enhance our development whenever our interests so require, by means of extraordinary shareholders’ meetings.
Under the Brazilian Corporate Law, and our by-laws, the holders of our common shares have the power, among other powers, to vote at shareholders’ meetings to:
· | amend our by-laws; |
· | approve any capital increase in excess of the amount of our authorized capital; |
· | approve any capital |
· | accept or reject the valuation of assets contributed by any of our shareholders in exchange for the issuance of our share capital; |
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· | suspend the rights of any of our shareholders in default of their obligations established by law or by our by-laws; |
· | authorize the issuance of convertible debentures, |
· | approve any reorganization of our legal form or any merger, consolidation or spin-off involving us; |
· | authorize our dissolution and liquidation, the election and dismissal of liquidators appointed in connection with any dissolution or liquidation of our Company, and the examination of the liquidators’ accounts; |
· | participate in a centralized group of companies (as defined under the Brazilian Corporate Law); |
· | approve the aggregate compensation payable to our directors and executive officers; |
· | authorize management to declare us insolvent or bankrupt and to request |
· | elect and substitute members of our board of directors and fiscal council; |
· | modify the number of members on our board of directors; |
· | alter our dividend |
· | authorize the delisting of our shares. |
We convene our shareholders’ meetings, including our annual shareholders’ meeting, by publishing a notice in the Diário Oficial do Estado da Bahia, in at least one additionala newspaper designated by our shareholders with general circulation in Bahia, where we maintain our registered office. OnRecently enacted rules have made publication requirements more flexible and less onerous. As a general rule, on the first call of any meeting, the notice must be published no fewer than three times, beginning at least 1521 calendar days prior to the scheduled meeting date. Under the terms of the deposit agreement governingDue to certain remote voting requirements, we convene our ADR program, we must give the depositary notice of aannual shareholders’ meeting to resolve on matters with regard to which ADS holders have voting rightsmeetings at least 30 days prior to the scheduled meeting date. The notice must contain the meeting’s place, date, time, agenda and, in the case of a proposed amendment to our by-laws, a description of the subject matter of the proposed amendment.
In order for a valid action to be taken at a shareholders’ meeting, shareholders representing at least 25% of our issued and outstanding voting share capital must be present on first call. However, shareholders representing at least two-thirds of our issued and outstanding voting share capital must be present at a shareholders’ meeting called to amend our by-laws. If a quorum is not present, our board of directors may issue a second call by publishing a notice as described above at least eight calendar days prior to the scheduled meeting. The quorum requirements do not apply to a meeting held on the second call, and the shareholders’ meetings may be convened with the presence of shareholders representing any number of shares (subject to the voting requirements for certain matters described below). A shareholder without a right to vote may attend a shareholders’ meeting and take part in the discussion of matters submitted for consideration.
Voting Rights
Under the Brazilian Corporate Law and our by-laws, each of our common shares entitles its holder to one vote at our shareholders’ meetings. Our preferred shares generally do not confer voting rights, except in theunder certain limited circumstances. We may not restrain or deny any voting rights without the consent of the majority of the shares affected. Whenever the shares of any class of share capital are entitled to vote, each share is entitled to one vote.
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Holders of our preferred shares are not entitled to vote on any matter, except (i) with respect to the election of one member of our board of directors by (1) preferred shareholders holding at least 10% of our total share capital, or, (2) if no group of common or preferred shareholders meets the thresholds described above, shareholders holding at least 10% of our total share capital, and (ii) in the limited circumstances described above and as provided below. Preferred shareholders are also entitled to appoint one member of the fiscal council and the respective alternate.
The Brazilian Corporate Law and our by-laws provide that our preferred shares will acquire unrestricted voting rights after the third consecutive fiscal year that we fail to pay the minimum dividends to which our preferred shares are entitled. This voting right will continue until the Minimum Preferred Dividend is paid in full. Our preferred shareholders will also obtain unrestricted voting rights if we enter into a liquidation process.
Liquidation
We may be liquidated in accordance with the provisions of Brazilian law. In the event of our extrajudicial liquidation, a shareholders’ meeting will determine the manner of our liquidation, appoint our liquidator and our fiscal council that will function during the liquidation period.
Upon our liquidation, our preferred shares have a liquidation preference over our common shares in respect of the distribution of our net assets. In the event of our liquidation, the assets available for distribution to our shareholders would be distributed first to our preferred shareholders in an amount equal to their pro rata share of our legal capital, prior to making any distributions to our common shareholders. If the assets to be so distributed are insufficient to fully compensate our preferred shareholders for their legal capital, each of our preferred shareholders would receive a pro rata amount (based on their pro rata share of our legal capital, excluding our common shares in such calculation) of any assets available for distribution.
Preemptive Rights
Under the Brazilian Corporate Law, each of our common and class A preferred shareholders has a general preemptive right to subscribe for our shares or securities convertible into our shares in any capital increase, in proportion to the number of our shares held by such shareholder. In accordance with the applicable legislation and our by-laws, the holders of class B preferred shares (which are special shares paid up with resources provided for in certain tax incentive legislation), the holders of such class B preferred shares do not have preemptive rights in case of any capital increase.increases resulting from capitalization of profits or reserves (bonus shares). In the event of a capital increase that would maintain or increase the proportion of our capital represented by our class A preferred shares, holders of our class A preferred shares would have preemptive rights to subscribe to newly issued class A preferred shares only. In the event of a capital increase that would reduce the proportion of our capital represented by our class A preferred shares, holders of such preferred shares would have preemptive rights to subscribe to any new class A preferred shares in proportion to the number of our shares that they hold, and to our common shares only to the extent necessary to prevent dilution of their interests in our total capital.
Under our by-laws, except when issuing voting shares or securities convertible into voting shares, our board of directors or our shareholders, as the case may be, may decide to reduce the term of preemptive rights or not to extend preemptive rights to our shareholders with respect to any issuance of our non-voting shares, debentures convertible into our shares or warrants made in connection with a public exchange made to acquire control of another company or in connection with a public offering or through a stock exchange. The preemptive rights are transferable and must be exercised within a period of at least 30 days following the publication of notice of the issuance of shares or securities convertible into our shares. Holders of the ADSs may not be able to exercise the preemptive rights relating to our class A preferred shares underlying their ADSs unless a registration statement under the Securities Act, is effective with respect to those rights and the securities to which the rights relate or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights or to take any other action to make preemptive rights available to holders of the ADSs, and we may not file any such registration statement.
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Redemption, Amortization and Tender Offers and Rights of Withdrawal
Our by-laws or our shareholders at a shareholders’ meeting may authorize us to use our profits or reserves to redeem or amortize our shares in accordance with conditions and procedures established for such redemption or amortization. The Brazilian Corporate Law defines “redemption” (resgate de ações) as the payment of the value of the shares in order to permanently remove such shares from circulation, with or without a corresponding reduction of our share capital. The Brazilian Corporate Law defines “amortization” (amortização) as the distribution to the shareholders, without a corresponding capital reduction, of amounts that they would otherwise receive if we were liquidated. If an amortization distribution has been paid prior to our liquidation, then upon our liquidation, the shareholders who did not receive an amortization distribution will have a preference equal to the amount of the amortization distribution in the distribution of our capital.
The Brazilian Corporate Law authorizes us, by means of a decision made at our shareholders’ meeting, to redeem shares not held by our controlling shareholders,shareholder, if, after a tender offer effected as a consequence of delisting, or a substantial reduction in the liquidity of our shares, our controlling shareholders increase theirshareholder increases its participation in our total share capital to more than 95%. The redemption price in such case would be the same price paid for our shares in any such tender offer.
Rights of Withdrawal
The Brazilian Corporate Law provides that, in certain limited circumstances, a dissenting shareholder may withdraw its equity interest from our Company and be reimbursed by us for the book value of our common or preferred shares that it then holds.
This right of withdrawal may be exercised by the holders of the adversely affected common or preferred shares if we decide:
· | to create a new class of our preferred shares with greater privileges than the existing classes of our preferred shares; |
· | to increase an existing class of our preferred shares relative to the other classes of our preferred shares (unless such actions are provided for or authorized by our by-laws); or |
· | to modify a preference, privilege or condition of redemption or amortization conferred on one or more classes of our preferred shares. |
In addition, holders of our common and preferred shares may exercise their right of withdrawal if we decide to undertake any of the following actions:
· | to merge with another company or to consolidate with another company in a transaction in which our Company is not the surviving entity; |
· | to transfer all of our shares to another company or to acquire all of the shares of another company in exchange for their or our shares (“incorporação de açõ |
· | to participate in a centralized group of companies as defined under the Brazilian Corporate Law; |
· | to reduce the mandatory distribution of dividends; |
· | to change our corporate purposes; or |
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· | to spin-off a portion of our Company. |
Only shareholders who own shares on the date of publication of the first notice convening the relevant shareholders’ meeting or the press release concerning the relevant shareholders’ meeting is published, whichever is earlier, will be entitled to withdrawal rights.
Shareholders will not be entitled to this right of withdrawal if the shares of the entity resulting from a merger, incorporation, consolidation of our Company or participation of our Company in a group of companies have minimala minimum level of market liquidity and are dispersed among a sufficient number of shareholders. For this purpose, shares that are part of general indices representative of portfolios of securities traded in Brazil or abroad are considered liquid, and sufficient dispersion will exist if the controlling shareholder holds less than half of the class and type of the outstanding shares. In case of a spin-off, the right of withdrawal will only exist if there is a significant change in the corporate purpose or a reduction in the mandatory dividend.
The redemption of shares arising out of the exercise of any withdrawal rights would be made at book value per share, determined on the basis of their most recent audited balance sheet approved by our dissenting shareholders. However, if the shareholders’ meeting approving the action that gave rise to withdrawal rights occurred more than 60 days after the date of the most recent approved audited balance sheet, a shareholder may demand that its shares be valued on the basis of a balance sheet prepared specifically for this purpose. The right of withdrawal lapses 30 days after the date of publication of the minutes of the shareholders’ meeting that approved one of the matters described above. Our shareholders may reconsider any resolution giving rise to withdrawal rights within 10 days following the expiration date for such rights if we believe that the withdrawal of shares of dissenting shareholders would jeopardize our financial stability.
Any shareholder who does not exercise it withdrawal rights within the prescribed period will lose that right.
Disclosures of Share Ownership
Brazilian regulations require that (1) each of(i) our controlling shareholders,shareholder, directly or indirectly, (2)(ii) shareholders who have elected members of our board of directors or fiscal council, and (3)(iii) any person or group of persons representing a person that has directly or indirectly acquired or sold an interest that exceeds upwards or downwards, the threshold of 5%, 10%, 15%, and so on, of the total numberany class or type of shares of our shares of any type or classcapital stock to disclose its or their share ownership or divestment to the CVM and to the B3.São Paulo Stock Exchange (Brasil, Bolsa, Balcão – B3).
In addition, members of the board of directors, executive officers, members of the fiscal council or technical/advisory bodies created pursuant to the by-laws must also inform the ownership or negotiation of the shares issued by the Company.
Form and Transfer
Our preferred shares and common shares are held in book-entry form, registered in the name of each shareholder or its nominee. The transfer of our shares is governed by Article 35 of the Brazilian Corporate Law, which provides that a transfer of shares is effected by our transfer agent, Banco Itaú S.A., by an entry made by the transfer agent in its books, upon presentation of valid written share transfer instructions to us by a transferor or its representative. When preferred shares or common shares are acquired or sold on a Brazilian stock exchange, the transfer is effected on the records of our transfer agent by a representative of a brokerage firm or the stock exchange’s clearing system. The transfer agent also performs all the services of safe-keeping of our shares. Transfers of our shares by a non-Brazilian investor are made in the same manner and are executed on the investor’s behalf by the investor’s local agent. If the original investment was registered with the Brazilian Central Bank pursuant to foreign investment regulations, the non-Brazilian investor is also required to amend, if necessary, through its local agent, the electronic certificate of registration to reflect the new ownership.
The B3 operates a central clearing system. A holder of our shares may choose, at its discretion, to participate in this system, and all shares that such shareholder elects to be put into the clearing system are deposited in custody with the clearing and settlement chamber of the B3 (through a Brazilian institution that is duly authorized to operate by the Brazilian Central Bank and maintains a clearing account with the clearing and settlement chamber of the B3). Shares subject to the custody of the clearing and settlement chamber of the B3 are noted as such in our registry of shareholders. Each participating shareholder will, in turn, be registered in the register of the clearing and settlement chamber of the B3 and will be treated in the same manner as shareholders registered in our books.
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Material Contracts
We have not entered into any material contracts, other than those described elsewhere in this annual report or entered into in the ordinary course of business. For additional information about material agreements that we have recently entered into, please see “Item 5. Operating and Financial Review and Prospects––Prospects—Recent Developments” and “Item 5. Operating and Financial Review and Prospects—“—Liquidity and Capital Resources.Resources” and “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.”
Exchange Controls
There are no restrictions on ownership or voting of our capital stock by individuals or legal entities domiciled outside Brazil. However, the right to convert dividend payments, interest on shareholders’ equity payments and proceeds from the sale of our share capital into foreign currency and to remit such amounts outside Brazil is subject to exchange control restrictionsprocedures under foreign investment legislation and foreign exchange regulations, which generally require, among other things, the registration of the relevant investment with the Brazilian Central Bank and/or the CVM, as the case may be.
Investments in our class A preferred shares by (1)(i) a holder not deemed to be domiciled in Brazil for Brazilian tax purposes, (2)(ii) a non-Brazilian holder who is registered with the CVM under Annex I of Resolution No. 4,373 or a 4,373 Holder, or (3)(iii) the depositary,Depositary (as defined herein), are eligible for registration with the Brazilian Central Bank. This registration (the amount so registered is referred to as registered capital) allows the remittance outside Brazil of foreign currency, converted at the commercial market rate, acquired with the proceeds of distributions on, and amounts realized through, dispositions of our class A preferred shares.
Depositary Receipts (Annex II of Resolution No. 4,373)
Annex II of Resolution No. 4,373 of the National Monetary Council, as amended, provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. The ADS program was approved by the Central Bank and the CVM prior to the issuance of the ADSs. Accordingly, as a general rule, the proceeds from the sale of ADSs by non-Brazilian resident holders of ADSs outside Brazil are not subject to Brazilian foreign investment controls, and holders of the ADSs who are not domiciled in a favorable tax haven jurisdiction are entitled to favorable tax treatment. See “—Taxation—Brazilian Tax Considerations.”
We pay dividends and other cash distributions with respect to our class A preferred shares in reais. We have obtained an electronic certificate of foreign capital registration from the Central Bank in the name of the depositary with respect to our ADSs to be maintained by the custodian. Pursuant to this registration, the custodian is able to convert dividends and other distributions with respect to our class A preferred shares represented by ADRs into foreign currency and remit the proceeds outside Brazil to the depositary so that the depositary may distribute these proceeds to the holders of record of the ADSs.
Foreign Direct Investment and Portfolio Investment
Investors (individuals, legal entities, mutual funds, and other collective investment entities) domiciled, residing or headquartered outside Brazil may register their investments in our capital stock as foreign portfolio investments under Annex I of Resolution No. 4,373 (described below) or as foreign direct investments under Law No. 4,131 (described below). Registration under Annex I of Resolution No. 4,373 or Law No. 4,131 generally enables the conversion of dividends, other distributions and sales proceeds received in connection with registered investments into foreign currency and the remittance of such amounts outside Brazil.
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Registration under Annex I of Resolution No. 4,373 affords favorable tax treatment to non-Brazilian portfolio investors who are not resident in favorable tax jurisdictions (países com tributação favorecida) pursuant to articles 24, 24-A and 24-B of Law no. 9,430/96. See “—Taxation—Brazilian Tax Considerations.”
Annex I of Resolution No. 4,373
All investments made by a non-Brazilian investor under Annex I of Resolution No. 4,373 are subject to electronic registration with the Brazilian Central Bank. Such registration permits the conversion of dividend payments, payments of interest on shareholders’ equity and proceeds from the sale of our capital stock into foreign currency and the remission of such amounts outside Brazil.
Under Annex I of Resolution No. 4,373, non-Brazilian investors registered with the CVM may invest in almost all financial assets and engage in almost all transactions available to Brazilian investors in the Brazilian financial and capital markets without obtaining a separate Central Bank registration for each transaction, provided that certain requirements are fulfilled. Under Annex I of Resolution No. 4,373, the definition of a non-Brazilian investor includes individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered outside Brazil.
Pursuant to Annex I of Resolution No. 4,373, non-Brazilian investors must:
· | appoint at least one representative in Brazil with powers to take action relating to its investments, which must be a financial institution duly authorized by the Central Bank; |
· | appoint an authorized custodian in Brazil for its investments, which must be a financial institution duly authorized by the CVM; |
· | complete the appropriate foreign investor registration forms; |
· | which must be a financial institution duly authorized by the Central |
· | through its representative, register as a non-Brazilian investor with the CVM; |
· | through its representative, register its investments with the Central Bank; and |
· | obtain a taxpayer identification number from the Brazilian federal tax authorities. |
The securities and other financial assets held by a non-Brazilian investor pursuant to Annex I of Resolution No. 4,373 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM, as applicable, or be registered on registration, clearing and custody systems authorized by the Central Bank or by the CVM, as applicable. Subject to limited exceptions provided in the CVM regulation or previous CVM authorization, the trading of securities held under Annex I of Resolution No. 4,373 is restricted to transactions carried out on stock exchanges or through organized over-the-counter markets licensed by the CVM.
The offshore transfer or assignment of the securities or other financial assets held by non-Brazilian investors pursuant to Annex I of Resolution No. 4,373 are prohibited, except for transfers (1) resulting from consolidation, spin-off, merger or merger of shares or occurring upon the death of an investor by operation of law or will; (2) resulting from a corporate reorganization effected abroad, as long as the final beneficiaries and the amount of the assets remain the same, or (3) authorized by the CVM.
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Law No. 4,131
Foreign direct investors under Law No. 4,131 may sell their shares in both private and open market transactions, but these investors will generally be subject to less favorable tax treatment on gains with respect to our class A preferred shares. See “—Taxation—Brazilian Tax Considerations.”
To obtain a certificate of foreign capital registration from the Brazilian Central Bank under Law No. 4,131, a foreign direct investor must:
• register as a foreign direct investor with the Central Bank;
• obtain a taxpayer identification number from the Brazilian tax authorities;
• appoint a tax representative in Brazil; and
• appoint a representative in Brazil for service of process in respect of suits based on the Brazilian Corporate Law.
· | register as a foreign direct investor with the Central Bank; |
· | obtain a taxpayer identification number from the Brazilian tax authorities; |
· | appoint a tax representative in Brazil; and |
· | appoint a representative in Brazil for service of process in respect of suits based on the Brazilian Corporate Law. |
Foreign investors must be registered with the Federal Brazilian Revenue Service pursuant to Normative Instruction 1,683, dated as of December 27, 2016. This registration process is undertaken by the investor’s legal representative in Brazil. Investors that are foreign legal entities are required to report their final individual beneficiaries. Some exceptions apply (e.g., publicly listed corporations).
Taxation
The following summary contains a description of the material Brazilian andcertain U.S. federal income and Brazilian tax consequences of the purchase,acquisition, ownership and disposition of classClass A preferred shares and ADSs, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase Class A preferred shares or ADSs. This summary is not applicable to all categories of investors, some of which may be subject to special rules, and does not address all of the U.S. federal income and Brazilian tax considerations applicable to any such securities.
Thereparticular holder. The summary is at present no incomebased upon the tax treaty betweenlaws of the United States and Brazil and regulations thereunder, all as of the United States.date hereof, and all of which are subject to change.
The description below is not intended to constitute a complete analysisProspective purchasers of allClass A preferred shares and ADSs should consult their own tax advisors about the particular U.S. federal income and Brazilian tax consequences relating to them of the acquisition, ownership and disposition of classClass A preferred shares or ADSs. Prospective purchasers of our class A preferred shares orand ADSs, are advised to consult their ownas well as any state, local and other tax advisors in respect of the consequences that the purchase, ownership or disposition of our class A preferred shares or ADSs might trigger under the laws of Brazil, the United States or any other jurisdiction in light of their particular investment circumstances.may apply to them.
Brazilian Tax Considerations
The following topics summarizes the material Brazilian tax consequences of the acquisition, ownership and disposition of class A preferred shares or ADSs by an individual, entity, trust or organization that is not domiciled or resident in Brazil for purposes of Brazilian taxation and, in the case of a holder of class A preferred shares, which has registered its investment with the Central Bank, or a non-resident holder. The following information is based on the tax laws of Brazil as in effect on the date of this annual report, which are subject to change, with possible retroactive effect, and to differing interpretation. Furthermore, the following discussion does not specifically address all of the Brazilian tax considerations applicable to any particular non-resident holder, and each non- residentnon-resident holder should consult his or her own tax advisor concerning the Brazilian tax consequences of an investment in any of such securities.
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Pursuant to Brazilian law, a non-resident holder may invest in class A preferred under Resolution No. 4,373, of September 2014, of the National Monetary Council (a “4,373 Holder”).
Acquisition of ADSs or Class A Preferred Shares
The acquisition of ADSs or class A preferred shares by non- residentnon-resident holders is not a taxable event in Brazil. See “—Taxation of Gains in Brazil”with Respect to Class A Preferred Shares” for further information on the tax implications arising from the exchange of existing class A preferred shares for ADSs, as well as those arising from the exchange of ADSs for class A preferred shares.
Taxation of Dividends
Dividends paid by a Brazilian corporation with respect to profits generated as of January 1, 1996, including dividends paid in kind to the depositary in respect of our class A preferred shares underlying the ADSs or to a non- residentnon-resident holder in respect of class A preferred shares, are not subject to withholding income tax in Brazil.
Dividends paid from profits generated before January 1, 1996 may be subject to Brazilian withholding income tax at variable rates, according to the tax legislation applicable to each corresponding year.
In this context, it should be noted that Law No. 11,638, dated December 28, 2007, significantly altered the Brazilian corporate law in order to align the generally accepted Brazilian accounting standards to the International Financial Reporting Standards (“IFRS”). Nonetheless, Law No. 11,941, dated May 27, 2009, introduced the Transitory Tax Regime (“RTT”) in order to render neutral, from a tax perspective, all of the changes provided by Law No. 11,638. Under the RTT, for tax purposes, legal entities should observe the accounting methods and criteria as in force on December 31, 2007.
Profits determined pursuant to Law No. 11,638 (“IFRS Profits”) may differ from the profits calculated pursuant to the accounting methods and criteria as in force on December 31, 2007 (“2007 Profits”).
While it was a general market practice to distribute exempted dividends with reference to the IFRS Profits, Normative Ruling No. 1,397, issued by the Brazilian tax authorities on September 16, 2013, has established that legal entities should observe the 2007 Profits, in order to determine the amount of profits that could be distributed as exempted income to their beneficiaries.
Any profits paid in excess of said 2007 Profits (“Excess Dividends”) should, in the tax authorities’ view and in the specific case of non-resident beneficiaries, be subject to the following rules of taxation: (i) 15% withholding tax, in case of case of beneficiaries domiciled abroad, but not in a Low or Nil Tax Jurisdiction (as defined below), and (ii) 25% withholding tax, in case of beneficiaries domiciled in a Low or Nil Tax Jurisdiction (as defined below).
In order to mitigate potential disputes on the subject, Law No. 12,973, dated May 13, 2014, in addition to revoking the RTT, introduced a new set of tax rules, or the New Tax Regime, including new provisions with respect to Excess Dividends. Under these new provisions: (i) Excess Dividends related to profits assessed from 2008 to 2013 will be exempt; (ii) potential disputes remain concerning the Excess Dividends related to 2014 profits, unless a company voluntarily elected to apply the New Tax Regime in 2014; and (iii) as of 2015, once the New Tax Regime became mandatory and completely replaced the RTT, dividends calculated based on IFRS standards should be considered fully exempt.
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There are proposed bills currently under discussion by the Brazilian federal government regarding a potential amendment to the tax legislation aiming at taxing dividends. Therefore, the mentioned dividend exemption may be revoked with prospective effects.
Interest on Shareholders’Shareholders’ Equity
Law No. 9,249/95, as amended, allows a Brazilian corporation to make distributions to shareholders characterized as distributions of interest on shareholders’ equity on top of or as an alternative to dividend distributions. Such interest is calculated by multiplying the long-term interest rate (TJLP), as determined by the Brazilian Central Bank from time to time, by the sum of determined Brazilian company’s net equity accounts.
Distributions of interest on our shareholders’ equity in respect of our class A preferred shares or the ADSs are generally subject to Brazilian withholding tax at the rate of 15%. However, the rate of 25% is applicable in caseif the non-resident holder is domiciled in a countryLow or location or other jurisdiction (1) that does not impose income tax; (2) where the maximum income tax rateNil Tax Jurisdiction (as defined below).
Interest on shareholders’ equity is lower than 20%; or (3) where its legislation does not allow access to information related to the composition of shareholders, ownership of investments or identification of beneficial owners of earnings attributed to non-residents, or a tax favorable jurisdiction.
Since 1997 and in accordance with Laws Nos. 9,249/95 and 9,430/96, we have been permitted to deduct these distributionsdeductible for purposes of calculating the CSLLBrazilian social contribution on net profit (CSLL) and the corporate income taxes that we owe,tax, provided that such distribution is approved by our shareholders in a general meeting and complies with the limits established by Brazilian tax legislation. The amount of such deduction cannot exceed the greater of:
· | 50% of net profits (after social contribution on net profits and before taking into account such distribution and any deduction for corporate income tax) related to the period in respect of which the payment is made; or |
· | 50% of the sum of retained profits and profit reserves as of the date of the beginning of the period in respect of which the payment is made. |
Payments of interest on shareholders’ equity may be included, at their net value, as part of any mandatory dividend. To the extent payment of interest on shareholders’ equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable withholding income tax plus the amount of declared dividends, is at least equal to the mandatory dividend.
No assurance can be given that our board of directors will not recommend that future distributions of income should be made by means of interest on shareholders’ equity instead of dividends.
Distributions of interest on shareholders’ equity to a non-resident holder may be converted into U.S. dollars and remitted outside Brazil, subject to applicable exchange controls, to the extent that the investment is registered with the Central Bank.
Taxation of Gains Outside Brazilwith Respect to ADSs
According to Brazilian Law No. 10,833/03, gains realized on the disposition or sale of assets located in Brazil are subject to income tax in Brazil, regardless of whether the sale or the disposition is made by the non-resident holder to a Brazilian resident or to another non-resident of Brazil, as follows: “the acquiror, individual or legal entity resident or domiciled in Brazil, or the acquiror’s attorney-in-fact, when such acquiror is resident or domiciled abroad, shall be responsible to withhold and pay the income tax applicable to capital gains under Article 18 of Law 9,249 of December 26, 1995 earned by the individual or legal entity resident or domiciled abroad who disposes of property located in Brazil.”
Holders of the ADSs outside of Brazil may have grounds to assert that Brazilian Law No. 10,833/03 does not apply to sales or other dispositions of ADSs as ADSs are not assets located in Brazil.Brazil (i.e., ADSs are issued and registered abroad). However, considering that ADSs derive their value from underlying shares in Brazil and the lack of case law on the matter, we are unable to predict whether such understanding will ultimately prevail in Brazilian courts.
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As a result, in case the ADSs are deemed to be assets located in Brazil, gains recognized by a non-resident holder from their sale or other disposition to either a non-resident of Brazil or a resident of Brazil may be subject to income tax in Brazil at progressive rates as follows: (1) 15% for the portion of the gain that does not exceed R$5 million, (2) 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (3) 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (4) 22.5% for the portion of the gain that exceeds R$30 million, or at a flat tax rate of 25% if such non-resident holder is located in a Low or Nil Tax Jurisdiction (as defined below), unless, in each case, a lower rate is provided for in an applicable tax treaty between Brazil and the country where the non-resident holder has its domicile. In the event of any such income tax, the person responsible for the withholding and collection of the income tax will be: (i) the ADSs acquirer (if resident in Brazil); or (ii) the attorney in fact or legal representative of the non-resident acquirer, according to Section 26 of Law No. 10,833/03.
Under certain circumstances, if income tax is not paid, the amount of tax charged could be subject to an upward adjustment, as if the amount received by the non-resident holder were net of taxes in Brazil (gross-up).
Taxation of Gains with Respect to Class A Preferred Shares
The sale or other disposition of class A preferred shares or the receipt of the underlying class A preferred shares in exchange for ADSs abroad may be subject to the provisions of Brazilian Law No. 10,833/03. Any capital gains arisingIn addition to the case where from sales or other dispositions outside Brazil would be subject to Brazilian income tax at the rate of 15% or 25% if theoutset an investor is located in a tax favorable jurisdiction. Brazilian Law No. 10,833/03 requires the purchaser of ourholds class A preferred shares, outside Brazil or its attorney-in-fact in Brazil to withhold the income tax. Aa disposition of class A preferred shares can only occur abroad if any investor decides to cancel its investment in ADSs and register the underlying class A preferred shares as a direct foreign investment in Brazil under Law No. 4,131/62.
TaxationAs a rule, gains realized as a result of Gains in Brazil
The exchangea disposition or sale of ADSs for class A preferred shares is not subject to Brazilian tax. Upon receiptare determined by the positive difference between the amount realized on the disposition or sale of the underlyingrelevant class A preferred shares in exchangeand their acquisition cost.
Under Brazilian law, income tax rules on such gains can vary depending on the domicile of ADSs, athe non-resident investor will be entitled to registerholder, the type of registration of the investment held by the non-resident holder with the Central Bank and how the U.S. dollar value of such sharesdisposition is carried out, as described below.
Gains realized by a foreign portfolio investment under Resolution No.4,373/14. See “—Exchange Controls” and “—Taxnon-resident holder on Foreign Exchange and on Bonds and Securities Transactions—Registered Capital.” Thea sale or disposition of class A preferred shares on a Brazilian stock exchange is exempt from capital gains tax, provided that such shares are held by a non-resident holder that (1) has registered its investment in Brazil with the Central Bank under the rules of Resolution No.4,373/14, and (2) is not resident or domiciled in a tax favorable jurisdiction. Upon receipt of the underlying class A preferred shares, a non-resident holder is also entitled to register with the Central Bank the U.S. dollar value of such shares as a foreign direct investment under Law 4,131/62. See “—Exchange Controls” and “—Tax on Foreign Exchange and on Bonds and Securities Transactions—Registered Capital.” A 15% capital gains tax is applicable to the sale or other disposition of class A preferred shares in Brazil where such shares are held by a non-resident holder as a foreign direct investment and the transaction is executed outside a Brazilian stock exchange. If the non-resident holder is domiciled in a tax favorable jurisdiction and the disposition of the class A preferred shares is executed outside a Brazilian stock exchange, the income tax rate will be 25%.
If the sale or other disposition of such shares is carried out on a Brazilian stock exchange, which includes the capital gains on the sale or disposition will be taxed at a rate of 15%. This 15% rate applies to all transactions carried out on the organized over-the-counter market, are:
· | exempt from income tax when realized by a non-resident holder that (i) is a 4,373 Holder and (ii) is not resident or domiciled in a Low or Nil Tax Jurisdiction (as defined below); or |
· | subject to income tax at a rate of up to 25% in any other case, including the gains realized by a non-resident holder that (i) is not a 4,373 Holder and/or (ii) is a 4,373 Holder resident or domiciled in a Low or Nil Tax Jurisdiction (as defined below). In these cases, a withholding income tax of 0.005% of the sale value shall be applicable and can be later used to offset the eventual income tax due on the capital gain. Day trade transactions are subject to the rate of 1%. |
Any other gains realized on a disposition of class A preferred shares that is not carried out on Brazilian stock exchange byexchanges are subject to income tax at rates of up to 22.5%, except for a non-resident holders regardless of whether orholder that is not they are domiciled in a tax favorable jurisdiction (except to gains realized by a 4,373 Holder thatand is not resident or domiciled in a Low or Nil Tax Jurisdiction (as defined below), which, in this case, is subject to income tax favorable jurisdiction as described above)at a rate of up to 25%. In thesecase the gains are related to transactions the gain realized is calculated basedconducted on the amount registeredBrazilian non-organized over-the-counter market with intermediation of a financial institution, the Central Bank. As of January 1, 2005, a withholding income tax of 0.005% will alsoapply and can be assessed onlater used to offset the sales price or other disposition value of shares sold or disposed of in transactions carried out on a Brazilian stock exchange. The withholding tax, to be offset againsteventual income tax due on eventualthe capital gain, must be withheld by one of the following entities: (1) the agent receiving the sale or disposition order from the client; (2) the stock exchange responsible for registering the transactions; or (3) the entity responsible for the settlement and payment of the transactions. Such withholding does not apply to a 4,373 Holder that is not a resident of or domiciled in a favorable tax jurisdiction.gain.
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The deposit of class A preferred shares in exchange for ADSs is not subject to Brazilian tax, provided that these shares are held by the non-resident holder as a foreign portfolio investment under Resolution No. 4,373/14. In the event our class A preferred shares are held by the non-resident holder as a foreign direct investment under Law No. 4,131/62, the deposit of these shares in exchange for ADSs is subject to payment of Brazilian capital gains tax at the progressive rate of 15% to 22.5% (25% in the case of a non-resident holder located in a tax favorable jurisdiction)Low or Nil Tax Jurisdiction).
The current preferential treatment for non-resident holders of ADSs and non-resident holders of class A preferred shares under Resolution No. 4,373/14 may not continue in the future.
Any exercise of preemptive rights relating to our class A preferred shares will not be subject to Brazilian taxation. Gains realized by a non-resident holder on the sale or assignment of preemptive rights relating to our class A preferred shares by the depositary maywill be subject to Brazilian taxation. Tax authorities may attempttaxation according to tax such gains even whenthe same rules applicable to the sale or assignmentdisposition of such rights takes place outside Brazil, basedclass A preferred shares.
Discussion on Low or Nil Tax Jurisdictions
The concept of Low or Nil Tax Jurisdiction encompasses those countries that do not tax income or tax it at a maximum rate lower than 20%, or where the local legislation does not allow access to information related to the shareholding composition of legal entities, to their ownership or to the identity of the effective beneficiary of the income attributed to non-residents (“Low or Nil Tax Jurisdictions”).
On June 23, 2008, Law No. 11,727 introduced the concept of “Privileged Tax Regime,” which encompasses the countries and jurisdictions that (i) do not tax income or tax income at a maximum rate lower than 20%, or 17% in certain cases as detailed below; (ii) grant tax advantages to a non-resident entity or individual (a) with no requirement to carry out a substantial economic activity within the country or dependency, or (b) on the provisionscondition that they do not carry out a substantial economic activity within the country or dependency; (iii) do not tax income generated outside the jurisdiction, or that tax such income at a maximum rate lower than 20%, or 17% in certain cases as detailed below; or (iv) do not provide access to information on the ownership and beneficial ownership of assets or on transactions within its territory, or impose restrictions on disclosure of that information.
In addition, on June 4, 2010, the Brazilian tax authorities enacted Normative Ruling No. 1,037, as amended, listing (i) the countries and jurisdictions considered as Low or Nil Tax Jurisdictions, and (ii) the Privileged Tax Regimes.
On its turn, Ordinance No. 488, of November 28, 2014, issued by the Brazilian Ministry of Finance, reduced the rate for purposes of the definition of Low or Nil Tax Jurisdiction and Privileged Tax Regime from 20% to 17%, but only to countries and regimes aligned with international standards of fiscal transparency, in accordance with the rules established by Normative Ruling n. 1,530, issued on December 19, 2014. Under Brazilian law, the aforementioned commitment is present if the relevant jurisdiction (i) has entered into (or concluded the negotiation of) an agreement or convention authorizing the exchange of information for tax purposes with Brazil and (ii) is committed to the actions discussed in international forums on tax evasion in which Brazil has been participating, such as the Global Forum on Transparency and Exchange of Information.
As of December 29, 2022 the Provisional Measure No. 1,152 had entered into force to establish that countries and jurisdictions considered as Low or Nil Tax Jurisdictions are the ones that do not tax income or tax income at a maximum rate lower than 17%. The Provisional Measure No. 1,152 was converted into Law No. 14,596/23.
In the past, it was not clear whether the concept of Privileged Tax Regime was also applicable to interest payments made to residents outside Brazil. Notwithstanding, in December 2017, the Brazilian Federal Revenue Service (“RFB”) published Answer to Tax Ruling Cosit Ruling No. 575/2017, stating that only payments to countries deemed as a Low or Nil Tax Jurisdiction by Normative Ruling No. 1,037 would be subject to withholding tax at a 25% rate.
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Therefore, under the RFB’s current interpretation, we believe that the best interpretation of the current tax legislation leads to the conclusion that the concept of Privileged Tax Regime should apply solely for purposes of Brazilian transfer pricing and thin capitalization/cross-border interest deductibility rules. Nevertheless, we cannot assure you that subsequent legislation or interpretations by the Brazilian tax authorities regarding the definition of a Privileged Tax Regime provided by Law No. 11,727, will not also apply to a non-resident holder on payments of interest on shareholders’ equity.
Regardless of the above, potential investors should consult with their own tax advisors regarding the consequences of the implementation of Law No. 10,833/03. These authorities may allege that the preemptive rights relate to assets located in Brazil (the class A preferred shares) and require payment of capital gains tax at the rate of 15% (or 25% if the beneficiary of the payments is resident of a tax favorable jurisdiction). If the preemptive rights are assigned or sold in Brazil, capital gains tax will apply at a rate of 15% (or 25% in the case of a non-resident holder located in a tax favorable jurisdiction). Sales or assignments of preemptive rights effected on Brazilian stock exchanges are exempt from income tax, provided that such preemptive rights relate to shares registered as a foreign portfolio investment under Resolution No. 4,373 and the non-resident holder is not a resident of or domiciled in a tax favorable jurisdiction.
As of January 2017,11,727, Law No. 13,259 established new progressive income14,596, Normative Ruling No. 1,037 and of any related Brazilian tax rates applicable to capital gains derived from the disposition of assets by Brazilian individuals. Law No. 13,259 established new rates that range from 15% to 22.5%, depending on the amount of the gain recognized by the Brazilian individual, as follows: (i) 15% on gains not exceeding R$5,000,000.00; (ii) 17.5% on gains that exceed R$5,000,000.00 and do not exceed R$10,000,000.00; (iii) 20% on gains that exceed R$10,000,000.00 and do not exceed R$30,000,000.00; and (iv) 22.5% on gains exceeding R$30,000,000.00.law or regulation concerning Low or Nil Tax Jurisdictions.
Pursuant to Article 18 of Law No. 9,249/95, the tax treatment applicable to capital gains earned by Brazilian individuals also applies to capital gains earned by non-Brazilian residents (except in cases that remain subject to specific rules). However, the Normative Instruction No. 1,732/2017 established that the rates are applicable to legal entities located abroad that make any disposal of assets recorded as non-current assets in their balance sheet. As a result, it is not possible at this time to determine what position the tax authorities will adopt in the case of a non-resident individual who disposes of ADSs.
Other Brazilian Taxes
There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of class A preferred shares or ADSs by a non-resident holder except for gift and inheritance taxes imposed by some states of Brazil on gifts made or inheritances bestowed by individuals or entities not resident or domiciled in Brazil or domiciled within the state to individuals or entities resident or domiciled within such state in Brazil. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of class A preferred shares or ADSs.
Tax on Foreign Exchange and on Bonds and Securities Transactions
Foreign Exchange Transactions
IOF/Exchange Tax
Pursuant to Decree No. 6,306/07, the conversion of Brazilian currency into foreign currency and the conversion of foreign currency into Brazilian currency may be subject to the IOF/Exchange Tax.“IOF/Exchange” tax. Currently, for most exchange transactions, the rate of IOF/Exchange is 0.38%. This is the rate applicable toHowever, foreign currency exchange transactions carried out for the inflow and outflow of foreign direct investmentsfunds into Brazil for companies in Brazil according to Law 4,131/62 (other than trading portfolio investments in securities under Resolution 4,373/14).
The IOF/Exchange Tax levies at 0% on the following capital inflows and outflows realized by non-residents: (1) investments for the constitution of an initial or additional security guarantee margin required by Brazilian stock exchange, futures and commodities exchanges; (2) investments in Brazilian stocks using funds derived from the cancelation of “depositary receipts”; (3) investmentsinvestment in the Brazilian financial and capital markets; (4)market made by a foreign investor, including a non-resident holder who registers his/her investment under Resolution No. 4,373/14, are subject to IOF/Exchange at a current rate of zero.
The IOF/Exchange rate will be also zero for the outflow of resources from Brazil related to the return of the investments realized in the Brazilian financial and capital markets to the non-resident; and (5) conversion of foreign direct investments in stocks under Law 4,131/62 into foreign investment in stocks under Resolution 4,373/14.
The remittance abroadmentioned above, including payments of dividends and interest on shareholders’ equity to non-Brazilian residents is subject to 0% IOF/Exchange tax.
Additionally,and the transfersrepatriation of shares traded onfunds invested in the stock exchange with the purpose of enabling the issuance of ADSs are subject to the IOF/Bonds Tax at a rate of 1.5%, which is aimed at correcting an asymmetry created by the IOF/Exchange Tax.Brazilian market.
The Brazilian government may increase the rate of the IOF/Exchange Taxtax to a maximum of 25% of the amount of the foreign exchange transaction at any time, but such an increase would only apply to future foreign exchange transactions.
IOF/Bonds Tax
Pursuant to Decree No 6,306/07, the “IOF/Bonds” tax may be imposed on any transactions involving bonds and securities, including those carried out on Brazilian stock, futures and commodities exchanges. The impositionrate of these taxes may discourage foreign investment in shares of Brazilian companies, including our Company, dueIOF/ Bonds applicable to higher transaction costs, and may negatively impact the price and volatility of our ADSs andmost transactions involving common or preferred shares is currently zero percent, including transactions related to transfers of shares traded on the NYSE andstock exchange with the B3.purpose of enabling the issuance of ADSs to be traded outside Brazil. The Brazilian government may increase the rate of the IOF/Bonds up to 1.5% per day, but only in respect of future transactions.
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Registered Capital
The amount of an investment in class A preferred shares held by a non-Brazilian holder as a foreign direct investment under Law No. 4,131/62 or a foreign portfolio investment under Resolution No. 4,373/14 or in ADSs held by the depositary representing such holder, as the case may be, is eligible for registration with the Central Bank; such registration (the amount so registered is referred to as “registered capital”) allows the remittance outside Brazil of foreign currency, converted at the commercial market rate, acquired with the proceeds of distributions on, and amounts realized with respect to disposition of, such class A preferred shares. The registered capital for class A preferred shares purchased in the form of ADSs, or purchased in Brazil and deposited with the depositary in exchange for an ADS, is equal to their purchase price in U.S. dollars paid by the purchaser. The registered capital for class A preferred shares that are withdrawn upon surrender of ADSs is the U.S. dollar equivalent of (1) the average price of our class A preferred shares on the Brazilian stock exchange on which the greatest number of such class A preferred shares was sold on the day of withdrawal, or (2) if no class A preferred shares were sold on such day, the average price of class A preferred shares that were sold in the fifteen trading sessions immediately preceding such withdrawal. The U.S. dollar value of our class A preferred shares is determined on the basis of the average commercial market rates quoted by the Central Bank on such date (or, if the average price of class A preferred shares is determined under clause (2) of the preceding sentence, the average of such average quoted rates on the same fifteen dates used to determine the average price of our class A preferred shares).
A non-Brazilian holder of class A preferred shares may experience delays in effecting the registration of registered capital, which may delay remittances abroad. Such a delay may adversely affect the amount, in U.S. dollars, received by the non-Brazilian holder. See “—Exchange Controls” and “Item 3. Key Information—D Risk Factors—Risks Relating to Our Equity and Debt Securities.”
U.S. Federal Income Tax Considerations
The following is a discussion of the material U.S. federal income tax consequences that may be relevant with respect to the acquisition, ownership and disposition of our class A preferred shares or the ADSs, which are evidenced by ADRs. This descriptiondiscussion addresses only the U.S. federal income tax considerations of U.S. holders (as defined below) that will hold our class A preferred shares or the ADSs as capital assets. This descriptiondiscussion does not address tax considerations applicable to holders that may be subject to special tax rules, such as banks and other financial institutions, insurance companies, real estate investment trusts, grantor trusts, regulated investment companies, dealers or traders in securities or currencies, tax-exempt entities, pension funds, persons that received our class A preferred shares or the ADSs pursuant to an exercise of employee stock options or rights or otherwise as compensation for the performance of services, persons that will hold our class A preferred shares or the ADSs as a position in a “straddle” or as a part of a “hedging,” “conversion” or other risk reduction transaction for U.S. federal income tax purposes, persons that have a “functional currency” other than the U.S. dollar, persons that will own our class A preferred shares or the ADSs through partnerships or other pass through entities, persons that are required to accelerate the recognition of any item of gross income with respect to our class A preferred shares or the ADSs as a result of such income being recognized on an applicable financial statement, holders subject to the alternative minimum tax, certain former citizens or long-term residents of the United States or holders that own (or are deemed to own) 10% or more (by voting power or value) of our shares.
This discussion does not contain a detailed description of all the U.S. federal income tax consequences to U.S. holders in light of their particular circumstances and does not address any state, local or non-U.S. tax consequences of the acquisition, ownership and disposition of our class A preferred shares or the ADSs. In addition, this descriptiondiscussion does not address the Medicare tax on net investment income or the consequences of any U.S. federal tax other than income tax, including but not limited to the U.S. federal estate and gift taxes. This descriptiondiscussion is based on (1) the Internal Revenue Code of 1986, as amended (the “Code”), existing, proposed and temporary U.S. Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date of this annual report and (2), in part, on the representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. All of the foregoing are subject to change, which change could apply retroactively and could affect the tax consequences described below.
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As used below, a “U.S. holder” is a beneficial owner of aour class A preferred shareshares or the ADS that is, for U.S. federal income tax purposes, (1) an individual citizen or resident of the United States, (2) a corporation organized under the laws of the United States, any state thereof or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (4) a trust if (i) a court within the United States is able to exercise primary supervision over its administration and (ii) one or more U.S. persons have the authority to control all of the substantial decisions of such trust.
If a partnership (or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our class A preferred shares or the ADSs, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. AIn the case of a partnership or its partnersa partner of a partnership holding class A preferred shares or the ADSs, the recommendation is to consult a tax advisor.
This discussion is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of class A preferred shares or the ADSs. Tax advisors should consult theirbe consulted regarding the U.S. federal income tax advisorconsequences of the acquisition, ownership and disposition of class A preferred shares or the ADSs, as to itswell as the consequences arising under other U.S. federal tax consequences.laws and the laws of any other taxing jurisdiction.
Except as specifically noted below under “—Passive Foreign Investment Company Rules,” the following discussion assumes we are not, and will not be, a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes.
Class A Preferred Shares
The class A preferred shares will be treated as equity for U.S. federal income tax purposes.
ADSs
In general, for U.S. federal income tax purposes, a holder of an ADS will be treated as the beneficial owner of our class A preferred shares represented by the applicable ADS. The U.S. Treasury Department has expressed concern that depositaries for ADSs, or other intermediaries between the holders of receipts or shares and the issuer, may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. persons that hold such receipts or shares. Such actions include, for example, a pre-release of an ADS by a depositary. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Brazilian taxes, the sourcing rules and the availability of the reduced tax rate for dividends received by certain non-corporate holders, each described below, could be affected by future actions that may be taken by the U.S. Treasury Department.
Taxation of Dividends
Subject to the discussion under “—Passive Foreign Investment Company Rules,” inIn general, the gross amount of a distribution made with respect to a class A preferred share or ADS (which for this purpose shall include distributionsany amounts withheld in respect of Brazilian taxes and any distribution of interest attributable toon shareholders’ equity, before any reduction for any as described above under “—Brazilian taxes withheld therefrom)Tax Considerations”) will, to the extent made from the current or accumulated earnings and profits of our Company, as determined under U.S. federal income tax principles, constitute a dividend to a U.S. holder for U.S. federal income tax purposes. Non-corporateIf a distribution exceeds the amount of our Company’s current and accumulated earnings and profits, it will be treated as a non-taxable return of capital to the extent of (and in reduction of) the U.S. holder’s tax basis in the class A preferred share or ADS on which it is paid, and thereafter will be treated as capital gain recognized on a sale or exchange (as discussed below under “—Sale, Exchange or Other Disposition of Class A Preferred Shares or ADSs”). We do not maintain calculations of our earnings and profits under U.S. federal income tax principles. Therefore, U.S. holders should expect that distributions by our Company generally will be reported as dividends for U.S. federal income tax purposes.
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Subject to applicable limitations (including a minimum holding period requirement), non-corporate U.S. holders may be taxed on dividends from a qualified foreign corporation at the lower rates applicable to long-term capital gains ((i.ei.e.., gains with respect to capital assets held for more than one year). A foreign corporation is generally treated as a qualified foreign corporation with respect to dividends received from that corporation on shares or ADSs that are readily tradable on an “established securities market” in the United States. U.S. Treasury Department guidance indicates that the ADSs (which are listed on the NYSE), but not our class A preferred shares, are readily tradable on an established securities market in the United States. Thus, subject to the discussion below under “—Passive Foreign Investment Company Rules,”we believe that any dividends that we pay on the ADSs, but not on our class A preferred shares currently meet the conditions requiredthat are not represented by ADSs, to non-corporate U.S. holders will be potentially eligible for these reduced tax rates. However, non-corporate U.S. holders will not be eligible for reduced tax rates on any dividends received from us if we are a PFIC (as discussed below under “—Passive Foreign Investment Company Rules”) in the taxable year in which such dividends are paid or in the preceding taxable year. There however,also can be no assurance that the ADSs will be considered readily tradable on an established securities market in the United States in later years. Furthermore, a U.S. holder’s eligibility for such preferential rate is subject to certain holding period requirements and the non-existence of certain risk reduction transactions with respect to the ADSs. Such dividendsDividends from our Company will not be eligible for the dividends received deduction generally allowed to corporate U.S. holders. In order for dividends on ADS backed by preferred shares to be reported as qualifying for the reduced rates of taxation, a public SEC filing must contain a statement that the preferred shares will be, should be, or more likely than not will be treated as equity rather than debt for U.S. federal income tax purposes. We have included the appropriate statement in this filing. Subject to the discussion below under “—Passive Foreign Investment Company Rules,” if a distribution exceeds the amount of our Company’s current and accumulated earnings and profits, it will be treated as a non-taxable return of capital to the extent of the U.S. holder’s tax basis in our class A preferred share or ADS on which it is paid and thereafter as capital gain. Our Company does not maintain calculations of our earnings and profits under U.S. federal income tax principles. Therefore, U.S. holders should expect that distributions by our Company generally will be treated as dividends for U.S. federal income tax purposes.
A dividend paid in reais will be includible in the income of a U.S. holder at its value in U.S. dollars calculated by reference to the prevailing spot market exchange rate in effect on the day it is received by the U.S. holder in the case of our class A preferred shares or, in the case of a dividend received in respect of ADSs, on the date the dividend is received by the depositary, whether or not the dividend is converted into U.S. dollars. Assuming the payment is not converted at that time, the U.S. holder will have a tax basis in reais equal to that U.S. dollar amount, which will be used to measure gain or loss from subsequent changes in exchange rates. Any gain or loss realized by a U.S. holder that subsequently sells or otherwise disposes of reais, which gain or loss is attributable to currency fluctuations after the date of receipt of the dividend, will be U.S. source ordinary gain or loss. The amount of any distribution of property other than cash will generally be the fair market value of such property on the date of distribution.
The gross amount of any dividend paid (which will include any amounts withheld in respect of Brazilian taxes) with respect to a class A preferred share or ADS will be subject to U.S. federal income taxation as foreign source dividend income, which may be relevant in calculating a U.S. holder’s foreign tax credit limitation. Subject to limitations under U.S. federal income tax law concerning credits or deductions for foreign taxes and certain exceptions for short-term and hedged positions, any Brazilian withholding tax willmay be treated as a foreign income tax eligible for credit against a U.S. holder’s U.S. federal income tax liability (or atliability. However, U.S. Treasury Regulations addressing foreign tax credits (the “Foreign Tax Credit Regulations”) impose additional requirements for foreign taxes to be eligible for a foreign tax credit, and there can be no assurance that those requirements will be satisfied. The U.S. holder’s election, may be deducted in computing taxable income ifTreasury Department and the U.S. holder has electedInternal Revenue Service (the “IRS”) are considering proposing amendments to deduct allthe Foreign Tax Credit Regulations. In addition, recent notices from the IRS provide temporary relief by allowing taxpayers that comply with applicable requirements to apply many aspects of the foreign income taxestax credit regulations as they previously existed (before the release of the current Foreign Tax Credit Regulations) for taxable years ending before the taxable year)date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). The limitation on foreign taxes eligible for the U.S. foreign tax credit is calculated separately with respect to specific “baskets” of income. For this purpose, the dividends should generally constitute “passive category income,” or in the case of certain U.S. holders, “general category income.” TheInstead of claiming a foreign tax credit, a U.S. holder may be able to deduct any Brazilian withholding tax in computing the U.S. holder’s taxable income, subject to generally applicable limitations under U.S. law (including that a U.S. holder is not eligible for a deduction for otherwise creditable foreign income taxes paid or accrued in a taxable year if such U.S. holder claims a foreign tax credit for any foreign income taxes paid or accrued in the same taxable year).The rules with respect to foreign tax credits and deductions for foreign taxes are complex, and U.S. holders are urged to consult their own tax advisors regarding the effect of the Foreign Tax Credit Regulations and the availability of the foreign tax credit or a deduction under their particular circumstances.
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Sale, Exchange or Other Disposition of Class A Preferred Shares or ADSs
A deposit or withdrawal of class A preferred shares by a holder in exchange for an ADS that represents such shares will not result in the realization of gain or loss for U.S. federal income tax purposes. Subject to the discussion under “—Passive Foreign Investment Company Rules,” aA U.S. holder generally will recognize capital gain or loss upon a sale, exchange or other disposition of a class A preferred share or ADS in an amount equal to the difference between the amount realized on the sale, exchange or other disposition and the U.S. holder’s adjusted basis in the class A preferred share or ADS, (determinedboth determined in U.S. dollars) and the U.S. dollar amount realized on the sale, exchange or other disposition.dollars. If a Brazilian tax is withheld on the sale, exchange or other disposition of a class A preferred share or ADS, the amount realized by a U.S. holder will include the gross amount of the proceeds of that sale, exchange or other disposition before deduction of the Brazilian tax. In the case of a non-corporate U.S. holder, the maximum marginal U.S. federal income tax rate applicable to capital gain will generally be lower than the maximum marginal U.S. federal income tax rate applicable to ordinary income (other than, as discussed above, certain dividends) if such holder’s holding period for such class A preferred share or ADS exceeds one year (i.e., such gain is a long-term capital gain).
Capital gain, if any, realized by a U.S. holder on the sale, exchange or other disposition of a class A preferred share or ADS generally will be treated as U.S. source income for U.S. foreign tax credit purposes. Consequently, in the case of a disposition of a class A preferred share or ADS that is subject to Brazilian tax, the U.S. holder may not be able to use theeligible for a foreign tax credit for that Brazilian tax unless it can apply the credit against U.S. tax payable on other income from foreign sources in the appropriate income category,category. However, pursuant to the Foreign Tax Credit Regulations, any such Brazilian tax would generally not be a foreign income tax eligible for a foreign tax credit (regardless of any other income that a U.S. holder may have that is derived from foreign sources). In such case, however, the non-creditable Brazilian tax may reduce the amount realized on the sale, exchange or alternatively, itother disposition of the Class A preferred share or ADS. As discussed above, however, recent notices from the IRS provide temporary relief by allowing taxpayers that comply with applicable requirements to apply many aspects of the foreign tax credit regulations as they previously existed (before the release of the current Foreign Tax Credit Regulations) for taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). If any Brazilian tax is imposed upon the sale, exchange or other disposition of a Class A preferred share or ADS and a U.S. holder applies such temporary relief, such Brazilian tax may takebe eligible for a foreign tax credit or deduction, subject to the applicable conditions and limitations. U.S. holders are urged to consult their own tax advisors regarding the tax consequences if Brazilian tax is imposed on a disposition of a Class A preferred share or ADS, including the effect of the Foreign Tax Credit Regulations and the availability of the foreign tax credit or a deduction for the Brazilian tax (subject to applicable limitations) if it elects to deduct all of its foreign income taxes. The deductibility of capital losses is subject to limitations under the Code.their particular circumstances.
The initial tax basis of class A preferred shares to a U.S. holder that purchases such shares for non-U.S. currency is the U.S. dollar value of the purchase price determined on the date of purchase. If our class A preferred shares are treated as traded on an “established securities market,” a cash basis U.S. holder, or, if it elects, an accrual basis U.S. holder, will determine the U.S. dollar value of the cost of any such class A preferred shares by translating the amount paid at the spot rate of exchange on the settlement date of the purchase. The conversion of U.S. dollars to non-U.S. currency and the immediate use of that currency to purchase class A preferred shares generally will not result in taxable gain or loss for a U.S. holder.
With respect to the sale, exchange or other disposition of class A preferred shares for non-U.S. currency, the amount realized generally will be the U.S. dollar value of the payment received determined on (1) the date of receipt of payment in the case of a cash basis U.S. holder and (2) the date of disposition in the case of an accrual basis U.S. holder. If our class A preferred shares are treated as traded on an “established securities market,”a cash basis U.S. holder, or, if it elects, an accrual basis U.S. holder, will determine the U.S. dollar value of the payment received on the sale, exchange or other disposition of any such class A preferred shares by translating the amount received at the spot rate of exchange on the settlement date of the sale, exchange or other disposition.
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Passive Foreign Investment Company Rules
A non-U.S. corporation will be classified as a “passive foreign investment company,” orBased on the past and projected composition of our income and assets, and the valuation of our assets, including goodwill, we do not believe we were a PFIC for U.S. federal income tax purposesour most recent taxable year, and we do not expect to become a PFIC in the current taxable year or the foreseeable future, although there can be no assurance in this regard.
In general, we will be a PFIC for any taxable year in which after applying certain look-through rules, either (1) at least 75 percent75% of itsour gross income is “passive income”passive income, or (2) at least 50 percent50% of the average value (generally determined based on a quarterly average) of its grossour assets is attributable to assets that produce “passive income” or are held for the production of passive income. Passive income forFor this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and gainsrents derived in the active conduct of a trade or business and not derived from commoditiesa related person). In addition, cash and securities transactions.
Based on certain estimatesother assets readily convertible into cash are generally considered passive assets. If we own at least 25% (by value) of its gross income and grossthe stock of another corporation, for purposes of determining whether we are a PFIC, we will be treated as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the natureother corporation’s income.
The determination of its business, our Company believes that it will not be classified aswhether we are a PFIC for its taxable year ended December 31, 2020. Our Company’s status in future years will depend on its income, assets and activities in those years. Our Company has no reason to believeis made annually. Accordingly, it is possible that its income, assets or activities will change in a manner that would cause it to be classified aswe may become a PFIC forin the taxable year ending December 31, 2021current or any future taxable year but there can be no assurance thatdue to changes in our Company will not be consideredasset or income composition. If we are a PFIC for any taxable year. If we were a PFIC,year during which a U.S. holder ofholds our class A preferred shares or the ADSs, generally wouldsuch holder will be subject to imputed interest charges and other disadvantageousspecial tax treatment with respect torules discussed below.
If we are a PFIC for any gain from the sale or other disposition of, and certain distributions with respect to, thetaxable year during which a U.S. holder holds our class A preferred shares or ADSs. In addition, non-corporate U.S. holdersthe ADSs, such holder will not be eligible for reducedsubject to special tax rates onrules with respect to any dividends“excess distribution” received and any gain realized from our Company (as described above) if we are a PFIC in the taxable year in which such dividends are paidsale or in the preceding taxable year.
If we wereother disposition, including a PFIC, a U.S. holder of class A preferred shares or ADSs may be able to make one of certain elections that may alleviate certain of the tax consequences referred to above. However, it is expected that the conditions necessary for making one of such elections will not apply in the casepledge, of the class A preferred shares or ADSs. U.S. holders should consult their own tax advisors regarding the tax consequences that would arise if our Company wereDistributions received in a taxable year will be treated as excess distributions to the extent that they are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or the U.S. holder’s holding period for the class A preferred shares or ADSs. Under these special tax rules:
· | the excess distribution or gain will be allocated ratably over the U.S. holder’s holding period for the class A preferred shares or ADSs, |
· | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and |
· | the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year for individuals or corporations, as applicable, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
Although the determination of whether we are a PFIC.
IfPFIC is made annually, if we are a PFIC for any taxable year in which a U.S. holder ownsholds our class A preferred shares or the ADSs, during anysuch holder will generally be subject to the special tax rules described above for that year and for each subsequent year in which we were a PFIC,such holder holds the U.S. holder generally must file IRS Form 8621 with respect to our Company, generally with the U.S. holder’s U.S. federal income tax return for that year. If our Company was a PFIC for a given taxable year, then U.S. holders of class A preferred shares or ADSs should consult their tax advisors concerning their annual filing requirements.
Medicare Tax on “Net Investment Income”
Certain(even if we do not qualify as a PFIC in such subsequent years). However, if we cease to be a PFIC, a U.S. holders who are individuals, estates or trusts are requiredholder can avoid the continuing impact of the PFIC rules by making a special election to pay an additional 3.8% tax on, among other things, dividends and capital gains fromrecognize gain as if the sale or other disposition of class A preferred shares or ADSs had been sold on the last day of the last taxable year during which we were a PFIC. U.S. holders are urged to consult their own tax advisor about this election.
If we are a PFIC for any taxable year during which a U.S. holder holds our class A preferred shares or the ADSs and ADSs.any of our non-U.S. subsidiaries is also a PFIC, such holder will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of the PFIC rules. U.S. holders are urged to consult their tax advisor about the application of the PFIC rules to any of our subsidiaries.
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A U.S. holder will generally be required to file IRS Form 8621 if such holder holds our class A preferred shares or the ADSs in any year in which we are classified as a PFIC. U.S. holders are urged to consult their tax advisor concerning the U.S. federal income tax consequences of holding class A preferred shares or ADSs if we are considered a PFIC in any taxable year, including the potential availability and effect of any elections which would provide for alternative treatment.
Foreign Asset Reporting
Certain U.S. holders are required to report information relating to an interest in our class A preferred shares or the ADSs, subject to certain exceptions (including an exception for class A preferred shares or ADSs held in custodial accounts maintained with acertain financial institution)institutions). U.S. holders of the class A preferred shares or ADSs are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of our class A preferred shares or the ADSs.
Information Reporting and Backup Withholding
U.S. backup withholding tax andIn general, information reporting requirements generally apply to certain payments to certain non-corporate holders of shares. Information reporting generally will apply to paymentsdividends in respect of dividends on,our class A preferred shares or the ADSs and tothe proceeds from the sale, exchange or other disposition of our class A preferred shares or the ADSs that are paid to a U.S. holder within the United States or by(and in certain cases, outside the United States), unless such holder establishes that it is an exempt recipient. A backup withholding tax may apply to such payments if a U.S. payor or U.S. middleman to a holder of our class A preferred shares or the ADSs, other than an exempt recipient, including a corporation, a payee that is not a U.S. person that provides an appropriate certification and certain other persons. Backup withholding tax will apply to any payments of dividends on, or the proceeds from the sale or other disposition of, our class A preferred shares or the ADSs within the United States or by a U.S. payor or U.S. middleman to a holder, other than an exempt recipient, if such holder fails to furnish its correctprovide a taxpayer identification number and a certification that such holder is not subject to backup withholding or otherwiseif the U.S. holder fails to comply with, or establish an exemption from, such backup withholding tax requirements. report in full dividend and interest income.
The backup withholding tax rate is currently 24%.
Backup withholding is not an additional tax. Holders generally will be entitled to a credit for any amounts withheld under the backup withholding rules against their U.S. federal income tax liability or a refund of the amounts withheld, provided the required information is furnished to the U.S. Internal Revenue ServiceIRS in a timely manner.
The above description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of class A preferred shares or ADSs. Prospective purchasers should consult their own tax advisors concerning the tax consequences of their particular situations.
Documents on Display
Statements contained in this annual report regarding the contents of any contract or other document filed as an exhibit to this annual report summarize their material terms, but are not necessarily complete, and each of these statements is qualified in all respects by reference to the full text of such contract or other document.
We are subject to the periodic reporting and other informational requirements of the Exchange Act applicable to a foreign private issuer. Accordingly, we are required to file with or furnish to the SEC, reports and other information, including annual reports on Form 20-F and reports on Form 6-K.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and members of our board of directors and board of executive officers and our principal shareholders are exempt from reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, as a foreign private issuer, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
You may inspect and copy reports and other information that we file with or furnish to the SEC at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington D.C. 20549. Copies of these materials may be obtained by mail from the SEC’s Public Reference Room at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. In addition, the SEC maintains an internet website at www.sec.gov from which you can electronically access these materials.
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We also file financial statements and other periodic reports with the CVM, which are available for investor inspection at the CVM’s offices located at Rua Sete de Setembro, 111, 2nd2nd floor, Rio de Janeiro, RJ, and Rua Cincinato Braga, 340, 2nd, 3rd2nd, 3rd and 4th4th floors, São Paulo, SP. The telephone numbers of the CVM in Rio de Janeiro and São Paulo are +55-21-3554-8686 and +55-11-2146- 2097, respectively.
Copies of our annual report on Form 20-F and documents referred to in this annual report and our by-laws, as well as certain other documents that we are required to file with, or make available to, the SEC and the CVM, are available for inspection upon request at our headquarters at Rua Lemos Monteiro, 120 – 24° 24ºandar, Butantã—São Paulo—SP, CEP 05501-050, Brazil. Our filings are also available to the public through the internet on our website at www.braskem-ri.com.br. The information included on our website or that might be accessed through our website is not included in this annual report and is not incorporated into this annual report by reference.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates and prices. We have exposure to market risks arising from our day-to-day business activities. These risks are beyond our control and consist, principally, in the possibility that changes in interest rates, exchange rates, or commodity prices will adversely affect the value of our financial assets and liabilities or future cash flows and earnings.
In order to mitigate the market risks to which we are exposed, we have used, and we may use, foreign currency, interest rate and commodity derivative instruments, as well as cash and receivables. As of December 31, 2020,2023, we had currency options with an aggregate notional amount of US$2,052.7 million1.5 billion (R$6.7 billion) in puts and US$1,494.4 million in calls. In addition, we had an interest rate swap related to Project Ethylene XXI with an aggregate notional amountaverage strike price of US$616.5 million. These cross-currency1/R$4.5 and interest rate swaps match certain of our debt obligations.
US$1.0 billion (R$6.7 billion) in calls with an average strike price of US$1/R$6.78. We assess the potential and consolidated impact of market risks and seek to mitigate those risks following our risk management policy.
Our current risk management policy, adopted on March 30, 2017, by our Board of Directors and updated in July, 2019 and in August, 2022 covers cash flow management and liquidity, investment of cash and cash equivalents, funding activities and guarantees, and management of foreign exchange and commodity risks. This policy reflects our conservative financial practices and risk management procedures. Its objective is to manage and anticipate risks by continuously evaluating several key factors, including the overall financial health of our Company, any financial operations we have with related parties, our ratings, counterparty risk and hedging strategy. Additionally, the policy aims to ensure the alignment of the objectives of the financial teams with the overall objectives of Braskem.
We do not enter into derivative transactions with speculative purposes.
As of December 31, 2020,2023, we had R$5,626.0 million5.4 billion (US$1.1 billion) in foreign currency-denominated cash and cash equivalents, including the aggregate amount of R$1,562 million (US$323 million) of Braskem Idesa’s cash and financial investments, which may partially offset the effects of a depreciation of the real against the foreign currency and, consequently, our ability to service our foreign currency-denominated debt to the extent of these foreign currency-denominated cash equivalents and other investments.equivalents.
Interest Rate Risk
Our variable interest rate exposure is primarily subject to the variations of the LIBORterm SOFR rate and, for real-denominated borrowings and short-term cash investments, variations of the CDI rate and IPCA rate.
With respect to Brazilian interest rates:
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· | the short-term domestic CDI rate decreased to |
· | IPCA recorded in |
The table below provides information about our significant interest-rate sensitive instruments:
Payment Schedule—Breakdown by Type of Interest Rate | ||||||||
As of December 31, 2023 | ||||||||
Expected Maturity Date | ||||||||
2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | Fair Value(1) | |
(in millions of reais, unless otherwise indicated) | ||||||||
Liabilities: | ||||||||
Loans and financings: | ||||||||
Fixed rate, denominated in U.S. dollars | 786 | - | - | - | 5,678 | 25.575 | 32.038 | 26.126 |
Average interest rate | 6.5% | - | - | - | 4.5% | 6.7% | ||
Variable rate, denominated in U.S. dollars (SOFR) | 1.102 | 567 | 1.269 | 1.882 | 440 | 345 | 5,604 | 5.312 |
Average interest rate (SOFR) | 5.1% | 4.3% | 3.9% | 3.7% | 3.6% | 3.5% | ||
Bond Idesa fixed rate, denominated in U.S. dollars | 187 | - | - | - | - | 10,132 | 10,319 | 6.153 |
Average interest rate | 7.1% | - | - | - | - | 7.2% | ||
Variable rate, denominated in U.S. dollars (Braskem Idesa) | 634 | 15 | 44 | 34 | 665 | - | 1,392 | 1,243 |
Average interest rate | 4.2% | 0.0% | 0,0% | 0,0% | 0,0% | - | ||
Fixed rate, denominated in reais | 8 | 5 | 2 | - | - | - | 16 | 14 |
Average interest rate | 8.0% | 6.9% | 6.5% | - | - | - |
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Payment Schedule—Breakdown by Type of Interest Rate | ||||||||
As of December 31, 2020 | ||||||||
Expected Maturity Date | ||||||||
2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | Fair Value(1) | |
(in millions of reais, unless otherwise indicated) | ||||||||
Liabilities: | ||||||||
Loans and financings (excluding debentures): | ||||||||
Fixed rate, denominated in U.S. dollars | 751.7 | 1,487.6 | 1,017.3 | 4,417.2 | — | 27,811.2 | 35,485.1 | 37,826.9 |
Average interest rate | 6.1% | 5.4% | 3.5% | 5.9% | — | 5.9% | — | — |
Variable rate, denominated in U.S. dollars | 561.6 | 604.0 | 604.9 | 605.7 | 1,126.3 | 1,935.5 | 5,438.0 | 5,934.3 |
Average interest rate (over LIBOR) | 0.8% | 0.7% | 0.7% | 0.7% | 1.1% | 0.6% | — | — |
Ethylene XXI Project finance fixed rate, denominated in U.S. dollars | 387.8 | 272.2 | 398.9 | 419.3 | 513.6 | 843.8 | 2,835.6 | 4,642.7 |
Average interest rate | 4.8% | 4.8% | 4.8% | 4.8% | 4.8% | 4.7% | — | — |
Bond Idesa fixed rate, denominated in U.S. dollars | 43.6 | — | — | — | — | 4,685.9 | 4,729.6 | 4,411.3 |
Average interest rate | 7.5% | — | — | — | — | 7.5% | — | — |
Ethylene XXI Project finance variable rate, denominated in U.S. dollars | 738.9 | 682.3 | 803.8 | 892.2 | 672.3 | 1,075.0 | 4,864.4 | 7,242.3 |
Average interest rate | 3.5% | 3.4% | 3.5% | 3.5% | 3.6% | 3.7% | — | — |
Fixed rate, denominated in reais | 18.9 | 13.2 | 10.5 | 5.0 | 4.9 | 2.4 | 54.9 | 69.5 |
Average interest rate | 4.5% | 4.6% | 4.9% | 6.5% | 6.5% | 6.5% | — | — |
Variable rate, denominated in reais | 46.6 | 47.0 | 248.0 | 656.4 | 9.4 | — | 1,007.3 | 954.7 |
Average interest rate (CDI) | 2.0% | 2.0% | 1.9% | 1.9% | 2.4% | — | — | — |
Variable rate, denominated in reais | 102.4 | 89.7 | 89.6 | 89.6 | 60.1 | 242.6 | 674.1 | 3,167.0 |
Average interest rate (over IPCA) | 6.0% | 6.0% | 6.0% | 6.0% | 6.0% | 6.0% | — | — |
Total Loan and financings | 2,651.7 | 3,195.9 | 3,173.0 | 7,085.3 | 2,386.7 | 36,596.5 | 55,089.1 | 64,248.7 |
Assets: | ||||||||
Cash and cash equivalents and other instruments: | ||||||||
Fixed rate, denominated in foreign currency | 5.626,0 | — | — | — | — | — | 5,626.0 | 5,626.0 |
Variable rate, denominated in reais | 11.879,6 | — | — | — | — | — | 11,879.6 | 11,79.6 |
Total cash and cash equivalents and other investments | 17.505,6 | — | — | — | — | — | 17,505.6 | 17,505.6 |
(1) represents the net present value of the future cash flows from the obligations converted into reais at fair market value as of December 31, 2020. |
Variable rate, denominated in reais | - | - | - | 0 | 0 | 3 | 3 | 2 |
Average interest rate (over TR) | - | - | - | 3.3% | 3.3% | 3.3% | ||
Variable rate, denominated in reais | 112 | 9 | 480 | 327 | - | 2,950 | 3,878 | 3,366 |
Average interest rate (CDI) | 12% | 14.7% | 11.7% | 11.7% | - | 11.7% | ||
Variable rate, denominated in reais | 103 | 61 | 48 | 48 | 690 | 253 | 1,203 | 1,474 |
Average interest rate (over IPCA) | 6.0% | 6.0% | 6.0% | 6.0% | 5.6% | 5.8% | ||
Total Loan and financings | 2,930 | 657 | 1,843 | 2,292 | 7,473 | 39,258 | 54,453 | 43,690 |
Assets: | ||||||||
Cash and cash equivalents and other instruments: | ||||||||
Fixed rate, denominated in foreign currency | 7,051 | - | - | - | - | - | 7,051 | 7,051 |
Variable rate, denominated in reais | 12,109 | - | - | - | - | - | 12,109 | 12,109 |
Total cash and cash equivalents and other investments | 19,160 | - | - | - | - | - | 19,160 | 19,160 |
(1) | represents the net present value of the future cash flows from the obligations converted into reais at fair market value as of December 31,2023. |
In the event that the average interest rate applicable to our financial assets and debt in 2021 are2024 is one percentage point higher than the average interest rate in 2020,2023, our financial income would increase by R$175.1192 million and our financial expenses would increase by R$550.9544 million.
Foreign Currency Exchange Rate Risk
Our liabilities with exposure to foreign currency exchange rate risk are mainly U.S. dollar-denominated. To partially offset the risk of a devaluation of the real against the U.S. dollar, we currently maintain liquid assets denominated in U.S. dollars available and enter into derivative contracts.available. Additionally, in order to provide a better representation of the actual exchange rate risk related to future exports, we designated part of our U.S. dollar-denominated liabilities as a hedging instrument, implementing the hedge accounting treatment since May 1, 2013. We borrow in the international markets to support our operations and investments; we have exposure to market risks from changes in foreign exchange rates and interest rates.
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The table below provides information about our significant foreign currency exposures:
Payment Schedule—Breakdown by Currency | ||||||||
As of December 31, 2023, Expected Maturity Date | ||||||||
2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | Fair Value(1) | |
(in millions of reais) | ||||||||
Liabilities: | ||||||||
Loans, financings and trade payables: | ||||||||
Loans and financings denominated in U.S. dollars | 2,708 | 581 | 1,313 | 1,916 | 6,783 | 36,052 | 49,353 | 39,034 |
Accounts payable denominated in U.S. dollars | 9,249 | - | - | - | - | - | 9,249 | 9,249 |
Total loans, financings and trade payables | 11,957 | 581 | 1,313 | 1,916 | 6,783 | 36,052 | 58,602 | 48,283 |
Assets: | ||||||||
Cash and cash equivalents and other investments Denominated in foreign currency | 7,051 | - | - | - | - | - | 7,051 | 7,051 |
Total cash and cash equivalents and other investments | 7,051 | - | - | - | - | - | 7,051 | 7,051 |
Hedge Accounting: | ||||||||
Hedge Accounting designated Exports/Sales | 954 | 3,982 | 1,489 | 1,089 | 8,593 | 20,454 | 36,561 | 36,561 |
Payment Schedule—Breakdown by Currency | |||||||||
As of December 31, 2016 Expected Maturity Date | |||||||||
2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | Fair Value(1) | ||
(in millions of reais) | |||||||||
Liabilities: | |||||||||
Loans, financings and trade payables: | |||||||||
Loans and financings denominated in U.S. dollars | 2,483.8 | 3,046.1 | 2,824.9 | 6,334.4 | 2,312.3 | 36,351.4 | 53,352.8 | 60,057.4 | |
Accounts payable denominated in U.S. dollars | 5,697.4 | — | — | — | — | — | 5,697.4 | 5,697.4 | |
Total loans, financings and trade payables | 8,181.2 | 3,046.1 | 2,824.9 | 6,334.4 | 2,312.3 | 36,351.4 | 59,050.2 | 65,754.8 | |
Assets: | |||||||||
Cash and cash equivalents and other investments Denominated in foreign currency | 5,626.0 | — | — | — | — | — | 5,626.0 | 5,626.0 | |
Total cash and cash equivalents and other investments | 5,626.0 | — | — | — | — | — | 5,626.0 | 5,626.0 | |
Hedge Accounting: | |||||||||
Hedge Accounting designated Exports/Sales | 2,831.9 | 952.6 | 2,239.7 | 4,888.7 | 3,262.4 | 25,560.1 | 39,735.5 | 39,735.5 |
Our foreign currency exposures give rise to market risks associated with exchange rate movements of the real against the U.S. dollar. Foreign currency-denominated liabilities as of December 31, 20202023, consisted primarily of U.S. dollar-denominated debt. Our U.S. dollar-denominated debt, including short-term debt and current portion of long-term debt, was R$53,352.8 million48.4 billion (US$10,266.7 million) and R$38,476.7 million (US$9,545.9 million)10.0 billion) as of December 31, 2019.2023, and $43.3 billion (US$8.3 billion) as of December 31, 2022. This foreign currency exposure is represented by debt in the form of notes, bonds, pre-export finance facilities and working capital loans.
Our cash and funds available in U.S. dollars partially protect us against exposure arising from the U.S. dollar-denominated debt. Similarly, revenue from future sales and exports partially offsets this foreign currency exposure for U.S. dollar-denominated debt, and we therefore adopted hedge accounting treatment to provide a better representation of our actual exposure. Since 2016, Braskem has recognized the exchange rate variation, held on “Other Comprehensive Income,” to the income statement, following the future sales and exports designation schedule (for further information, see note 2028.7 to our audited consolidated financial statements elsewhere in this annual report).
In the event that the real depreciated by 10% against the U.S. dollar during 20202023 as compared to the real/real/U.S. dollar exchange rate as of December 31, 2020,2022, our financial expenses indexed to the dollar in 20212023 would have increased by R$5,335.3 million,4.9 billion, and our financial income would have increased by R$562.6705.1 million.
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Commodity Prices
We do not hedge the exposure to the price of naphtha, our principal raw material. This is, in part, because a portion of our sales are exports payable in foreign currencies and linked to the international market prices of these commodities denominated in U.S. dollars and, in part, because the prices of our polyethylene, polypropylene and PVC products sold in domestic markets generally reflect changes in the international market prices of these products denominated in U.S. dollars, converted into reais. In periods of high volatility in the U.S. dollar price of naphtha or the real/U.S. dollar exchange rate, there is usually a lag between the time that the U.S. dollar price of naphtha increases or the U.S. dollar appreciates and the time that we can effectively pass on the resulting increased cost in reais to our customers in Brazil. Accordingly, if the U.S. dollar price of naphtha increases precipitously or the real devalues precipitously against the U.S. dollar in the future, we may not immediately be able to pass on all of the corresponding increases in our naphtha costs to our customers in Brazil, which could materially adversely affect our results of operations and financial condition. See “Item 3. Key Information—D Risk Factors—Risks Relating to Us and the Petrochemical Industry.”
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
The Bank of New York Mellon, which was designated our depositary in December 2016, collects its fees for the delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs or from intermediaries acting for them. The depositary also collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services subject to the payment of fees until its fees for those services are paid.
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Persons depositing or withdrawing shares must pay:Fees and Expenses
Persons depositing or withdrawing shares or ADS holders must pay: | ||
$5.00 | ·Issuance of ADSs, including issuances resulting from a distribution of shares or ·Cancellation of ADSs for the |
$.05 (or less) per ADS | ·Any cash distribution | |||
A fee equivalent to the | ·Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the Depositary to ADS holders |
$.05 (or less) per ADS per calendar year | ·Depositary services | |||
Registration or transfer fees | ·Transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw shares | |||
Expenses of the Depositary | ·Cable (including SWIFT) and facsimile transmissions (when expressly provided in ·Converting foreign currency to U.S. dollars |
Taxes and other governmental charges the Depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes | ||
Any charges | ·As necessary |
During the year ended December 31, 2020,2023, we received from the depositary of our ADSs US$598.3 thousands,1,189 thousand, which was used for general corporate purposes such as the payment of costs and expenses associated with (1) the preparation and distribution of proxy materials, (2) the preparation and distribution of marketing materials and (3) consulting and other services related to investor relations.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
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ITEM 15. CONTROLS AND PROCEDURES
Not applicable.
Not applicable.
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2020. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weakness in our internal control over financial reporting described below, as of December 31, 2020, our2023. Our disclosure controls and procedures were not effectiveare designed to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act wasis being recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it was accumulated for and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding the required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective. Based on our management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2023, our disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of the effectiveness of internal control to future periods are also subject to the risk that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate.
Our management, with the participation of the CEO and CFO, under the oversight of the Board of Directors, assessed the effectiveness of our internal control over financial reporting as of December 31, 20202023 based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on thisits assessment, our management has concluded that as of December 31, 2020, ourwe maintained effective internal control over financial reporting was not effective becauseas of December 31, 2023, based on criteria in Internal Control-Integrated Framework, issued by the COSO (2013).
Audit of the material weakness described below. A material weakness is a control deficiency, or combinationEffectiveness of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual consolidated financial statements will not be prevented or detected on a timely basis.
Material Weakness in Internal Control over Financial Reporting
We identified ineffective information technology controls (GITCs) over the scale systems that generate the weighted quantities of product sold for certain sales that resulted in a material weakness. These ineffective controls were due to an insufficient complement of resources to timely complete an effective risk assessment process and implement controls.
The material weakness did not result in a misstatement of the consolidated financial statements.
Our independent registered public accounting firm KPMG Auditores Independentes, has issued an adverse audit opinion onaudited the effectiveness of our internal control over financial reporting as of December 31, 2020,2023, as stated in their report, which is included in this annual report.
herein.
Remediation Actions Taken in 2022 Addressing Material Weakness Reported in 2020
Management is taking several actions to improve controls and continues to monitor the maturity and operating effectivenessas of controls designed and implemented. In order to remediate the material weakness described above, we, led by our Chief Executive Officer and the Chief Financial Officer, are implementing and monitoring the following specific actions:
Information technology controls (GITCs) over the scale systems
The Audit Committee has reviewed and discussed these matters with management. The Audit Committee will oversee management efforts to remediate the identified material weakness.
The material weakness will be considered remediated when management concludes that, through testing, the applicable remediated controls are designed, implemented and operating effectively. We expect remediation of this material weakness will be completed during fiscal year 2021.
Remediation Actions Addressing Material Weaknesses Reported in 2019
As described in this annual report, our management focused on strengthening our internal control environment and achieved results that are shown by the remediation actions taken with regard to material weaknesses reported in the previous year.
The following specific actions were implemented and are part of the Company’s monitoring routines:
The internal control department hired experienced resources and redesigned its structure to provide more focus and coverage over the internal control environment. Management performed and documented an extensive risk assessment over the Company and its processes. This activity provided a better perspective on where the Company should focus on designing and implementing controls, training the involved teams and addressing process improvements. The implementation of these activities resulted in the remediation of the material weakness in these overall components reported in our 2019 annual report except for the material weakness noted above.
Our IT department leveraged the risk assessment executed over Company processes and systems to design and implement the necessary set of controls to provide an adequate coverage level of the risks related to these ancillary systems. Controls over user access, change management and IT operations are being executed and monitored by the IT team. These controls were tested and found to be effective during our management assessment cycle completed in 2020.
Our management also implemented controls to assess the key reports extracted from the ERP system, excluding the scales system, used to perform the control activities. Controls over the accuracy and completeness of each report were implemented and successfully tested by our management.
Our management hired new employees with expertise and skills to design, implement and execute controls focused on financial reporting, non-routine transactions and consolidation process that provide a higher standard over the preparation and quality of the Company’s financial statements. Also, the Shared Services group designed and implemented a process and controls to ensure that manual journal entries were being correctly recorded, supported and tracked by management. These controls were tested by management and operating effectively at December 31, 2020.2021
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The Legal team improved its controls focused onOur management took certain actions to address the legal contingency confirmation process. The implemented procedures, controls and the documentation ensure the completeness of the assessment and the quality of the results obtained from the confirmation process.
The Procurement and Legal teams worked together during 2020 to redesign the process of sourcing of legal services. This process is now executed by the procurement team as is executed for other services categories. This action provided adequate segregation of duties between procurement and payment activities.
Therefore,material weaknesses reported as of December 31, 2020, we2021 as described below:
Realization of the hedged items for certain debt at Braskem Idesa, a Mexican subsidiary
Our management has revised the review attributes that surround the accounting of hedged items. The following actions were executed and will be executed going forward to enhance the internal control:
· | improve the hedge accounting control description to facilitate the activity understanding and execution by the control operator; |
· | provide training sessions to people involved in the transactional activities to deal with unusual transactions (such as prepayments) related to the hedge accounting process; |
· | enhance the level of the documentation that supports the accounting reconciliation process. |
As a result of this activities and the assessment conducted during 2022, our management concluded that thethis material weaknesses described in our annual report on Form 20-F for the year endedweakness was remediated as of December 31, 2019 has been remediated.
2022.
Changes in Internal Control over Financial Reporting
Other than certain of the changes and certain of the remediation activities described above, there were no changes to internal control over financial reporting during the year ended December 31, 20202023, that would have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
Our Statutory Compliance and Audit Committee |
Our fiscal council currently includes antwo “audit committee financial expert”experts” within the meaning of this Item 16A. Our fiscal council has determined that Mr. Ismael Campos de Abreu16A and as such term is our fiscal council financial expert. Mr. Abreu’s curriculum is includeddefined in the SEC rules. See “Item 6. – A. Directors, Senior Management and Employees—Directors Statutory Compliance and Senior Management—Fiscal Council.” Given that our board has not made a formal determination as toAudit Committee” for information regarding the experience of Mr. Abreu’s independence, as that term is defined in Rule 303A.02 of the New York Stock Exchange’s Listed Company Manual, he is not considered independent under that standard. However, he meetsJosé Écio Pereira da Costa Júnior and Ms. Maria Helena Pettersson. They meet the standards of independence for fiscal councilexternal members of an audit committee under Brazilian Corporate Law. See “Item 6. Directors, Senior Managementthe Company’s policy and Employees—Directors and Senior Management—Fiscal Council” for more information.of Comissão de Valores Mobiliários Resolution No. 23 of 2021.
We have adopted a code of conduct that applies to members of our board of directors, fiscal council and board of executive officers, as well as to our other employees. Our current code of conduct was approved by our board of directors in April 2018, and amended in June 2020.2020 and October 2023. A copy of our code of conduct may be found on our website at www.braskem.com.br.www.braskem-ri.com.br. The information included on our website or that might be accessed through our website is not included in this annual report and is not incorporated into this annual report by reference.
Item 16C. Principal Accountant Fees and Services
Audit and Non-Audit Fees
The following table sets forth the fees billed to us by our independent registered public accounting firm KPMG Auditores Independentes during the fiscal years ended December 31, 20202023, and December 31, 2019.2022.
Year Ended December 31, | ||
2020 | 2019 | |
(in millions of reais) | ||
Audit fees(1) | 25.6 | 12.7 |
Audit-related fees(2) | 2.1 | 2.1 |
Tax fees(3) | 0.3 | 1.9 |
All other fees |
| 0.2 |
Total fees | 27.9 | 16.9 |
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Year Ended December 31, | ||
2023 | 2022 | |
(in millions of reais) | ||
Audit fees(1) | 42.8 | 34.3 |
Audit-related fees(2) | 3.4 | 1.3 |
Tax fees(3) | 2.7 | 2.8 |
All other fees | - |
|
Total fees | 49.0 | 38.5 |
(1) | Audit fees consist of the aggregate fees billed by our independent registered public accounting firms in connection with the audit of our annual financial statements, interim reviews and related |
(2) | Audit-related fees refer to services provided in connection with |
(3) | Tax fees consist of the aggregate fees billed by our independent registered public accounting |
Pre-Approval Policies and Procedures
Our fiscal council and board of directors have approvedThe Company has an Audit and Non-Audit Services Pre-Approval Policy, that sets forthinitially approved by the proceduresCompany’s Board of Directors on June 22, 2005 and amended on December 8, 2021, with prior analysis by the CCAE, which is now in effect under the name “Policy for hiring Independent Auditors.” The purpose of the Policy for hiring Independent Auditors is to regulate the process and the conditions pursuant to which services proposed to be performed by our independent auditors may be pre-approved. This policy is designed to (1) provide both general pre-approval of certain types of services throughfor hiring the use of an annually established schedule setting forthCompany's Independent Auditors, including the types of services that have already beencan be provided by them to the Company or its Subsidiaries, the services that are not allowed and the annual list of pre-approved for a certain yearexternal audit and with respectnon-audit services. Our Management should, whenever requested by the CCAE's Coordinator, present an update on the progress of the External Audit and Non-Audit Services previously approved by the CCAE and respective compensation, to services not included in an annual schedule, special pre-approval of services on a case by case basis by our fiscal council and our independent auditors, and (2) assessenable the CCAE to ascertain full compliance with the pre-approval policies and procedures. Policy.
Item 16D. Exemptions From the Listing Standards for Audit Committees
Our management periodically reportsCCAE meets the requirements for the exemption available to our fiscal council the nature and scopeforeign private issuers under paragraph (c)(3) of audit and non-audit services rendered by our independent auditors and is also required to report to our fiscal council any breach of this policy of which our management is aware.
We are relying on the general exemption from the listing standards relating to audit committees contained in Rule 10A-3(c)(3)10A-3 under the Exchange Act forAct. The CCAE is not the following reasons:
We doequivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority. Nonetheless, with the attributes provided to the CCAE under our bylaws and CCAE’s chart to the extent permitted by Brazilian law, we believe that its corporate governance system, taken as a whole, is materially equivalent to a system having an audit committee functioning as a committee of its board of directors. Accordingly, the Company does not believe that ourits reliance on this generalthe exemption willin paragraph (c)(3) of Rule 10A-3 materially adversely affectaffects the ability of our fiscal councilthe CCAE to act independently and to satisfy the other requirements of Rule 10A-3 to the listing standards relatingextent permitted by Brazilian Corporate Law.
We also have a permanent fiscal council. However, as of November 9, 2021, we no longer rely on the fiscal council to audit committeesavail ourselves of the exemption contained in paragraph (c)(3) of Rule 10A-3 under the Exchange Act.
Item 16E. Purchases |
Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs | |
Period: | ||||
From Aug 29, 2012 to Aug 28, 2013 | 262,300 | R$13.30 | 1.961000% | 13,376,161 |
From Feb 19, 2015 to Feb 18, 2016 | 80,000 | R$11.58 | 0.030096% | 3,500,000 |
On August 13, 2012, our board of directors authorized a share repurchase program under which we are authorized to repurchase up to 13,376,161 “class A” preferred shares at market prices overEquity Securities by the B3 at any timeIssuer and from time to time prior to August 28, 2013. In 2012, we repurchased 262,300 shares under this program. In 2013 and 2014, we did not repurchase any shares.Affiliated Purchasers
On February 11, 2015, our board of directors approved the fifth program for the repurchase of shares effective for the period between February 19, 2015 and February 18, 2016, through which we may acquire up 3,500,000 “class A” preferred shares at market price.
On April 20, 2015, we had repurchased 80,000 “class A” preferred shares for an aggregate of R$0.9 million.
Not applicable.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
On November 4, 2003, the SEC approved the final corporate governance rules established by the NYSE. According to these rules, foreign private issuers that are listed on the NYSE, such as Braskem, are subject to a more limited set of corporate governance requirements than those imposed on U.S. domestic issuers. As a foreign private issuer, Braskem must comply with the following four requirements imposed by the NYSE:
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· | Braskem must satisfy the audit committee requirements of Rule 10A-3 under the Exchange Act; |
· | Braskem’s chief executive officer must promptly notify the NYSE in writing if any executive officer of Braskem becomes aware of any material non-compliance with any of the applicable NYSE corporate governance rules; |
· | Braskem must provide a brief description of any significant ways in which Braskem’s corporate governance practices differ from those required to be followed by U.S. domestic issuers under the NYSE corporate governance rules; and |
· | Braskem must submit an executed written affirmation annually to the NYSE and an interim written affirmation to the NYSE each time a change occurs to Braskem’s board of directors or any committees of Braskem’s board of directors that are subject to Section 303A, in each case in the form specified by the NYSE. |
Significant Differences
The significant differences between Braskem’s corporate governance practices and the NYSE’s corporate governance standards are mainly due to the differences between the U.S. and Brazilian legal systems. Braskem must comply with the corporate governance standards set forth under the Brazilian Corporate Law, the rules of the CVM and the applicable rules of the B3, as well as those set forth in Braskem’s bylaws.
The significant differences between Braskem’s corporate governance practices and the NYSE’s corporate governance standards are set forth below.
Independence of Directors and Independence Tests
In general, the NYSE corporate governance standards require listed companies to have a majority of independent directors and set forth the principles by which a listed company can determine whether a director is independent. However, under the NYSE corporate governance standards, a listed company (whether U.S. or foreign) of which more than 50% of the voting power is held by another company (a “controlled company”), need not comply with the following NYSE corporate governance standards:
· | A controlled company need not have a majority of independent directors; |
· | A controlled company |
· | A controlled company |
Because a majority of the voting power of Braskem’s capital stock is directly controlled by Novonor S.A (formerS.A. - Em Recuperação Judicial (formerly Odebrecht S.A.), Braskem is a controlled company, and would therefore not be required to have a majority of independent directors.
Although Brazilian Corporate Law and Braskem’s bylaws establish rules in relation to certain qualification requirements of its directors, neither Brazilian Corporate Law nor Braskem’s bylaws require that Braskem havehas a majority of independent directors nor require Braskem’s board of directors or management to test the independence of Braskem’s directors before such directors are appointed. However, according
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Pursuant to our policies,an amendment to the Brazilian Corporate Law introduced by Law No. 14,195/2021, it became mandatory for the board of directors of publicly held companies such as Braskem to have 20% of their board of directors composed by independent members. Although we had already voluntarily adopted a board of directors with at least 20% of independent members, we amended our Policy on January 31, 2024 to reflect the exact requirements set out in regulation recently enacted by the CVM and the independent Directors elected at the 2024 Annual General Meeting comply with it.
Currently Braskem has six (6) independent members, from a total of our board of directors must be independent.eleven (11) members.
Executive Sessions
The NYSE corporate governance standards require non-management directors of a listed company to meet at regularly scheduled executive sessions without management.
According to the BrazilianLaw No. 6,404/76 (the “Brazilian Corporate Law,Law”), up to one-third of the members of Braskem’s board of directors canmay be elected to board of executive officer’s positions. Apart from the CEO of the Company, currentlyCurrently all Braskem’s directors are non-management directors. The non-management directors are not expressly empowered to serve as a check on Braskem’s management, and thereThere is no legal requirement that those directors meet regularly without management.
Nominating/Corporate Governance and Compensation Committees
The NYSE corporate governance standards require that a listed company have a nomination/corporate governance committee and a compensation committee, each composed entirely of independent directors and each with a written Internal Rules that address certain duties. However, as a controlled company, Braskem would not be required to comply with these requirements if it were a U.S. domestic company.
Braskem is not required under Brazilian Corporate Law to have, and accordingly does not have, a nominating/corporate governance committee or a compensation committee. Currently, all Braskem’s directors are nominated by certain of its shareholders, including Novonor S.A. (former- Em Recuperação Judicial (formerly Odebrecht S.A)S.A.), pursuant to shareholders agreements and Braskem’s by-laws. However, Braskem has the PersonnelPeople and Organization Committee, which is a committee of its board of directors that is responsible for, among other things:
· |
· |
· | analyze, prior to board of directors’ analysis, market references regarding the parameters and criteria presented by the Company’s management for administrators’ compensation and to submit a proposal for board of directors’ approval; and |
· |
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Under Brazilian Corporate Law, Braskem’s shareholders establish the global or the individual compensation of its directors, fiscal council, and executive officers, including benefits and allowances, at a general shareholder’sshareholders’ meeting based on the recommendation of Braskem’s board of directors. Under Braskem’s Bylaws, the shareholders establish the global compensation and the board of directors establishes the individual compensation.
Audit Committee and Audit Committee Additional Requirements
The NYSE corporate governance standards require that a listed company have an audit committee with a written Internal Rules that address certain specified duties and that is composed of at least three independent members, all of whom satisfy the independence requirements of Rule 10A-3 under the Exchange Act and Section 303A.02 of the NYSE’s Listed Company Manual.
As a foreign private issuer that qualifies for the general exemption from the listing standards relating to audit committees set forth in Section 10A-3(c)(3) under the Exchange Act, Braskem is not subject to the independence requirements of the NYSE corporate governance standards. See “Item 16D. Exemptions From the Listing Standards for Audit Committees.”
The SEC has recognized that, for foreign private issuers, local legislation may delegate some of the functions of the audit committee to other bodies. We established the CCAE upon approval at the board of directors meeting held on November 9, 2021. Our CCAE meets the requirements for the exemption available to foreign private issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The CCAE is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority.
Shareholder Approval of Equity Compensation Plans
The NYSE corporate governance standards require that shareholders of a listed company must be given the opportunity to vote on all equity compensation plans and material revisions thereto, subject to certain exceptions.
Under the InstructionResolution No. 567/200977/2022 of the Brazilian Securities Commission (Comissão de Valores Mobiliários – “CVM”), shareholder pre-approval is required for the adoption and revision of any equity compensation plans. On March 21st, 2018,July 28, 2023, our shareholders approved our Long Term Incentive Plan, which is an equity incentive compensation plan that provides the yearly opportunity for certain members of our Company, selected by the Board of Directors, to voluntarily adhere to the plan by acquisition of our shares and receive matching shares after the vesting period of three years provided the member continuously holds the shares acquired and remains a member of the company during the entire vesting period.
Corporate Governance Guidelines
The NYSE corporate governance standards require that a listed company must adopt and disclose corporate governance guidelines that address certain minimum specified standards which include: (1) director qualification standards; (2) director responsibilities; (3) director access to management and independent advisors; (4) director compensation; (5) director orientation and continuing education; (6) management succession; and (7) annual performance evaluation of the board of directors.
Braskem has adopted the Brazilian Stock Exchange (B3 S.A. - Brasil, Bolsa e Balcão) corporate governance rules for Level 1 companies and must also comply with certain corporate governance standards set forth under Brazilian Corporate Law. See “Item“Item 9. The Offer and Listing—Trading on the B3.” The Level 1 rules do not require Braskem to adopt and disclose corporate governance guidelines covering the matters set forth in the NYSE’s corporate governance standards. However, certain provisions of Brazilian Corporate Law that are applicable to Braskem address certain aspects of director qualifications standards and director responsibilities.
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Code of Conduct
The NYSE corporate governance standards require that a listed company must adopt and disclose a code of business conduct and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or officers. Each code of business conduct and ethics should address the following matters: (1) conflicts of interest; (2) corporate opportunities; (3) confidentiality; (4) fair dealing; (5) protection and proper use of company assets; (6) compliance with laws, rules and regulations (including insider trading laws); and (7) encouraging the reporting of any illegal or unethical behavior.
Braskem has adopted a Code of Conduct applicable to its directors, officers and employees, which addresses each of the items listed above. Braskem’s Code of Conduct is available on our investor relations website at www.braskem.com.br.www.braskem.com.br. No waivers of the provisions of the Code of Conduct are permitted, except if the restrictions on outside activities do not apply to Braskem’s directors and members of its fiscal council.
The main purpose of Braskem’s Code of Conduct is to establish the principles, values and standards that guide the business conduct of Team Members in their internal and external relations. Braskem also has a Code of Conduct for Contractors, which focuses on its relations with suppliers and partners.
On November 9, 2023, we adopted a Variable Compensation Refund Policy (Clawback Policy) to comply with amended applicable rules and regulations. The Clawback Policy is attached as an exhibit to this Annual Report.
Item 16H. Mine Safety Disclosure
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and this Item is included in exhibit 99.01.99.01.
Item 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
Item 16J. INSIDER TRADING POLICIES
Not applicable.
Item 16K. CYBERSECURITY
Risk Management and Strategy
Our Cyber Risk Management and Strategy processes are based on the NIST (National Institute of Standards and Technology at the U.S. Department of Commerce) Cybersecurity Framework, which outlines best practices on cyber security protection. Such international policy framework is structured around five areas: identify, protect, detect, respond, and recover, which we have also adopted and integrated into our risk management routines.
Our process for assessing, identifying, and managing material risks from cybersecurity focuses on identifying and neutralizing cybersecurity threats before a potential attack occurs and potentially compromises our platform’s confidentiality, integrity and availability. As part of our cybersecurity resiliency strategy and in an effort to mitigate potential cybersecurity risks, we employ various measures, including employee training, systems monitoring, and testing and maintenance of protective systems and contingency plans.
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We deploy security tools to help bolster our defense detection capabilities, such as web application firewall, endpoint detection and response systems, security information and event management tools.
All projects and engagements with third-party suppliers that involve the implementation of solutions in our environment must comply with our information security requirements, including information security checklists.
We regularly evaluate ourselves for appropriate business continuity and disaster recovery planning, with test scenarios that include simulations and penetration tests. Our software teams include professionals dedicated to the development, security, and operations (DevSecOps) of our systems. Our team of IT specialists conducts periodical vulnerability scan to identify vulnerabilities and risks and propose action plans. Our team of IT specialists meets weekly to assess material risks from cybersecurity threats. The correction of any vulnerabilities is made taking into account key performance indicators (“KPIs”), which we believe to be an efficient tool for risk management.
All of our business units, from digital to industrial automation, are expected to follow pre-determined procedures, active monitoring routines and respond promptly after the occurrence of a security incident.
We have an Information Security Master Plan in place, with the goal of improving our information security environment through the creation of new processes and implementation of new market solutions. The Information Security Master Plan helps guide our information security strategy.
We also have a Cyber Incident Response Plan (CIRP) in place to address and resolve any incidents or cybersecurity issues. In the event of cybersecurity incidents or imminent threats, our IT team first carries out an incident evaluation and investigation. To the extent needed, the IT team may set up a crisis room and escalate the situation to our senior management, while the team works on addressing and resolving the issue and, if needed, reestablishing our systems environment.
We work closely with an IT specialized company, which is currently responsible for maintaining and supporting Braskem’s IT environment. A contract with a third-party company specialized in computer forensic analysis is also in place, covering the potential assistance upon the occurrence of any incidents or threats requiring evidence collecting.
Governance
Our Board of Directors has delegated oversight over cybersecurity matters to our Statutory Compliance and Audit Committee. Our Statutory Compliance and Audit Committee works with our management to implement processes to monitor cybersecurity matters, receive regular updates on cybersecurity tests, incident response plan and our cybersecurity policies and procedures; ensure that management is conducting regular risk assessments; receive periodic reports related to designated cybersecurity incidents from management; establish with management an agreed upon approach for communication during a cybersecurity incident; monitor material cybersecurity developments through update calls with management and provide guidance on key decisions; review and debrief with management on post-incident remediation; monitor the content and timing of required cybersecurity disclosures; and ensure that we are in compliance with the regulations and rules related to cybersecurity, including but not limited to SEC rules.
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We have an Information Security Committee, which was established by our management to manage the cybersecurity risk processes described above. The Information Security Committee is responsible for discussing relevant and critical information security issues and ensuring the engagement and alignment of the main internal parties impacted by our Information Security Program. Decisions regarding cybersecurity risk management and strategy are also made by the Information Security Committee. Its main responsibilities are: to promote adequate knowledge about information security for all Braskem’s employees to periodically review the information security initiatives adopted by us, to evaluate projects involving information security whose risks have been identified by us as relevant, among other responsibilities.
The Information Security Committee is comprised of leaders from the areas of Information Technology, Compliance, Communication, Legal, Industrial Automation, and our offices in Europe, the United States, and Mexico, as well as the Chief Information Security Officer (“CISO”) and the Chief Information Officer (“CIO”). Our CISO and CIO are responsible for coordinating the activities of the Information Security Committee.
Our CISO holds a master’s degree in computer science with specialization in risk management, and has more than 24 years of experience in in the IT sector. He has experience in creating and leading a strategic information security team and has served as CIO and led large multidisciplinary teams in large companies. He has certifications in CCNA, CCNP, CCIE, CQS, MCSE and VCP. The CISO leads the our information security team and, in particular, identifies risks and implements countermeasures in the field of cybersecurity, considering both our internal operations and external scenarios. As part of his duties, the CISO provides relevant information to the officer responsible for Enterprise Risk Management in their regular discussions. The CISO also manages our Information Security Management System (“ISMS”) program. Guided by the principles of several industry-leading standards, such as the NIST Cybersecurity Framework and ISO 27001, the goal of the ISMS program is to continue to strengthen our cyber resilience.
Our CIO holds a systems analysis degree with an MBA in Finance, and has over 20 years of experience in the fields of information technology, innovation, implementation of shared services center, corporate projects with background in the financial and controllership areas. He has experience in, among other areas: (i) integration and unification of the IT area, data center, implementation of processes and systems, consolidation of service areas for several companies and countries (United States, Latin America, Europe and Africa); and (ii) organizational restructuring, acting in crisis management and management changes, with strong influence on the conduct of critical issues with shareholders, investors and key stakeholders.
The Information Security Committee meets on a bi-monthly basis and reviews any cybersecurity-related issues, including the identification and monitoring of any threats and assessment of any KPIs established by our IT team.
A report of the Information Security Committee’s activities is periodically submitted to our executive officers, our Board of Directors, and our Statutory Compliance and Audit Committee for information, which is generally responsible for oversight and strategic guidance with respect to cybersecurity matters. The report includes an overview of the state of our cybersecurity policies and procedures, an update on the most important cybersecurity risks that we face, an update on notable cybersecurity incidents and recent threats, and a summary of the results of our IT team’s recent independent cybersecurity assessments, among other relevant matters.
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As of the date of this annual report, and in the past three years, we have not identified any cybersecurity incidents that would have materially affected us, our business strategy, results of operations or financial condition. We cannot guarantee that such incidents will not occur and adversely affect our operations in the future. Our business, results of operations and financial condition may be adversely affected if any past or current vulnerabilities, known or unknown to us, become the target of unauthorized access or intrusion or evolve into security breaches and other incidents, including as a result of third-party action, employee or contractor error, nation state malfeasance, malware, phishing, computer hackers, system error, software bugs or defects, process failure or otherwise.
We and our third-party service providers and business partners may be unable to anticipate or prevent techniques used in the future to obtain unauthorized access or to sabotage systems and cannot guarantee that applicable recovery systems, security protocols, network protection mechanisms and other procedures are or will be adequate to prevent network and service interruption, system failure or data loss. Since techniques used to obtain unauthorized access change frequently and the sophistication and size of cybersecurity attacks is increasing, we may be unable to implement adequate preventative measures or stop the attacks while they are occurring. Any actual or perceived security breach or incident could delay or interrupt our operations, could result in loss, compromise, corruption or disclosure of confidential information, intellectual property and sensitive and personal data or data we rely on to operate, expose us to a risk incurring significant liability and be subject to regulatory scrutiny, investigations, proceedings and penalties, and require us to expend significant capital and other resources to neutralize any incident and implement additional security measures.
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PART III
We have responded to Item 18 in lieu of responding to this item.
Reference is made to Item 19 for a list of all financial statements filed as part of this annual report.
(a) Financial Statements
Independent Auditor’s Reports on the Consolidated Financial Statements | F-1 |
Notes to the |
(b) List of Exhibits
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: May 13, 2021
April 11, 2024
BRASKEM S.A. By: /s/ Roberto Name: Roberto Title: Chief Executive Officer |
INDEX TO FINANCIAL STATEMENTS
Independent Auditors’s Reports on the Consolidated Financial Statements (Auditor Firm ID: 1124) | F-1 |
Consolidated Statement of Financial Position as of December 31, | |
Notes to the Consolidated Financial Statements |
Braskem S.A.
Consolidated financial statementsat December 31, 2020
and Independent Auditors' Report
Report of Independent Registered Public Accounting Firm
To the ShareholdersStockholders and Board of Directors
Braskem S.A.:
OpinionOpinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated statement of financial position of Braskem S.A. and subsidiaries’subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of profit or loss, comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),In our opinion, the consolidated financial statements ofreferred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20202023 and 2019,2022, and the related consolidated statementsresults of profitits operations and loss, comprehensive income, changes in equity, andits cash flows for each of the years in the three -yearthree-year period ended December 31, 2020, and2023, in conformity International Financial Reporting Standards (IFRS) as issued by the related notes (collectively,International Accounting Standards Board (IASB). Also in our opinion, the consolidated financial statements), and our report dated May 13, 2021 expressed an unqualified opinion on those consolidated financial statements.
ACompany maintained, in all material weakness is a deficiency, or a combination of deficiencies, inrespects, effective internal control over financial reporting such that there is a reasonable possibility that a material misstatementas of December 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness has been identified and included in management’s assessment related to ineffective information technology controls over the scale systems that generate the weighted quantities of product sold for certain sales due to an insufficient complement of resources to timely complete an effective risk assessment process and implement controls. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.Treadway Commission.
Basis for OpinionOpinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15 of the Company’s Annual Report on Form 20-F.Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audit.audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
F-1 |
We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
KPMG Auditores Independentes
São Paulo, BrazilMay 13, 2021
F-2 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Braskem S.A.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of Braskem S.A. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of profit or loss, comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated May 13, 2021, expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for lease arrangements as of January 1, 2019 due to the adoption of IFRS 16 “Leases”.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MattersMatter
The critical audit mattersmatter communicated below are mattersis matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit mattersmatter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing separate opinions on the critical audit mattersmatter or on the accounts or disclosures to which they relate.
it relates.
Evaluation of impairment of cash generating units that contain goodwill
As discussed in notes 3.2.2 and 13 (a) to the consolidated financial statements, the balance of goodwill was R$ 2,058,874 thousand as of December 31, 2020. To evaluate the impairment of goodwill, the Company identifies its cash generating units (“CGUs”), estimates the recoverable amount of each CGU and compares this with its carrying value. The estimate of the recoverable value of the CGUs requires significant judgment on the part of the Company to make certain assumptions, including those related to: the discount rate, the growth rates for the next 10 years, the inflation rate, which is used for cash flows to perpetuity and future capital expenditure and its associated impact on costs.
We identified the evaluation of impairment of CGUs that contain goodwill as a critical audit matter. The assessment of certain assumptions used in the estimates of recoverable values, specifically the discount rate, the growth rates for the next 10 years, the inflation rate and future capital expenditure, including its associated impact on costs, was complex and involved a high degree of subjectivity which required the application of greater auditor judgment.
The primary procedures we performed to address this critical audit matter included the following:
We involved valuation professionals with specialized skills and knowledge, who assisted in:
We compared the budgeted cash flow as of and for the year ended December 31, 2020 prepared by the Company with the Company’s actual flows for the year then ended to assess the Company’s ability to accurately project.
Evaluation of the provision and disclosures related to the geological phenomenonevent in the state of Alagoas State
As discussed in notes 3.2.4, 24.3 and 26note 24 to the consolidated financial statements, the Company has recorded a provision related to the geological phenomenonevent in the vicinity of the Company’s salt mining wells in the state of Alagoas of R$ 9,175,777 thousand5,240 million as of December 31, 2020.2023. The provision is for the estimated future outflows of resources required to settle the Company’s commitments under an agreementagreements signed with the Brazilian governmentgovernmental authorities following the occurrence of the geological phenomenon. Theseevent as well as for other obligations related to the geological event for which it is probable that an outflow of economic benefits will be required. The commitments made by the Company include taking measures to closemonitor and stabilize the salt mines,mining wells, as well as relocating and compensating residents and businesses in the region and adoption oftaking actions to implement social and measures in vacated areas, urban mobility and social compensation actions.measures.
We identified the evaluation of the provision and disclosures related to the geological event in the vicinity of the Company’s salt mining activitieswells in Alagoas as a critical audit matter. TheSpecifically, the evaluation of the estimates and assumptions used by the Company to determine the provision amountextent and cost of the remediation actions required to monitor and stabilize the salt mining wells as well as the assessment of the Company’s judgments in relation to the likelihood of there being outflows of economic benefits to settle legal proceedings related to the geological event, required challenging auditor judgment and the use of professionals with specialized skills and knowledge.
The key estimates and assumptions related to the extent and cost of the remediation actions required to stabilize and close the wells, the market value of the properties of residents and businesses in the region, the other costs to relocate and compensate the residents and business owners, and the costs of the social and urban actions.
The primary procedures we performed to address this critical audit matter included the following:
We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s estimation process, including controls related to assumptions used in the estimation process and evaluation of information from external and internal experts, as well as controls over the financial statement disclosures.
We involved infrastructure valuation professionals, with specialized skills and knowledge, who assisted in:
We assessed the adequacy of the disclosures related to the provision for Alagoas.
Going concern assessment
As discussed in Note 1 to the consolidated financial statements, the Company’s financial statements have been prepared on a going concern basis. The Company has incurred in losses as of and for the years ended December 31, 2020 and 2019, and presented negative shareholders’ equity of R$ 3.9 billion as of December 31, 2020. Management believes, based on the Company’s forecast, that current working capital and capital expenditure financing is sufficient to fund operations and satisfy the Company’s obligations as they come due for at least one year from the financial statements` issuance date.
The forecast are calculated based on undiscounted cash flows, which includes the projected cash generation, less short-term debts and working capital need. The Company also contracted an international revolving credit facility in the amount of US$ 1 billion, which expires in 2023 and may be used without restrictions to improve the Company’s credit quality or in the event of deterioration in the macroeconomic scenario. As of December 31, 2020, this credit line had not been used.
We determined the Company’s ability to continue as a going concern and related disclosures as a critical audit matter. Due to the significant measurement uncertainty associate with the Company’s future cash flows, there was a high degree of subjective and judgment in evaluating the assumptions used to estimating these cash flows, specifically the sales (price and volume), price of the raw material, operational expenses, capital expenditures, inflation rate and payments regarding the Alagoas geological phenomenon projections.
The following are the primary procedures we performed to address this critical audit matter:
We comparedevaluated the proposed termsdesign and conditionstested the operating effectiveness of certain internal controls related to the provision for, and disclosure of, the financing arrangements with thosegeological event in the state of Alagoas. This included controls related to the Company’s existing loan facilitiesevaluation of information from external advisors and evaluated management’s analysis of their impact on the forecasted cash flows.disclosures in the consolidated financial statements.
We involved infrastructure valuation professionals, with specialized skills and knowledge, who assisted in:
in evaluating |
We also evaluated the payments regarding the Alagoas geological phenomenon by comparing the agreements, the technical appraisal reports prepared by the Company's external advisors regarding the monitoring and stabilization of the salt mining wells, the remediation plans established by the Company and the progressCompany’s estimate of the remediation project. significant costs to implement these plans.
We independently assessedread letters received directly from the sensitivity of reasonably possible changes to the key assumptions and judgments, such as forecasted volume, controllable mitigating actions, and considerations for the uncertainties, used to determine management’s forecasts of cash flows and financial position.
We assessed the adequacyCompany’s external legal counsel, that included their assessment of the disclosureslikelihood of there being an outflow of economic resources to settle legal proceedings related to the applicationgeological event as well as the estimation of the going concern assumption.amount involved and compared these assessments and estimates to those of the Company and with the disclosures made.
We questioned management about the other obligations related to the geological event and inspected internal and external documents related to them.
We evaluated the disclosures in the consolidated financial statements related to the geological event.
KPMG Auditores Independentes Ltda.
We have served as the Company’s auditor since 2018.
São Paulo, BrazilMay 13, 2021
April 11, 2024
F-3 |
Braskem S.A.
Statement of consolidated financial position at December 31
All amounts in thousandsmillions of reaisReais
Assets | Note | 2020 | 2019 | |||
0 | ||||||
Current assets | ||||||
Cash and cash equivalents | 5 | 13,862,852 | 6,803,880 | |||
Financial investments | 6 | 3,627,227 | 1,687,504 | |||
Trade accounts receivable | 7 | 4,731,979 | 2,285,750 | |||
Inventories | 8 | 8,383,650 | 7,625,084 | |||
Taxes recoverable | 10 | 1,192,665 | 1,238,011 | |||
Income tax and social contribution | 22(a) | 1,547,916 | 439,933 | |||
Dividends and interest on capital | 165 | 3,074 | ||||
Prepaid expenses | 344,867 | 115,096 | ||||
Derivatives | 20.3.1 | 33,769 | 4,712 | |||
Judicial deposits | 26 | 2,571,683 | ||||
Other receivables | 465,154 | 614,827 | ||||
34,190,244 | 23,389,554 | |||||
Non-current assets | ||||||
Financial investments | 6 | 15,564 | 9,708 | |||
Trade accounts receivable | 7 | 23,229 | 20,901 | |||
Inventories | 8 | 18,036 | 16,325 | |||
Taxes recoverable | 10 | 1,072,737 | 2,257,718 | |||
Income tax and social contribution | 72,267 | 239,847 | ||||
Deferred income tax and social contribution | 22(b) | 8,529,972 | 2,662,596 | |||
Judicial deposits | 26 | 196,911 | 1,508,880 | |||
Derivatives | 20.3.1 | 34,091 | 17,877 | |||
Other receivables | 227,480 | 258,865 | ||||
Investments | 11 | 43,153 | 63,843 | |||
Property, plant and equipment | 12 | 35,929,149 | 32,315,181 | |||
Intangible assets | 13 | 2,828,691 | 2,762,088 | |||
Right of use of assets | 14 | 2,902,395 | 2,605,654 | |||
51,893,675 | 44,739,483 | |||||
Total assets | 86,083,919 | 68,129,037 |
Assets | Note | 2023 | 2022 | ||
Current assets | |||||
Cash and cash equivalents | 5 | 14,187 | 12,466 | ||
Financial investments | 6 | 4,956 | 2,295 | ||
Trade accounts receivable | 7 | 2,910 | 3,232 | ||
Inventories | 8 | 12,532 | 14,030 | ||
Taxes recoverable | 10 | 1,461 | 1,156 | ||
Recoverable income taxes | 21.1 | 428 | 392 | ||
Derivatives | 19.5 | 137 | 158 | ||
Other receivables | 830 | 728 | |||
Total Current Assets | 37,441 | 34,457 | |||
Non-current assets | |||||
Taxes recoverable | 10 | 1,370 | 1,618 | ||
Recoverable income taxes | 21.1 | 292 | 253 | ||
Deferred tax assets | 21.2 | 6,443 | 6,359 | ||
Judicial deposits | 178 | 215 | |||
Derivatives | 19.5 | 210 | 72 | ||
Other receivables | 309 | 188 | |||
Investments | 11 | 165 | 149 | ||
Property, plant and equipment | 12 | 38,405 | 37,763 | ||
Intangible assets | 13 | 3,108 | 3,022 | ||
Right of use of assets | 14 (a) | 3,820 | 3,953 | ||
Total Non-Current Assets | 54,300 | 53,592 | |||
Total assets | 91,741 | 88,049 |
The notes are an integral part of the consolidated financial statements.
F-4 |
Braskem S.A.
Statement of consolidated financial position at December 31
All amounts in millions of Reais
Liabilities and shareholders' equity | Liabilities and shareholders' equity | Note | 2020 | 2019 | Note | 2023 | 2022 | ||||
0 | |||||||||||
Current liabilities | Current liabilities | 0 | |||||||||
Trade payables | 15 | 9,946,315 | 9,116,989 | ||||||||
Borrowings | 16 | 1,318,931 | 774,924 | ||||||||
Braskem Idesa borrowings | 17 | 7,660,128 | 744,408 | ||||||||
Debentures | 18 | 54,436 | 46,666 | ||||||||
Derivatives | 20.3.1 | 592,251 | 49,251 | ||||||||
Payroll and related charges | 814,566 | 623,723 | |||||||||
Taxes payable | 21 | 952,689 | 322,886 | ||||||||
Income tax and social contribution | 0 | 284,129 | 34,856 | ||||||||
Dividends | 0 | 5,456 | 6,502 | ||||||||
Advances from customers | 0 | 287,449 | 355,764 | ||||||||
Leniency agreement | 25 | 397,036 | 362,719 | ||||||||
Sundry provisions | 23 | 362,407 | 203,134 | ||||||||
Other payables | 0 | 466,341 | 930,638 | ||||||||
Provision - geological event in Alagoas | 26 | 4,349,931 | 1,450,476 | ||||||||
Other financial liabilities | 20.2 | - | 516,933 | ||||||||
Lease | 14(b) | 895,109 | 676,291 | ||||||||
28,387,174 | 16,216,160 | ||||||||||
Trade payables | 15 | 13,221 | 12,247 | ||||||||
Borrowings and debentures | 16 | 2,029 | 1,382 | ||||||||
Braskem Idesa borrowings | 17 | 739 | 868 | ||||||||
Derivatives | 19.5 | 58 | 195 | ||||||||
Payroll and related charges | 828 | 828 | |||||||||
Taxes payable | 20 | 387 | 491 | ||||||||
Income taxes payable | 11 | 381 | |||||||||
Sundry provisions | 22 | 1,282 | 923 | ||||||||
Geological event in Alagoas | 24 | 2,759 | 4,248 | ||||||||
Lease | 14 (b) | 978 | 1,040 | ||||||||
Other payables | 2,202 | 1,583 | |||||||||
Total Current Liabilities | 24,494 | 24,186 | |||||||||
Non-current liabilities | Non-current liabilities | ||||||||||
Borrowings and debentures | 16 | 40,207 | 34,334 | ||||||||
Braskem Idesa borrowings | 17 | 10,511 | 10,502 | ||||||||
Derivatives | 19.5 | 141 | 82 | ||||||||
Taxes payable | 20 | 206 | 298 | ||||||||
Loan from non-controlling shareholders of Braskem Idesa | 9(a) | 2,490 | 2,498 | ||||||||
Deferred tax liabilities | 21.2 | 1,677 | 1,153 | ||||||||
Post-employment benefits | 25.3(a) | 567 | 494 | ||||||||
Legal provisions | 23 | 1,095 | 1,171 | ||||||||
Sundry provisions | 22 | 943 | 1,357 | ||||||||
Geological event in Alagoas | 24 | 2,481 | 2,379 | ||||||||
Lease | 14 (b) | 2,955 | 3,201 | ||||||||
Other payables | 695 | 286 | |||||||||
Trade payables | 15 | 7,233 | 3,837 | ||||||||
Borrowings | 16 | 40,413,192 | 28,242,052 | ||||||||
Braskem Idesa borrowings | 17 | 4,399,110 | 9,237,318 | ||||||||
Debentures | 18 | 181,679 | 227,901 | ||||||||
Derivatives | 20.3.1 | 558,913 | 169,513 | ||||||||
Taxes payable | 21 | 1,370 | 129,353 | ||||||||
Loan to non-controlling shareholders of Braskem Idesa | 9(a) | 3,222,493 | 2,395,887 | ||||||||
Income tax and social contribution | 576,174 | - | |||||||||
Deferred income tax and social contribution | 22(b) | 1,234,398 | 273,036 | ||||||||
Post-employment benefits | 27.2 | 472,074 | 389,075 | ||||||||
Advances from customers | 0 | 382,478 | - | ||||||||
Contingencies | 24.1 | 1,151,087 | 1,151,524 | ||||||||
Leniency agreement | 25 | 1,077,314 | 1,379,549 | ||||||||
Sundry provisions | 23 | 511,801 | 302,072 | ||||||||
Provision - geological event in Alagoas | 26 | 4,825,846 | 1,932,591 | ||||||||
Other payables | 0 | 235,324 | 133,858 | ||||||||
Lease | 14(b) | 2,312,777 | 2,000,605 | ||||||||
61,563,263 | 47,968,171 | ||||||||||
Total Non-Current Liabilities | 63,968 | 57,755 | |||||||||
Shareholders' equity | Shareholders' equity | 28 | - | - | 27 | ||||||
Capital | 8,043 | 8,043 | |||||||||
Capital reserve and treasury shares | 27 | 17 | |||||||||
Profit reserves | 1,826 | ||||||||||
Additional paid in capital | (488) | (488) | |||||||||
Other comprehensive loss | (852) | (2,076) | |||||||||
Accumulated losses | (2,738) | ||||||||||
Capital | 0 | 8,043,222 | 8,043,222 | ||||||||
Total attributable to the Company's shareholders | 3,992 | 7,322 | |||||||||
Capital reserve | 0 | - | 232,472 | ||||||||
Non-controlling interest in subsidiaries | (713) | (1,214) | |||||||||
Revenue reserves | 0 | - | 1,905,255 | ||||||||
Additional paid in capital | 0 | (488,388) | (488,388) | ||||||||
Other comprehensive income | 0 | (5,177,889) | (4,757,539) | ||||||||
Treasury shares | 0 | (49,704) | (49,724) | ||||||||
Accumulated losses | 0 | (4,529,547) | - | ||||||||
Total attributable to theCompany's shareholders | 0 | (2,202,306) | 4,885,298 | ||||||||
Non-controlling interest in subsidiaries | 0 | (1,664,212) | (940,592) | ||||||||
(3,866,518) | 3,944,706 | ||||||||||
Total Shareholders’ Equity | 3,279 | 6,108 | |||||||||
Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | 86,083,919 | 68,129,037 | 91,741 | 88,049 |
The notes are an integral part of the consolidated financial statements.
F-5 |
Braskem S.A.
Statement of consolidated profit or loss
Years ended December 31
All amounts in thousandsmillions of reais,Reais, except earnings (loss) per share
Note | 2020 | 2019 | 2018 | Note | 2023 | 2022 | 2021 | ||||||||||
0 | |||||||||||||||||
Net revenue | Net revenue | 30 | 58,543,494 | 52,323,525 | 57,999,866 | 28 | 70,569 | 96,519 | 105,625 | ||||||||
Cost of products sold | 34 | (47,331,414) | (45,879,118) | (46,576,657) | |||||||||||||
Cost of products sold | 30 | (67,548) | (85,161) | (73,568) | |||||||||||||
0 | |||||||||||||||||
Gross profit | Gross profit | 0 | 11,212,080 | 6,444,407 | 11,423,209 | 3,021 | 11,358 | 32,057 | |||||||||
0 | |||||||||||||||||
Income (expenses) | Income (expenses) | 0 | |||||||||||||||
Selling and distribution | 30 | (1,916) | (2,108) | (2,056) | |||||||||||||
Loss for impairment of trade accounts receivable and others from clients | 30 | (83) | (38) | (9) | |||||||||||||
General and administrative | 30 | (2,472) | (2,764) | (2,522) | |||||||||||||
Research and development | 30 | (383) | (374) | (297) | |||||||||||||
Results from equity-accounted investees | 11(b) | 7 | 35 | 5 | |||||||||||||
Other income | 30 | 1,769 | 507 | 1,534 | |||||||||||||
Other expenses | 30 | (2,735) | (2,344) | (2,669) | |||||||||||||
Selling and distribution | 34 | (1,852,055) | (1,783,455) | (1,689,179) | |||||||||||||
(Loss) reversal for impairment of trade accounts receivable and others from clients | 34 | (55,252) | (7,069) | 87,008 | |||||||||||||
General and administrative | 34 | (1,918,747) | (2,224,180) | (1,793,185) | |||||||||||||
Research and development | 34 | (250,648) | (247,730) | (219,256) | |||||||||||||
Results from equity investments | 11(c) | (19,398) | 10,218 | (888) | |||||||||||||
Other income | 32 | 750,749 | 2,408,434 | 1,027,222 | |||||||||||||
Other expenses | 32 | (7,938,621) | (4,446,942) | (554,713) | |||||||||||||
0 | |||||||||||||||||
(Loss) profit before net financial expenses and taxes | 0 | (71,892) | 153,683 | 8,280,218 | |||||||||||||
(Loss) profit before financial results and taxes | (2,792) | 4,272 | 26,043 | ||||||||||||||
0 | |||||||||||||||||
Financial results | Financial results | 33 | 31 | ||||||||||||||
Financial expenses | (5,589) | (5,066) | (4,903) | ||||||||||||||
Financial income | 1,678 | 1,374 | 1,581 | ||||||||||||||
Derivatives and exchange rate variations, net | 511 | (533) | (4,760) | ||||||||||||||
Financial expenses | 0 | (4,913,365) | (3,882,785) | (3,007,551) | |||||||||||||
Finance income (cost) | (3,400) | (4,225) | (8,082) | ||||||||||||||
Financial income | 0 | 600,184 | 850,554 | 589,052 | |||||||||||||
(Loss) profit before income tax | (6,192) | 47 | 17,961 | ||||||||||||||
Exchange rate variations, net | 0 | (5,298,711) | (1,724,520) | (2,256,983) | |||||||||||||
Income taxes | 21.1(c) | 1,302 | (868) | (3,999) | |||||||||||||
0 | |||||||||||||||||
0 | (9,611,892) | (4,756,751) | (4,675,482) | ||||||||||||||
0 | |||||||||||||||||
(Loss) profit before income tax and social contribution | 0 | (9,683,784) | (4,603,068) | 3,604,736 | |||||||||||||
0 | |||||||||||||||||
Current and deferred income tax and social contribution | 22(a) | 2,668,478 | 1,962,670 | (736,551) | |||||||||||||
0 | |||||||||||||||||
(Loss) profit for the year | 0 | (7,015,306) | (2,640,398) | 2,868,185 | |||||||||||||
Net (loss) profit for the year | (4,890) | (821) | 13,962 | ||||||||||||||
0 | |||||||||||||||||
Attributable to: | Attributable to: | 0 | |||||||||||||||
Company's shareholders | (4,579) | (336) | 13,985 | ||||||||||||||
Non-controlling interest in subsidiaries | (311) | (485) | (23) | ||||||||||||||
Company's shareholders | 0 | (6,691,720) | (2,540,995) | 2,827,650 | |||||||||||||
Net (loss) profit for the year | (4,890) | (821) | 13,962 | ||||||||||||||
Non-controlling interest in subsidiaries | 0 | (323,586) | (99,403) | 40,535 | |||||||||||||
Earnings per share - basic and diluted - R$ | 27 | ||||||||||||||||
Basic | |||||||||||||||||
Common | (5.7458) | (0.4215) | 17.5747 | ||||||||||||||
Preferred shares class "A" | (5.7458) | (0.4215) | 17.5749 | ||||||||||||||
Preferred shares class "B" | (5.7458) | (0.4215) | 0.5798 | ||||||||||||||
0 | |||||||||||||||||
(Loss) profit for the year | 0 | (7,015,306) | (2,640,398) | 2,868,185 | |||||||||||||
0 | |||||||||||||||||
(Loss) earnings per share - basic and diluted - R$ | 29 | ||||||||||||||||
Common | 0 | (8.4068) | (3.1922) | 3.5543 | |||||||||||||
Preferred shares class "A" | 0 | (8.4068) | (3.1922) | 3.5543 | |||||||||||||
Preferred shares class "B" | 0 | (8.4068) | (3.1922) | 0.5910 | |||||||||||||
Diluted | |||||||||||||||||
Common | (5.7458) | (0.4215) | 17.5747 | ||||||||||||||
Preferred shares class "A" | (5.7458) | (0.4215) | 17.5242 | ||||||||||||||
Preferred shares class "B" | (5.7458) | (0.4215) | 0.5798 |
The notes are an integral part of the consolidated financial statements.
F-6 |
Braskem S.A.
Statement of consolidated other comprehensive (loss) income
Years ended December 31
All amounts in millions of Reais
Note | 2023 | 2022 | 2021 | |||||
Net (loss) profit for the year | (4,890) | (821) | 13,962 | |||||
Other comprehensive (loss) income: | ||||||||
Items that will be reclassified subsequently to profit or loss | ||||||||
Fair value of cash flow hedge, net of taxes | 150 | 293 | 323 | |||||
Cash flow hedges,net of tax | 150 | 293 | 323 | |||||
Exchange variation of foreign sales hedge, net of taxes | 19.6(a) | 2,359 | 2,060 | (5) | ||||
Exchange variation of foreign sales hedge - Braskem Idesa, net of taxes | 19.6(b) | 1,497 | 787 | 212 | ||||
Sales hedges, net of tax | 3,856 | 2,847 | 207 | |||||
Foreign subsidiaries currency translation adjustment | (2,464) | (1,806) | 1,503 | |||||
Total | 1,542 | 1,334 | 2,033 | |||||
Item that will not be reclassified to profit or loss | ||||||||
Actuarial gain (loss) with post-employment benefits, net of taxes | (85) | 10 | 23 | |||||
Total | (85) | 10 | 23 | |||||
Total comprehensive (loss) income for the year | (3,433) | 523 | 16,018 | |||||
Attributable to: | ||||||||
Company's shareholders | (3,405) | 715 | 16,016 | |||||
Non-controlling interest in subsidiaries | (28) | (192) | 2 | |||||
Total comprehensive (loss) income for the year | (3,433) | 523 | 16,018 |
The notes are an integral part of the consolidated financial statements.
F-7 |
Braskem S.A.
Statement of consolidated comprehensive incomechanges in equity
Years ended December 31
All amounts in thousandsmillions of reaisReais
Note | 2020 | 2019 | 2018 | ||||||
(Loss) profit for the year | (7,015,306) | (2,640,398) | 2,868,185 | ||||||
Other comprehensive income: | |||||||||
Items that will be reclassified subsequently to profit or loss | |||||||||
Fair value of cash flow hedge | (600,390) | 55,274 | (151,718) | ||||||
Income tax and social contribution - cash flow hedge | 202,832 | (19,805) | 54,481 | ||||||
Fair value of cash flow hedge from jointly-controlled investee, net of taxes | 1,260 | (978) | (2,329) | ||||||
(396,298) | 34,491 | (99,566) | |||||||
Exchange variation of foreign sales hedge | 20.4(a.i) | (6,881,183) | (856,068) | (3,145,857) | |||||
Sales Hedge - transfer to profit or loss | 20.4(a.i) | 2,194,059 | 1,385,121 | 1,022,782 | |||||
Income tax and social contribution on exchange variation | 1,593,622 | (179,878) | 721,845 | ||||||
Exchange variation of foreign sales hedge - Braskem Idesa | 20.4(a.ii) | (445,427) | 464,806 | 16,681 | |||||
Sales Hedge - transfer to profit or loss - Braskem Idesa | 20.4(a.ii) | 471,728 | 267,146 | 236,570 | |||||
Income tax on exchange variation - Braskem Idesa | (7,886) | (219,586) | (75,975) | ||||||
(3,075,087) | 861,541 | (1,223,954) | |||||||
Foreign subsidiaries currency translation adjustment | 2,658,042 | 136,722 | 801,223 | ||||||
Total | (813,343) | 1,032,754 | (522,297) | ||||||
Items that will not be reclassified to profit or loss | |||||||||
Defined benefit plan actuarial loss, net of taxes | (647) | (24,597) | (1,289) | ||||||
Post-employment plans - Health plan, net of taxes | (85,031) | (280) | |||||||
Long term incentive plan, net of taxes | 11,214 | 13,921 | 6,406 | ||||||
Loss on investments | - | (84) | (65) | ||||||
Total | 10,567 | (95,791) | 4,772 | ||||||
Total comprehensive (loss) income for the year | (7,818,082) | (1,703,435) | 2,350,660 | ||||||
Attributable to: | |||||||||
Company's shareholders | (7,096,912) | (1,644,368) | 2,398,250 | ||||||
Non-controlling interest in subsidiaries | (721,170) | (59,067) | (47,590) | ||||||
Total comprehensive (loss) income for the year | (7,818,082) | (1,703,435) | 2,350,660 |
Attributed to shareholders' interest | |||||||||||||||||||||||||||||
Profit reserves | |||||||||||||||||||||||||||||
Long-term Incentive | Treasury | Capital | Legal | Tax | Retention | Additional dividends | Additional paid in | Other comprehensive | Retained earnings Accumulated | Total Braskem shareholders' | Non-controlling interest in | Total shareholders' equity (net capital | |||||||||||||||||
Note | Capital | Plans | shares | reserve | reserve | incentive | of profits | proposed | capital | loss | losses | interest | subsidiaries | deficiency) | |||||||||||||||
As of December 31, 2020 | 8,043 | 32 | (50) | - | - | - | - | - | (488) | (5,209) | (4,530) | (2,202) | (1,664) | (3,866) | |||||||||||||||
Comprehensive income for the year: | |||||||||||||||||||||||||||||
Net profit (loss) for the year | - | - | - | - | - | - | - | - | - | 13,985 | 13,985 | (23) | 13,962 | ||||||||||||||||
Exchange variation of foreign sales hedge, net of taxes | 154 | 154 | 53 | 207 | |||||||||||||||||||||||||
Fair value of cash flow hedge, net of taxes | 263 | 263 | 60 | 323 | |||||||||||||||||||||||||
Actuarial gain (loss) with post-employment benefits, net of taxes | 23 | 23 | 23 | ||||||||||||||||||||||||||
Foreign subsidiaries currency translation adjustment | 1,591 | 1,591 | (88) | 1,503 | |||||||||||||||||||||||||
Total Comprehensive income for the period | 2,031 | 13,985 | 16,016 | 2 | 16,018 | ||||||||||||||||||||||||
Equity valuation adjustments: | |||||||||||||||||||||||||||||
Realization of additional property, plant and equipment price-level restatement, net of taxes | (26) | 26 | |||||||||||||||||||||||||||
Realization of deemed cost of jointly-controlled investment, net of taxes | (1) | 1 | |||||||||||||||||||||||||||
Exchange variation in hyperinflationary economy, net of taxes | 35 | 35 | 35 | ||||||||||||||||||||||||||
Equity valuation adjustments | 8 | 27 | 35 | 35 | |||||||||||||||||||||||||
Contributions and distributions to shareholders: | |||||||||||||||||||||||||||||
Dividends-lapse of statute of limitation | 3 | 3 | 3 | ||||||||||||||||||||||||||
Dividends | (6,000) | (6,000) | (6,000) | ||||||||||||||||||||||||||
Incentive long term plan payments with treasury shares | 12 | 3 | 15 | 15 | |||||||||||||||||||||||||
Legal reserve | 473 | (473) | |||||||||||||||||||||||||||
Tax incentive reserve | 1,018 | (1,018) | |||||||||||||||||||||||||||
Retention of profits | 644 | (644) | |||||||||||||||||||||||||||
Additional proposed dividends | 1,350 | (1,350) | |||||||||||||||||||||||||||
Total contributions to shareholders | 12 | 3 | 473 | 1,018 | 644 | 1,350 | (9,482) | (5,982) | (5,982) | ||||||||||||||||||||
As of December 31, 2021 | 8,043 | 32 | (38) | 3 | 473 | 1,018 | 644 | 1,350 | (488) | (3,170) | - | 7,867 | (1,662) | 6,205 | |||||||||||||||
Comprehensive income for the year: | |||||||||||||||||||||||||||||
Loss for the year | - | - | - | (336) | (336) | (485) | (821) | ||||||||||||||||||||||
Exchange variation of foreign sales hedge, net of taxes | 2,650 | 2,650 | 197 | 2,847 | |||||||||||||||||||||||||
Fair value of cash flow hedge, net of taxes | 293 | 293 | 293 | ||||||||||||||||||||||||||
Actuarial gain on defined benefit and health plan, net of taxes | 10 | 10 | 10 | ||||||||||||||||||||||||||
Foreign subsidiaries currency translation adjustment | (1,902) | (1,902) | 96 | (1,806) | |||||||||||||||||||||||||
Total Comprehensive income for the period | 1,051 | (336) | 715 | (192) | 523 | ||||||||||||||||||||||||
Equity valuation adjustments: | |||||||||||||||||||||||||||||
Realization of additional property, plant and equipment price-level restatement, net of taxes | (26) | 26 | |||||||||||||||||||||||||||
Realization of deemed cost of jointly-controlled investment, net of taxes | (1) | 1 | |||||||||||||||||||||||||||
Long term incentive plan, net of taxes | 20 | 20 | 20 | ||||||||||||||||||||||||||
Fair value of financial transactions of non-controlling subsidiaries | 610 | 610 | |||||||||||||||||||||||||||
Exchange variation in hyperinflationary economy, net of taxes | 70 | 70 | 70 | ||||||||||||||||||||||||||
Equity valuation adjustments | 20 | 43 | 27 | 90 | 610 | 700 | |||||||||||||||||||||||
Contributions and distributions to shareholders: | |||||||||||||||||||||||||||||
Incentive long term plan payments with treasury shares | (13) | 10 | 3 | ||||||||||||||||||||||||||
SUDENE tax incentive supplement | 109 | (109) | |||||||||||||||||||||||||||
Non-controlling interest in acquired entity | 31 | 31 | |||||||||||||||||||||||||||
Additional dividends approved in the board meeting | (1,350) | (1,350) | (1,350) | ||||||||||||||||||||||||||
Absorption of losses | (418) | 418 | |||||||||||||||||||||||||||
Proposed dividends | (1) | (1) | |||||||||||||||||||||||||||
Total contributions to shareholders | (13) | 10 | 3 | 109 | (418) | (1,350) | 309 | (1,350) | 30 | (1,320) | |||||||||||||||||||
As of December 31, 2022 | 8,043 | 39 | (28) | 6 | 473 | 1,127 | 226 | - | (488) | (2,076) | - | 7,322 | (1,214) | 6,108 |
The notes are an integral part of the consolidated financial statements.
F-8 |
Braskem S.A.
Statement of consolidated changes in equity
Years ended December 31
All amounts in millions of Reais
Attributed to shareholders' interest | Total | ||||||||||||||||||||||||||||
Capital reserve and treasury shares | Profit reserves | Total | shareholders' | ||||||||||||||||||||||||||
Additional | Additional | Other | Braskem | Non-controlling | equity | ||||||||||||||||||||||||
Capital | Treasury | Capital | Legal | Tax | Retention | dividends | paid in | comprehensive | Accumulated | shareholders' | interest in | (net capital | |||||||||||||||||
Note | Capital | reserve | shares | reserve | reserve | incentive | of profits | proposed | capital | loss | losses | interest | subsidiaries | deficiency) | |||||||||||||||
As of December 31, 2022 | 8,043 | 39 | (28) | 6 | 473 | 1,127 | 226 | - | (488) | (2,076) | - | 7,322 | (1,214) | 6,108 | |||||||||||||||
Comprehensive income for the year: | |||||||||||||||||||||||||||||
Loss for the year | - | - | - | (4,579) | (4,579) | (311) | (4,890) | ||||||||||||||||||||||
Exchange variation of foreign sales hedge, net of taxes | 3,482 | 3,482 | 374 | 3,856 | |||||||||||||||||||||||||
Fair value of cash flow hedge, net of taxes | 150 | 150 | 150 | ||||||||||||||||||||||||||
Actuarial loss with post-employment benefits, net of taxes | (85) | (85) | (85) | ||||||||||||||||||||||||||
Foreign subsidiaries currency translation adjustment | (2,373) | (2,373) | (91) | (2,464) | |||||||||||||||||||||||||
Total Comprehensive income for the period | 1,174 | (4,579) | (3,405) | (28) | (3,433) | ||||||||||||||||||||||||
Equity valuation adjustments: | |||||||||||||||||||||||||||||
Realization of additional property, plant and equipment price-level restatement, net of taxes | (15) | 15 | |||||||||||||||||||||||||||
Long term incentive plan, net of taxes | (2) | (2) | (2) | ||||||||||||||||||||||||||
Fair value adjustments of trade accounts receivable, net of taxes | 5 | 5 | 5 | ||||||||||||||||||||||||||
Exchange variation in hyperinflationary economy, net of taxes | 60 | 60 | 60 | ||||||||||||||||||||||||||
Equity valuation adjustments | (2) | 50 | 15 | 63 | 63 | ||||||||||||||||||||||||
Contributions and distributions to shareholders: | |||||||||||||||||||||||||||||
Incentive long term plan payments with treasury shares | 28 | (16) | 12 | 12 | |||||||||||||||||||||||||
Proceeds from sale of non-controlling interests | 1 | 316 | 316 | ||||||||||||||||||||||||||
Capital increase from cotrolling interests | 168 | 168 | |||||||||||||||||||||||||||
Other | (5) | (5) | |||||||||||||||||||||||||||
Acquisition of subsidiary with non-controlling interests | 62 | 62 | |||||||||||||||||||||||||||
Proposed dividends | (12) | (12) | |||||||||||||||||||||||||||
Absorption of losses | (473) | (1,127) | (226) | 1,826 | |||||||||||||||||||||||||
Total contributions to shareholders | 28 | (16) | (473) | (1,127) | (226) | 1,826 | 12 | 529 | 541 | ||||||||||||||||||||
As of December 31, 2023 | 8,043 | 37 | - | (10) | - | - | - | - | (488) | (852) | (2,738) | 3,992 | (713) | 3,279 |
The notes are an integral part of the consolidated financial statements.
F-9 |
Braskem S.A.
Statement of consolidated changes in equitycash flow
Years ended December 31
All amounts in thousandsmillions of reaisReais
Attributed to shareholders' interest | |||||||||||||||||||||||||||
Revenue reserves | Total | ||||||||||||||||||||||||||
Additional | Additional | Other | Braskem | Non-controlling | Total | ||||||||||||||||||||||
Capital | Legal | Tax | Retention | dividends | paid in | comprehensive | Treasury | Retained | shareholders' | interest in | shareholders' | ||||||||||||||||
Note | Capital | reserve | reserve | incentive | of profits | proposed | capital | (loss) income | shares | earnings | interest | subsidiaries | equity | ||||||||||||||
At December 31, 2017 | 8,043,222 | 232,430 | 434,142 | 71,745 | 1,940,011 | 1,500,000 | (488,388) | (5,165,492) | (49,819) | (217,550) | 6,300,301 | (827,501) | 5,472,800 | ||||||||||||||
Comprehensive income for the year: | 22(a) | ||||||||||||||||||||||||||
Profit for the year | 0 | - | - | - | - | - | - | - | - | - | 2,827,650 | 2,827,650 | 40,535 | 2,868,185 | |||||||||||||
Exchange variation of foreign sales hedge, net of taxes | 0 | - | - | - | - | - | - | - | (1,268,273) | - | - | (1,268,273) | 44,319 | (1,223,954) | |||||||||||||
Fair value of cash flow hedge, net of taxes | 0 | - | - | - | - | - | - | - | (112,241) | - | - | (112,241) | 12,675 | (99,566) | |||||||||||||
Foreign subsidiaries currency translation adjustment | 0 | - | - | - | - | - | - | - | 946,342 | - | - | 946,342 | (145,119) | 801,223 | |||||||||||||
0 | - | - | - | - | - | - | - | (434,172) | - | 2,827,650 | 2,393,478 | (47,590) | 2,345,888 | ||||||||||||||
0 | |||||||||||||||||||||||||||
Equity valuation adjustments: | 0 | - | |||||||||||||||||||||||||
Realization of additional property, plant and equipment price-level restatement, net of taxes | 0 | - | - | - | - | - | - | - | (26,717) | - | 26,717 | - | - | - | |||||||||||||
Realization of deemed cost of jointly-controlled investment, net of taxes | 0 | - | - | - | - | - | - | - | (962) | - | 962 | - | - | - | |||||||||||||
Actuarial gain with post-employment benefits, net of taxes | 0 | - | - | - | - | - | - | - | (1,289) | - | - | (1,289) | - | (1,289) | |||||||||||||
Post-employment benefits - health plan, net of taxes | - | - | - | - | - | - | - | (280) | - | - | (280) | - | (280) | ||||||||||||||
Long term incentive plan, net of taxes | - | - | - | - | - | - | - | 6,406 | - | - | 6,406 | 133 | 6,539 | ||||||||||||||
Fair value adjustments of trade accounts receivable, net of taxes | - | - | - | - | - | - | - | (449) | - | - | (449) | - | (449) | ||||||||||||||
0 | - | - | - | - | - | - | - | (23,291) | - | 27,679 | 4,388 | 133 | 4,521 | ||||||||||||||
Contributions and distributions to shareholders: | 0 | ||||||||||||||||||||||||||
Prescribed dividend | 0 | - | - | - | - | - | - | - | - | - | 460 | 460 | - | 460 | |||||||||||||
Additional dividends approved in the boar meeting | - | - | - | - | - | (1,500,000) | - | - | - | (73) | (1,500,073) | (1,396) | (1,501,469) | ||||||||||||||
Reversal of fiscal incentive | - | - | - | (130) | - | - | - | - | - | 130 | - | - | - | ||||||||||||||
Legal reserve | - | - | 143,334 | - | - | - | - | - | - | (143,334) | - | - | - | ||||||||||||||
Tax incentive reserve | - | - | - | 81,863 | - | - | - | - | - | (81,863) | - | - | - | ||||||||||||||
Mandatory minimum dividends | - | - | - | - | - | - | - | - | - | (667,419) | (667,419) | - | (667,419) | ||||||||||||||
Additional dividends proposed | - | - | - | - | - | 2,002,255 | - | - | - | (2,002,255) | - | - | - | ||||||||||||||
Loss on investments | - | - | - | - | - | - | - | (65) | - | - | (65) | 65 | - | ||||||||||||||
Sale of investiments | - | - | - | - | - | - | - | - | - | - | - | (111) | (111) | ||||||||||||||
0 | - | - | 143,334 | 81,733 | - | 502,255 | - | (65) | - | (2,894,354) | (2,167,097) | (1,442) | (2,168,539) | ||||||||||||||
0 | |||||||||||||||||||||||||||
At December 31, 2018 | 8,043,222 | 232,430 | 577,476 | 153,478 | 1,940,011 | 2,002,255 | (488,388) | (5,623,020) | (49,819) | (256,575) | 6,531,070 | (876,400) | 5,654,670 | ||||||||||||||
Comprehensive income for the year: | 0 | ||||||||||||||||||||||||||
Loss for the year | 0 | - | - | - | - | - | - | - | - | - | (2,540,995) | (2,540,995) | (99,403) | (2,640,398) | |||||||||||||
Exchange variation of foreign sales hedge, net of taxes | 0 | - | - | - | - | - | - | - | 733,449 | - | - | 733,449 | 128,092 | 861,541 | |||||||||||||
Fair value of cash flow hedge, net of taxes | 0 | - | - | - | - | - | - | - | 38,919 | - | - | 38,919 | (4,428) | 34,491 | |||||||||||||
Foreign currency translation adjustment | 0 | - | - | - | - | - | - | - | 220,228 | - | - | 220,228 | (83,506) | 136,722 | |||||||||||||
0 | - | - | - | - | - | - | - | 992,596 | - | (2,540,995) | (1,548,399) | (59,245) | (1,607,644) | ||||||||||||||
0 | |||||||||||||||||||||||||||
Equity valuation adjustments: | 0 | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||
Realization of additional property, plant and equipment price-level restatement, net of taxes | 25(e.2) | - | - | - | - | - | - | - | (26,717) | - | 26,717 | - | - | - | |||||||||||||
Realization of deemed cost of jointly-controlled investment, net of taxes | 0 | - | - | - | - | - | - | - | (883) | - | 883 | - | - | - | |||||||||||||
Actuarial loss with post-employment benefits, net of taxes | - | - | - | - | - | - | - | (109,492) | - | - | (109,492) | (136) | (109,628) | ||||||||||||||
Long term incentive plan, net of taxes | 0 | - | - | - | - | - | - | - | 13,573 | - | - | 13,573 | 348 | 13,921 | |||||||||||||
Fair value adjustments of trade accounts receivable, net of taxes | 0 | - | - | - | - | - | - | - | 15 | - | - | 15 | - | 15 | |||||||||||||
Exchange variation in hyperinflationary economy, net of taxes | - | - | - | - | - | - | - | (3,561) | - | - | (3,561) | - | (3,561) | ||||||||||||||
0 | - | - | - | - | - | - | - | (127,065) | - | 27,600 | (99,465) | 212 | (99,253) | ||||||||||||||
Contributions to shareholders: | 0 | - | |||||||||||||||||||||||||
Incentive long term plan payments with treasury shares | 0 | - | - | - | - | - | - | - | - | 95 | - | 95 | - | 95 | |||||||||||||
Retention of profits - non-approval of additonal dividends | 29(e) | - | - | - | - | 2,002,255 | (2,002,255) | - | - | - | - | - | - | - | |||||||||||||
Prescribed dividend | - | - | - | - | - | - | - | - | - | 2,005 | 2,005 | - | 2,005 | ||||||||||||||
Additional dividends of subsidiary | - | - | - | - | - | - | - | - | - | - | - | (5,125) | (5,125) | ||||||||||||||
Loss on interest in subsidiary | - | - | - | - | - | - | - | (50) | - | - | (50) | (34) | (84) | ||||||||||||||
Absorption of losses | 29(c.ii) | - | - | - | - | (2,767,965) | - | - | - | - | 2,767,965 | - | - | - | |||||||||||||
Gain on transfer of shares in custody long term incentive plan | - | 42 | - | - | - | - | - | - | - | - | 42 | - | 42 | ||||||||||||||
0 | - | 42 | - | - | (765,710) | (2,002,255) | - | (50) | 95 | 2,769,970 | 2,092 | (5,159) | (3,067) | ||||||||||||||
0 | |||||||||||||||||||||||||||
At December 31, 2019 | 0 | 8,043,222 | 232,472 | 577,476 | 153,478 | 1,174,301 | - | (488,388) | (4,757,539) | (49,724) | - | 4,885,298 | (940,592) | 3,944,706 |
Note | 2023 | 2022 | 2021 | ||||
(Loss) profit before income tax | (6,192) | 47 | 17,961 | ||||
Adjustments for reconciliation of profit or loss | |||||||
Depreciation and amortization | 30 | 5,206 | 4,733 | 4,178 | |||
Results from equity-accounted investees | 11(b) | (7) | (35) | (5) | |||
Interest and foreign exchange gain/losses | 2,683 | 2,703 | 6,311 | ||||
Provisions, net | (195) | 370 | 819 | ||||
Provision - geological event in Alagoas | 24 | 2,307 | 1,520 | 1,340 | |||
PIS and Cofins credits - exclusion of ICMS from the calculation basis | (1,031) | ||||||
Loss for impairment of trade accounts receivable and others from clients | 30 | 83 | 38 | 9 | |||
Provision for impairment and loss on sale of property, plant and equipment | 196 | 131 | 115 | ||||
Adjustments for reconciliation of profit | 4,081 | 9,508 | 29,698 | ||||
Changes in operating working capital | |||||||
Financial investments | (2,279) | 1,530 | 297 | ||||
Trade accounts receivable | 72 | 3,661 | (2,175) | ||||
Inventories | 1,811 | 2,138 | (7,574) | ||||
Taxes recoverable | 282 | 682 | 4,964 | ||||
Other receivables | (216) | 311 | (199) | ||||
Trade payables | 1,950 | 514 | 1,200 | ||||
Taxes payable | (209) | (1,009) | (3,007) | ||||
Sundry provisions | (476) | (724) | (703) | ||||
Geological event in Alagoas | 24 | (2,686) | (2,743) | (2,928) | |||
Other payables | (186) | (391) | 805 | ||||
Cash generated from operations | 2,144 | 13,477 | 20,377 | ||||
Interest paid | (3,550) | (2,905) | (2,883) | ||||
Income taxes | (866) | (1,621) | (2,707) | ||||
Net cash (used in) generated from operating activities | (2,272) | 8,952 | 14,786 | ||||
Proceeds from the sale of fixed and intangible assets | 72 | 2 | 40 | ||||
Dividends received | 11 | 6 | |||||
Additions of investments in subsidiaries | (78) | (107) | |||||
Additions to property, plant and equipment and intangible assets | (4,530) | (4,848) | (3,421) | ||||
Net cash used in investing activities | (4,525) | (4,947) | (3,381) | ||||
Borrowings and debentures | |||||||
Issued | 10,991 | 6,418 | 16 | ||||
Payments | (2,155) | (3,856) | (9,414) | ||||
Braskem Idesa borrowings | |||||||
Issued | 1,233 | 7,272 | |||||
Payments | (576) | (45) | (7,995) | ||||
Loan payment from non-controlling shareholders of Braskem Idesa | (34) | (10) | |||||
Lease | 14(b) | (1,209) | (929) | (842) | |||
Dividends paid | (7) | (1,350) | (5,993) | ||||
Proceeds from the sale of investments of non-controlling interest | 316 | ||||||
Proceeds from non-controlling interests capital contributions | 280 | 21 | |||||
Net cash generated from (used in) financing activities | 8,873 | 225 | (16,966) | ||||
Exchange variation on cash of foreign subsidiaries | (355) | (444) | 378 | ||||
Increase (decrease) in cash and cash equivalents | 1,721 | 3,786 | (5,182) | ||||
Represented by | |||||||
Cash and cash equivalents at the beginning of the year | 12,466 | 8,681 | 13,863 | ||||
Cash and cash equivalents at the end of the year | 14,187 | 12,466 | 8,681 | ||||
Increase (decrease) in cash and cash equivalents | 1,721 | 3,786 | (5,182) |
The notes are an integral part of the consolidated company financial statements.
Braskem S.A.
Statement of consolidated changes in equity
All amounts in thousands of reais
Attributed to shareholders' interest | |||||||||||||||||||||||||||
Revenue reserves | Total | ||||||||||||||||||||||||||
Additional | Additional | Other | Braskem | Non-controlling | Total | ||||||||||||||||||||||
Capital | Legal | Tax | Retention | dividends | paid in | comprehensive | Treasury | Retained | shareholders' | interest in | shareholders' | ||||||||||||||||
Note | Capital | reserve | reserve | incentive | of profits | proposed | capital | (loss) income | shares | earnings | interest | subsidiaries | equity | ||||||||||||||
At December 31, 2019 | 0 | 8,043,222 | 232,472 | 577,476 | 153,478 | 1,174,301 | - | (488,388) | (4,757,539) | (49,724) | - | 4,885,298 | (940,592) | 3,944,706 | |||||||||||||
Comprehensive income for the year: | |||||||||||||||||||||||||||
Loss for the year | 0 | - | - | - | - | - | - | - | - | - | (6,691,720) | (6,691,720) | (323,586) | (7,015,306) | |||||||||||||
Exchange variation of foreign sales hedge, net of taxes | - | - | - | - | - | - | - | (3,079,691) | - | - | (3,079,691) | 4,604 | (3,075,087) | ||||||||||||||
Fair value of cash flow hedge, net of taxes | 0 | - | - | - | - | - | - | - | (390,608) | - | - | (390,608) | (5,690) | (396,298) | |||||||||||||
Long term incentive plan, net of taxes | 0 | - | - | - | - | - | - | - | 11,629 | - | - | 11,629 | (415) | 11,214 | |||||||||||||
Foreign currency translation adjustment | 0 | - | - | - | - | - | - | - | 3,054,126 | - | - | 3,054,126 | (396,084) | 2,658,042 | |||||||||||||
0 | - | - | - | - | - | - | - | (404,544) | - | (6,691,720) | (7,096,264) | (721,171) | (7,817,435) | ||||||||||||||
0 | |||||||||||||||||||||||||||
Equity valuation adjustments: | 0 | ||||||||||||||||||||||||||
Realization of additional property, plant and equipment price-level restatement, net of taxes | 0 | - | - | - | - | - | - | - | (26,302) | - | 26,302 | - | - | - | |||||||||||||
Realization of deemed cost of jointly-controlled investment, net of taxes | 0 | - | - | - | - | - | - | - | (741) | - | 741 | - | - | - | |||||||||||||
Actuarial loss with post-employment benefits, net of taxes | 0 | - | - | - | - | - | - | - | (648) | - | - | (648) | 1 | (647) | |||||||||||||
Fair value adjustments of trade accounts receivable, net of taxes | 0 | - | - | - | - | - | - | - | 113 | - | - | 113 | - | 113 | |||||||||||||
Exchange variation in hyperinflationary economy, net of taxes | 0 | - | - | - | - | - | - | - | 8,077 | - | - | 8,077 | - | 8,077 | |||||||||||||
Other | 0 | - | - | - | - | - | - | - | 3,695 | - | (3,695) | - | - | - | |||||||||||||
0 | - | - | - | - | - | - | - | (15,806) | - | 23,348 | 7,542 | 1 | 7,543 | ||||||||||||||
Contributions to shareholders: | 0 | ||||||||||||||||||||||||||
Prescribed dividend | 0 | - | - | - | - | - | - | - | - | - | 1,110 | 1,110 | - | 1,110 | |||||||||||||
Additional dividends of subsidiary | 0 | - | - | - | - | - | - | - | - | - | - | - | (2,450) | (2,450) | |||||||||||||
Absorption of losses | 28(e) | - | (232,460) | (577,476) | (153,478) | (1,174,301) | - | - | - | - | 2,137,715 | - | - | - | |||||||||||||
Gain on transfer of shares in custody long term incentive plan | (12) | 20 | 8 | 8 | |||||||||||||||||||||||
- | (232,472) | (577,476) | (153,478) | (1,174,301) | - | - | - | 20 | 2,138,825 | 1,118 | (2,450) | (1,332) | |||||||||||||||
At December 31, 2020 | 8,043,222 | - | - | - | - | - | (488,388) | (5,177,889) | (49,704) | (4,529,547) | (2,202,306) | (1,664,212) | (3,866,518) |
The notes are an integral part of the consolidated financial statements.
Braskem S.A.
Statement of consolidated cash flows
Years ended December 31
All amounts in thousands of reais
Note | 2020 | 2019 | 2018 | |||||
(Loss) profit before income tax and social contribution | (9,683,784) | (4,603,068) | 3,604,736 | |||||
Adjustments for reconciliation of profit | ||||||||
Depreciation and amortization | 4,048,081 | 3,632,265 | 2,990,577 | |||||
Results from equity investments | 11(c) | 19,398 | (10,218) | 888 | ||||
Interest foreign exchange gain/losses | 10,457,272 | 4,145,110 | 6,013,944 | |||||
Reversal of provisions | 22(a) | 336,838 | 320,439 | 23,725 | ||||
Provision - geological event in Alagoas | 26 | 6,901,828 | 3,383,067 | |||||
PIS and COFINS credits - exclusion of ICMS from the calculation basis | 32 | (310,557) | (1,904,206) | (519,830) | ||||
(Loss) reversal for impairment of trade accounts receivable and others from clients | 55,252 | 7,069 | (87,008) | |||||
Provision for losses and write-offs of long-lived assets | 8,794 | 225,204 | 72,470 | |||||
11,833,122 | 5,195,662 | 12,099,502 | ||||||
Changes in operating working capital | ||||||||
Judicial deposits - other financial assets | 26 | 3,746,107 | (3,680,460) | |||||
Financial investments | (1,860,827) | 797,445 | 98,349 | |||||
Trade accounts receivable | (2,187,826) | 895,046 | 223,418 | |||||
Inventories | (252,534) | 867,817 | (1,537,290) | |||||
Taxes recoverable | 1,532,554 | 1,195,427 | 1,022,242 | |||||
Prepaid expenses | 293,785 | 202,732 | (105,163) | |||||
Other receivables | 397,103 | (273,665) | (248,988) | |||||
Trade payables | (3,001,564) | 282,445 | 1,343,375 | |||||
Taxes payable | 449,761 | (569,793) | (977,248) | |||||
Advances from customers | 198,988 | 197,965 | (199,958) | |||||
Leniency agreement | 25 | (349,842) | (341,605) | (330,006) | ||||
Sundry provisions | (145,355) | (215,548) | (116,458) | |||||
Other payables | (1,366,118) | 362,203 | 833,227 | |||||
Cash generated from operations | 9,287,354 | 4,915,671 | 12,105,002 | |||||
Interest paid | (2,736,821) | (2,238,445) | (1,916,801) | |||||
Income tax and social contribution paid | (257,542) | (411,951) | (937,831) | |||||
Net cash generated from operating activities | 6,292,991 | 2,265,275 | 9,250,370 | |||||
Proceeds from the sale of fixed and intangible assets | 33,140 | 12,590 | 95,133 | |||||
Proceeds from the sale of investments | 81,000 | |||||||
Funds received in the investments' capital reduction | 2,254 | |||||||
Dividends received | 4,822 | 3,513 | 41,791 | |||||
Acquisitions to property, plant and equipment and intangible assets | (2,759,789) | (2,682,522) | (2,706,328) | |||||
Premium in the dollar put option | (2,167) | |||||||
Net cash used in investing activities | (2,721,827) | (2,666,419) | (2,488,317) | |||||
Short-term and Long-term debt | ||||||||
Acquired | 13,049,459 | 20,586,103 | 4,301,626 | |||||
Payments | (8,734,505) | (17,425,409) | (6,592,197) | |||||
Braskem Idesa borrowings | ||||||||
Acquired | 3,497,622 | |||||||
Payments | (905,210) | (4,398,453) | (812,929) | |||||
Payment loan to non-controlling shareholders of Braskem Idesa | (37,618) | |||||||
Lease | 14 | (662,068) | (454,190) | |||||
Dividends paid | (2,380) | (668,904) | (1,499,900) | |||||
Other financial liabilities | 20.2 | (534,456) | 499,999 | |||||
Net cash generated (used) in financing activities | 2,173,222 | 1,636,768 | (4,603,400) | |||||
Exchange variation on cash of foreign subsidiaries | 1,314,586 | 20,619 | (386,109) | |||||
Increase in cash and cash equivalents | 7,058,972 | 1,256,243 | 1,772,544 | |||||
Represented by | ||||||||
Cash and cash equivalents at the beginning of the year | 6,803,880 | 5,547,637 | 3,775,093 | |||||
Cash and cash equivalents at the end of the year | 13,862,852 | 6,803,880 | 5,547,637 | |||||
Increase in cash and cash equivalents | 7,058,972 | 1,256,243 | 1,772,544 |
The notes are an integral part of the consolidated financial statements.
Summary of Notes
1 Operations | 9 |
2 Basis of preparation of the consolidated financial statements | 10 |
3 Application of estimates and judgments | 15 |
4 Risk management | 16 |
5 Cash and cash equivalents | 20 |
6 Financial investments | 20 |
7 Trade accounts receivable | 21 |
8 Inventories | 22 |
9 Related parties | 23 |
10 Taxes recoverable | 27 |
11 Investments | 28 |
12 Property, plant and equipment | 30 |
13 Intangible assets | 32 |
14 Right-of-use assets and lease liability | 34 |
15 Trade payables | 38 |
16 Borrowings and debentures | 39 |
17 Braskem Idesa borrowings | 41 |
18 Reconciliation of financing activities in the statement of cash flow | 42 |
19 Financial instruments | 43 |
20 Taxes payable | 58 |
21 Income taxes | 58 |
22 Sundry provisions | 62 |
23 Provisions for legal proceedings and contingent liabilities | 64 |
24 Geological event - Alagoas | 70 |
25 Benefits offered to employees | 80 |
26 Equity | 84 |
27 Earnings (loss) per share | 86 |
28 Net revenue | 87 |
29 Tax incentives | 89 |
30 Expenses by nature and function | 89 |
31 Financial results | 90 |
32 Segment information | 91 |
33 Contractual obligations | 93 |
34 Subsequent events | 93 |
F-8 |
Braskem S.A.
Notes to the consolidated financial statements at December 31, All amounts in
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1 Operations
Braskem S.A. is a public corporation headquartered in Camaçari, Bahia (“BA”), which, jointly with its subsidiaries (hereinafter referred to as “Braskem” or “Company”), is controlled by Novonor S.A. (“Novonor”, previously named Odebrecht S.A.), which directly and indirectly holds interests of 50.11%50.11% and 38.32%38.32% in its voting and total capital, respectively. The Company’sultimate parent company of Braskem is Kieppe Patrimonial S.A.
The Braskem’s shares are traded on B3 S.A. Brasil, Bolsa, Balcão (“B3”), under the tickers BRKM3, BRKM5 and BRKM6, and on the New York Stock Exchange (“NYSE”) under the ticker BAK.
BAK and on the Madrid Stock Exchange (“LATIBEX”) under the ticker XBRK.
Braskem also is engaged, among others, in the manufacture, sale, import and export of chemicals, petrochemicals and fuels, the production, supply and sale of utilities such as steam, water, compressed air and industrial gases, as well as the provision of industrial services and the production, supply and sale of electric energy and natural gas for its own use and use by other companies. Braskem also invests in other companies, either as equity method investees or associates.
companies.
The Company has industrial plants in Brazil, the United States, Germany and Mexico. The units produce thermoplastic resins, namelysuch as polyethylene (“PE”) and, polypropylene (“PP”), polyvinyl chloride (“PVC”), as well as and other basic petrochemicals.
Operations of subsidiary Braskem Idesa S. A. P. I. (“Braskem Idesa”)
On December 31, 2020,June 14, 2022, Braskem Idesa signed agreements with Advario B.V. (“Advario”) to sell 50% of the consolidated statementcapital stock of financial position presented positive net working capital (defined as total current assets less total current liabilities)Terminal Química Puerto México (“Terminal Química”), held by Braskem Idesa, the subsidiary of R$5.8 billionBraskem Idesa responsible for developing and negative shareholders’ equityoperating the ethane import terminal in Mexico. In March 2023, the conditions for the conclusion of the agreement were met and Advario made the payment of R$3.9 billion, mainly316 to Braskem Idesa for the 50% non-controlling interest in Terminal Química. Braskem Idesa maintains control over Terminal Química due to exchange variation effects fromits power over relevant activities of the depreciationsubsidiary, exposure to variable returns and its ability to influence the economic result of operations.
In addition, after the sale of non- controlling interest, Advario and Braskem Idesa made a capital contribution of R$ 193 each (R$ 169 subscribed and R$ 24 as advance for future capital increase)
In February 2023, Terminal Química signed a contract with ASIPONA (“Administraciones del Sistema Portuario Nacional”) to operate a dock that will serve as reception for the import of ethane at the port of Coatzacoalcos.
In November 2023, Terminal Química concluded the process to obtain financing in the Brazilian Real againstamount of R$ 1,975 (US$ 408). To date, R$ 760 (US$157) has been withdrawn to build the U.S. dollar (Note 2.2.c) and to the provisionethane import terminal.
Agreement for the geological event in Alagoas (Note 26).
The Company presented cash flow generated from operating activitiesincorporation of R$9,287,354 for the year ended December 31, 2020. Most of the credit facilities are long-term, with 96% of the total debt denominated in U.S. dollar, in line with the Company’s Financial Policy.
During periods in which the Brazilian Real depreciates significantly against the U.S. dollar, the Company is subject to an adverse effect from exchange variation on its debt. On the other hand, the depreciation in the Brazilian Real against the U.S. dollar has a positive effect on the Company’s cash generation, which manages the exposure against the debt position concentrated in U.S. dollar. In 2020, the Brazilian Real depreciated by 29% in relation to the U.S. dollar. The exchange variation losses recognized in 2020 will impact the cash flow in the liabilities’ maturity date, which is concentrated in the long term. Due to Braskem’s debt profile, this negative impact does not pose any risk to Company’s liquidity position for at least 12 months after the balance sheet date.
Opening of the new plant in the United States
In September 2020, the Company concluded the commissioning process following applicable safety standards and started commercial polypropylene production at its new plant in the United States. Located in the city of La Porte, and with production capacity of 450,000 tons per year (unaudited), the new PP plant in the United States is in line with the Company’s strategy to diversify its feedstock profile and to expand across Americas, reinforcing its leadership position in PP production in North America.
Braskem Idesa operations
On December 2, 2020, the subsidiary Braskem IdesaSiam Company Limited (“BI”Braskem Siam”)
On August 16, 2023, the Company, through its subsidiaries Braskem Netherlands B.V. (“Braskem Netherlands”) was notified by the National Natural Gas Control Center ("Cenagas"and Braskem Europe GmbH (“Braskem Germany”), signed an agreement with Thai Polyethylene Company Limited (“TPE”), a wholly-owned subsidiary of SCG Chemicals Public Company Limited, to establish Braskem Siam to conduct the Mexican government agency responsibleengineering project of a bio-ethanol dehydration plant to produce bio-ethylene using the Ethanol-to-ethylene EverGreen™ technology. Braskem holds 51% interest equity in the established entity and control it due to its power over relevant activities of the subsidiary, exposure to variable returns and its ability to influence the economic result of operations. The Final Investment Decision (FID) of the project is scheduled for the natural gas pipelinelast quarter of 2024, when Braskem and transportation system inSCG will decide upon the region, regardingcontinuation of the unilateral suspension of natural gas transportation, an energy input essentialproject.
Braskem S.A.
Notes to the consolidated financial statements at December 31, All amounts in
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to produce polyethylene at the Petrochemical Complex in Mexico. As a result, and respecting the safety protocols, Braskem Idesa immediately suspended its operational activities.
On January 7, 2021, Braskem Idesa partially resumed operations2 Basis of polyethylene production based on an experimental business model, that follows all safety protocols, in order to attend the demand from Mexico’s plastics industry. In addition, Braskem Idesa has taken legal measures as established in the Ethane Supply Agreement entered into between BI and PEMEX. Braskem Netherlands B.V., the direct parent company of BI, also has taken legal actions based on the applicable international rules to protect the rights and to ensure the performance of all legal obligations and also seeking to protect its investment in Mexico. Such measures provide for a remediation and negotiation period in which the parties seek a solution.
On March 1, 2021, disclosed in Not 37(e), Braskem Idesa entered into the following agreements to enable it to continue its operations:
(i) a memorandum of understanding with PEMEX Transformación Industrial and PEMEX Exploración y Producción (“PEMEX”) setting out certain understandings regarding potential amendments to the ethane supply agreement and the development of an ethane import terminal, subject to further negotiation, a definitive agreement and approval by Braskem Idesa’s shareholders and creditors; and
(ii) a natural gas transport service agreement with Centro Nacional de Control del Gas Natural (“Cenagas”) for 15 years, which is conditioned upon the executionpreparation of the definitive agreement referenced in item (i) above.
Following the execution of these agreements by Braskem Idesa, it resumed receiving natural gas transportation services from Cenagas. The existing ethane supply agreement between Braskem Idesa and Pemex has not been modified and remains in place. At this time, Braskem Idesa is unable to predict the outcome of ongoing discussions with Pemex TRI, its shareholders, and creditors.
Braskem Idesa assessed its going concern assumptions and concluded to be able to realize its assets and settlle its liabilities in the normal course of business.
As required by the accounting standards, impairment analysis have been performed. As a result, the carrying amount of property plant and equipment do not exceed its recoverable amount on December 31, 2020.
The main accounting policies applied when preparing theconsolidated financial statements are described in the respective notes.
Except for adopting IFRS 16 Leases and IFRIC 23 Uncertainty over Income Tax Treatments on January 1, 2019, the Company has consistently applied the2.1 Basis of accounting policies to all periods presented in these consolidated financial statements.
The consolidated financial statements have been prepared under the historical cost convention and were adjusted, when required, to reflect the fair value of assets and liabilities.
The preparation of (“financial statements requires the use of certain estimates. It also requires Management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a
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higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
The issue of these financial statements was authorized by the Executive Board on May 13, 2021.
The consolidated financial statementsstatements”) were prepared and are presented in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
2.2 Basis of presentation
The financial statements were prepared under the historical cost basis, unless stated otherwise in the accounting policies. These financial statements have been prepared on a going concern basis.
The material accounting policies applied in the preparation of these financial statements were included in the respective notes and are consistent in the fiscal years presented.
The issue of these financial statements was authorized by the Executive Board, on April 11, 2024 .
F-10 |
Braskem S.A. Notes to the consolidated financial statements at December 31, 2023 All amounts in millions of Reais, except as otherwise stated |
2.3 Basis of consolidation
The consolidated information comprisesfinancial statements include the financial statements of the Braskem S.A. and the following entities:
Total and voting interest - % | |||||||||||
Headquarters | 2020 | 2019 | 2018 | ||||||||
Direct and Indirect subsidiaries | |||||||||||
BM Insurance Company Limited ("BM Insurance") | Bermuda | 100.00 | 100.00 | 100.00 | |||||||
Braskem America Finance Company ("Braskem America Finance") | EUA | 100.00 | 100.00 | 100.00 | |||||||
Braskem America, Inc. (“Braskem America”) | EUA | 100.00 | 100.00 | 100.00 | |||||||
Braskem Argentina S.A. (“Braskem Argentina”) | Argentina | 100.00 | 100.00 | 100.00 | |||||||
Braskem Europe GmbH ("Braskem Alemanha") | Germany | 100.00 | 100.00 | 100.00 | |||||||
Braskem Finance Limited (“Braskem Finance”) | Cayman Islands | 100.00 | 100.00 | 100.00 | |||||||
Braskem Idesa S.A.P.I. ("Braskem Idesa") | Mexico | 75.00 | 75.00 | 75.00 | |||||||
Braskem Idesa Servicios S.A. de CV ("Braskem Idesa Serviços") | Mexico | 75.00 | 75.00 | 75.00 | |||||||
Braskem Incorporated Limited ("Braskem Inc") | Cayman Islands | 100.00 | 100.00 | 100.00 | |||||||
Braskem India Private Limited ("Braskem India") | (i) | Índia | 100.00 | ||||||||
Braskem Mexico Proyectos S.A. de C.V. SOFOM ("Braskem México Sofom") | Mexico | 100.00 | 100.00 | 100.00 | |||||||
Braskem Mexico, S. de RL de CV ("Braskem México") | Mexico | 100.00 | 100.00 | 100.00 | |||||||
Braskem Mexico Servicios S. RL de CV ("Braskem México Serviços") | Mexico | 100.00 | 100.00 | 100.00 | |||||||
Braskem Netherlands B.V. ("Braskem Holanda") | Netherlands | 100.00 | 100.00 | 100.00 | |||||||
Braskem Netherlands Finance B.V. (“Braskem Holanda Finance”) | Netherlands | 100.00 | 100.00 | 100.00 | |||||||
Braskem Netherlands Inc. B.V. (“Braskem Holanda Inc”) | Netherlands | 100.00 | 100.00 | 100.00 | |||||||
Braskem Petroquímica Chile Ltda. (“Braskem Chile”) | Chile | 100.00 | 100.00 | 100.00 | |||||||
Cetrel S.A. ("Cetrel") | Brazil | 63.70 | 63.70 | 63.66 | |||||||
Distribuidora de Água Camaçari S.A. ("DAC") | Brazil | 63.70 | 63.70 | 63.66 | |||||||
Lantana Trading Co. Inc. (“Lantana”) | Bahamas | 100.00 | 100.00 | 100.00 | |||||||
Specific Purpose Entity ("SPE") | |||||||||||
Fundo de Investimento Caixa Júpiter Multimercado Crédito Privado Longo Prazo ("FIM Júpiter") | Brazil | 100.00 | 100.00 | 100.00 | |||||||
Fundo de Investimento Santander Netuno Multimercado Crédito Privado Longo Prazo ("FIM Netuno") | Brazil | 100.00 | 100.00 | 100.00 |
Schedule of financial statements | |||||||||||
Total and voting interest (%) | |||||||||||
2023, 2022 and 2021 | |||||||||||
Headquarter | 2023 | 2022 | 2021 | ||||||||
BM Insurance Company Limited ("BM Insurance") | Bermuda | 100 | 100 | 100 | |||||||
Braskem Argentina S.A. (“Braskem Argentina”) | Argentina | 100 | 100 | 100 | |||||||
Braskem Energy Ltda. ("Braskem Energy") | Brazil | 100 | |||||||||
Braskem Finance Limited (“Braskem Finance”) | Cayman Islands | 100 | 100 | 100 | |||||||
Braskem Green S.A. ("Braskem Green") | Brazil | 100 | 100 | 100 | |||||||
Braskem Incorporated Limited ("Braskem Inc.") | (i) | Cayman Islands | 100 | ||||||||
Braskem Mexico, S. de RL de C.V. ("Braskem México") | Mexico | 100 | 100 | 100 | |||||||
Braskem Netherlands B.V. ("Braskem Holanda") | Netherlands | 100 | 100 | 100 | |||||||
Braskem Petroquímica Chile Ltda. (“Braskem Chile”) | Chile | 100 | 100 | 100 | |||||||
Braskem Ventures Ltda. ("Braskem Ventures") | (ii) | Brazil | 100 | 100 | |||||||
Lantana Trading Co. Inc. (“Lantana”) | Bahamas | 100 | |||||||||
Voqen Energia Ltda. ("Voqen") | Brazil | 100 | 100 | ||||||||
Wise Plásticos Ltda ("Wise") | (iii) | Brazil | 61.1 | ||||||||
B&TC B.V. ("B&TC") | Netherlands | 60 | 60 | ||||||||
Braskem America Finance Company ("Braskem America Finance") | USA | 100 | 100 | 100 | |||||||
Braskem America, Inc. (“Braskem America”) | USA | 100 | 100 | 100 | |||||||
Braskem Europe GmbH ("Braskem Alemanha") | Germany | 100 | 100 | 100 | |||||||
Braskem Idesa | Mexico | 75 | 75 | 75 | |||||||
Braskem Idesa Servicios S.A. de C.V. ("Braskem Idesa Serviços") | Mexico | 75 | 75 | 75 | |||||||
Braskem India Private Limited ("Braskem India") | India | 100 | 100 | 100 | |||||||
Braskem Mexico Proyectos S.A. de C.V. SOFOM ("Braskem México Sofom") | Mexico | 100 | 100 | 100 | |||||||
Braskem Mexico Servicios S. RL de C.V. ("Braskem México Serviços") | Mexico | 100 | 100 | 100 | |||||||
Braskem Netherlands Finance B.V. (“Braskem Holanda Finance”) | Netherlands | 100 | 100 | 100 | |||||||
Braskem Netherlands Green B.V. (“Braskem Holanda Green”) | Netherlands | 100 | 100 | 100 | |||||||
Braskem Netherlands Inc. B.V. (“Braskem Holanda Inc.”) | Netherlands | 100 | 100 | 100 | |||||||
Braskem Siam | (iv) | Thailand | 51 | ||||||||
Braskem Trading & Shipping B.V. ("BTS") | (V) | Netherlands | 100 | ||||||||
Builder Brasil Ltda. ("Builder Brasil") | Brazil | 100 | 100 | ||||||||
Builder USA LLC. ("Builder USA") | USA | 100 | 100 | ||||||||
Cetrel S.A. ("Cetrel") | Brazil | 63.70 | 63.70 | 63.70 | |||||||
Distribuidora de Água Camaçari S.A. ("DAC") | Brazil | 63.70 | 63.70 | 63.70 | |||||||
ER Plastics B.V. ("ER Plastics") | Netherlands | 60 | 60 | ||||||||
Terminal Química | (vi) | Mexico | 37.5 | 75 | 75 | ||||||
Special Purpose Entities | |||||||||||
Fundo de Investimento Caixa Júpiter Multimercado Crédito Privado Longo Prazo ("FIM Júpiter") | Brazil | 100 | 100 | 100 | |||||||
Fundo de Investimento Santander Netuno Multimercado Crédito Privado Longo Prazo ("FIM Netuno") | Brazil | 100 | 100 | 100 |
(i) |
(ii) |
(iii) | In February 2023, Braskem acquired a 61.1% ownership interest in Wise, a Brazilian company engaged in mechanical recycling. The consideration transferred of this acquisition was R$ 173, and goodwill generated was R$ 75. |
(iv) | Company incorporated in |
The functional currency of the Company is the Real. The presentation currency is also Real. All amounts have been rounded to the nearest thousand, unless otherwise indicated.
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Transactions in foreign currencies are translated into the respective functional currency of the Braskem’s entities at the exchange rates on the transaction dates. Monetary assets and liabilities denominated and measured in foreign currency on the reporting date are re-translated into the functional currency at the exchange rate on said date. Non-monetary assets and liabilities measured at fair value in foreign currency are re-translated into the functional currency at the exchange rate on the date on which the fair value was determined. Non-monetary items that are measured based on the historical cost in foreign currencies are translated at the exchange rate on the date of the transaction. The differences in foreign currencies resulting from conversion are generally recognized in the profit or loss.
Assets and liabilities from foreign operations are translated into Brazilian Real at the exchange rates determined on the reporting date. Revenues and expenses from foreign operations are translated into Brazilian Real at the exchange rates determined on the transaction dates. Differences in foreign currencies generated by translation into the reporting currency are recognized in other comprehensive income and accrued in asset valuation adjustments in equity.
The results and financial position of an entity whose functional currency is not the currency of a hyperinflationary economy must be translated into the reporting currency. The assets and liabilities for each statement of financial position reported (including the comparative balance sheets) must be translated using the closing quote of the exchange rate on the respective reporting dates, and the income and expenses for each comprehensive statement of operations or statement of operations reported (including comparative statements) must be translated using the exchange rates in effect on the transaction dates. All exchange variation gains and losses must be recognized in other comprehensive income.
The subsidiaries with a functional currency different from that of the Braskem S.A. are listed below:
In March 2023, Braskem Idesa | |||
The effects from exchange variation on the Company’s transactions are mainly due to the variations in the following currencies:
End of period rate at December 31 | Average rate | ||||||||||||||
Variation | |||||||||||||||
2020 | 2019 | Variation | 2020 | 2019 | 2018 | 2020-2019 | 2019-2018 | ||||||||
U.S. dollar - Brazilizan real | 5.1967 | 4.0307 | 28.93% | 5.1578 | 3.9461 | 3.6558 | 30.70% | 7.94% | |||||||
Euro - Brazilizan real | 6.3779 | 4.5305 | 40.78% | 5.8989 | 4.4159 | 4.3094 | 33.58% | 2.47% | |||||||
Mexican peso - Brazilizan real | 0.2610 | 0.2134 | 22.31% | 0.2402 | 0.2049 | 0.1901 | 17.22% | 7.80% | |||||||
U.S. dollar - Mexican peso | 19.9240 | 18.8858 | 5.50% | 21.5098 | 19.2568 | 19.2363 | 11.70% | 0.11% | |||||||
U.S. dollar - Euro | 0.8166 | 0.8926 | -8.52% | 0.8775 | 0.8930 | 0.8471 | -1.74% | 5.42% |
Braskem S.A.
Notes to the consolidated financial statements at December 31, All amounts in
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Non-monetary assets and liabilities, Equity and the statement of income of subsidiaries operating in highly inflationary economies are adjusted by the change in the Consumer Price Index of the currency. The non-monetary assets and liabilities recorded at historical cost and the Equity and the results of the subsidiary in Argentina were updated for inflation. The impacts of changes in general purchasing power are reported as finance costs in the statements of profit or loss.(a) Subsidiaries
Business combinations are recognized using the acquisition method when control is transferred to the Company. The consideration transferred generally is measured at fair value, as is the identifiable net assets acquired. Any goodwill arising from the transaction is tested annually for impairment loss. Gains on bargain purchase are immediately recognized in the profit or loss. Transaction costs are recognized into the result as incurred, except any costs associated with issuances of debt or equity instruments. Any contingent consideration payable is measured at its fair value on the acquisition date. If the contingent consideration is classified as an equity instrument, it is not remeasured, and the settlement is recognized in equity. Other contingent considerations are remeasured at fair value on each reporting date and subsequent changes to fair value are recognized in the income statement for the fiscal year.
The Company controls an entity when it is exposed to, or entitled to, the variable returns originating from its involvement with the entity and has the capacity to affect such returns by exercising its power over the entity.
The financial statementsinformation of subsidiaries are included in the consolidatedthese financial statements as from the date the Company obtains control until the date of the loss of control.
(b) Equity method Investees
The Company’s investments in entities with accounting treatment using the equity method consist of their interests in associates. associates and joint ventures.
Associates are those in which the Company, directly or indirectly, has significant influence, but not control or jointshared control, over the financial and operating policies. ATo be classified as a joint venture, is an arrangement in whicha contractual agreement must exist that gives the Company has jointshared control wherebyof the entity and granting to the Company has rightsthe right to the net assets of the arrangement, rather than rightsjoint venture, and not the right to its specific assets and obligations for its liabilities.
Interests in associates and the joint venture are accounted for using the equity method. TheySuch investments are initially recognized at cost, which includes the expenses with the transaction costs. Subsequent toAfter initial recognition, the consolidated financial statements include the Company’s share ofinterest in the net profit or loss for the fiscal year profit or loss and other comprehensive (loss) income (“OCI”) of equity-accounted investees, in the investee until the date on which the significant influence or joint control ceases to exist.
(c) Conversion of functional currency to presentation currency
The assets and liabilities of foreign operations are translated into Brazilian Real at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into Brazilian Real at the average monthly exchange rates. Foreign currency differences (Note 2.4) from translation to presentation currency are recognized in other comprehensive (loss) income.
Since Argentina’s economy is considered hyperinflationary, to translate the financial information of Braskem Argentina subsidiary, the assets, liabilities, equity, income and expenses are translated into Brazilian Real at the exchange rate at the reporting date.
(d) Transactions eliminated in consolidation
Intragroup balances and transactions and any unrealized revenues or expenses arising from intragroup transactions are eliminated. Unrealized gains originating from transactions with investees recorded using the equity method are eliminated against the investment proportionately to the Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment loss.
Braskem S.A.
Notes to the consolidated financial statements at December 31, All amounts in
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2.4 Functional and foreign currency
These financial statements are presented in Brazilian Real, which is the functional currency of the Company. All amounts have been rounded to the nearest million, unless otherwise stated.
The subsidiaries with a functional currency different from Brazilian Real (R$) are listed below:
Schedule of subsidiaries with a functional currency | ||
Functional currency | ||
Braskem Alemanha, B&TC e ER Plastics | Euro | |
BM Insurance, Braskem America, Braskem America Finance, Braskem Holanda, Braskem Holanda Finance, Braskem Holanda Inc., Braskem México Sofom, Braskem Holanda Green, BTS, Braskem Siam e Terminal Química. | U.S.dollar ("US$") | |
Braskem Idesa, Braskem Idesa Serviços, Braskem México e Braskem México Serviços | Mexican peso | |
Braskem Argentina | Argentinean peso | |
Braskem Chile | Chilean peso | |
Braskem Índia | Rupee |
2.5 New standards or amendments for the current fiscal year and future requirements
(a) New standards and pronouncements adopted in the current fiscal year
In the current fiscal year, the Company identified a series of amendments under the IFRS standards that became effective for accounting standards currently in force:periods starting on or after January 1, 2023:
(a.1) Deferred taxes related to assets and liabilities arising from a single transaction (amendments to IAS 12)
The Company adopted deferred tax related to assets and liabilities arising from a single transaction (amendments to IAS 12) from January 1, 2023. The amendments narrow the scope of initial recognition exemption to exclude transactions that give rise to equal and offsetting temporary differences.
- Rental concessionsThe main effect on the Company was related to COVID-19the deferred taxes arising from leases. Previously, deferred tax on leases was recorded applying the "integrally linked" approach, resulting in a similar outcome as under the amendments, except for deferred tax asset or liability that was recognized on a net basis.
Following the amendments, the Company recognized a separate deferred tax asset from its lease liabilities and a separate deferred tax liability from its right-of-use assets. However, there was no impact on statement of financial position since balances are qualified for offsetting. The amendments also had no impact on retained earnings and accumulated losses as of January 1, 2022. The main impact is related to the disclosure of recognized deferred tax assets and liabilities.
(a.2) International Tax Reform - Pillar two model rules (Amendments to IAS 12)
The Company is within the scope of the International Tax Reform – Pillar two model rules and operates in Netherlands and Germany, which have already passed the new legislation to implement the complementary global minimum tax rate. However, once the tax legislation recently passed in both countries will become effective only from January 1, 2024, there is no tax impact on the fiscal year ended December 31, 2023.
In accordance with amendments to IAS 12 in effect on December 31, 2023, the Company applied mandatory temporary exemption to the recognition of deferred taxes for the impacts of the complementary tax rate and assessed the new disclosures required about Pillar Two exposures.
F-13 |
Braskem S.A. Notes to the consolidated financial statements at December 31, 2023 All amounts in millions of Reais, except as otherwise stated |
The Company may be subject to top-up tax in relation to its operations in the Netherlands, starting on January 1, 2024, depending on the profit of each type of business, there is a possibility that the effective rate in the Netherlands may vary by less or even more than 15%.
(a.3) Other amendments
Other amendments to IFRS that were mandatory for accounting periods starting on or after January 1, 2023 but did not have any material impact on the disclosures or amounts presented in these financial statements are presented below:
- Definition of accounting estimates (amendments to IFRS 16)IAS 8).
- Definition of materiality for disclosure of accounting policies (amendments to IAS1 and IFRS Practice Statement 2).
- Insurance contracts (IFRS 17).
(b) Future requirements
The amended standards already issued but not yet effective as of the reporting date are described below:
- Classification of liabilities as current or non-current (amendments to IAS 1) – Effective on January 1, 2024.
- Non-current liabilities with covenants (amendments to IAS 1) – Effective on January 1, 2024.
- Lease liabilities in a Businesssale and leaseback (Amendments to IFRS 16) – Effective on January 1, 2024.
- Supplier finance arrangements (amendments to IFRS 3).7 and IAS 7) – Effective on January 1, 2024.
- DefinitionLack of Materialexchangeability (amendments to IAS 21) – Effective on January 1, and IAS 8).
- Interest Rate Benchmark Reform (amendments to IFRS 9, IAS 39, and IFRS 7).
2025.
The Company had no significant impact on its financial statements dueplans to such amendments.
Additionally, a series of new standards are effective for annual periods beginning after January 1, 2020. The Company did not early adopt these standards in the preparation of these financial statements. The following new or amended standards, when they become effective and are required. Management does not expectedexpect the adoption of the standards listed above to have a significant impact on the Company’s financial statements:
- Onerous Contracts: costs of fulfilling a contract (amendments to IAS 37).
- Property, Plant and Equipment: revenue before intended use (amendments to IAS 16).
- Reference to the Conceptual Framework (amendments to IFRS 3).
- Classification of Liabilities as Current or Non-Current (amendments to IAS 1).
- Annual improvements to IFRS Standards 2010-2020.
- Interest Rate Benchmark Reform – Phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16).
The amendments address issues that might affect financial reporting as a result of the reform of an interbank offered rate (IBORs), including the effects of changes to contractual cash flows or hedging relationships arising from the replacement of an interest rate benchmark with an alternative benchmark rate. The amendments provide practical relief for certain requirementsstatements in IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16 relating to:
(i) changes in the basis for determining contractual cash flows of financial assets, financial liabilities, and lease liabilities; and (ii) hedge accounting.
(i) change in the basis for determining contractual cash flows
The amendments will require an entity to account for a change in the basis for determining the contractual cash flows of a financial asset or financial liability that is required by interest rate benchmark reform by updating the effective interest rate of the financial asset or financial liability. At December 31, 2020, the Company had loans whose interest rates are based on LIBOR, as disclosed in Note 16, and will be subject to IBOR reform. The Company expects that the benchmark interest rate of these loans will be changed to Security Overnight Financing Rate (“SOFR”) until 2023.
(ii) Hedge accounting
The amendments provide exceptions to the hedge accounting requirements in the following areas:
- Allow amendment of the designation of a hedging relationship to reflect the changes required by the reform.
- When a hedged item in a cash flow hedge is amended to reflect the changes required by the reform, the amount accumulated in the cash flow hedge reserve is deemed to be based on the alternative benchmark interest rate applied to the hedged item.
At December 31, 2020, the Company has cash flow hedges based on LIBOR. The Company expects that indexation of the hedged items and hedging instruments to sterling LIBOR will be replaced by Sterling Overnight Interbank Average Rate (“SONIA”) in 2021 (refer to note 4.1). Whenever the replacement occurs, the Company expects to apply the amendments relating to hedge accounting. However, there are uncertainties as to how and when a replacement may occur. The Company does not expect the amounts accumulated in the cash flow hedge reserve will be reclassified immediately to the profit or loss due to the transition to IBOR.
(iii) Disclosures
The amendments will require the Company to disclose additional information on the entity’s exposure to risks arising from the interest rate benchmark reform and the related risk management activities.
(iv) Transition
The Company plans to apply the amendments from January 1, 2021. The adoption will not affect the amounts reported for 2020 or priorfuture periods.
Braskem S.A.
Notes to the consolidated financial statements at December 31, All amounts in
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Braskem has been closely monitoring the impacts from the COVID-19 pandemic on its business
3 Application of estimates and surrounding communities. Braskem has formed a crisis committee to establish global procedures focusing mainly on the health and safety of people and the continuity of its operations. Updates on the measures taken by the Company follow:
The capacity utilization rates of Brazilian and North American plants reduced in the second quarter of 2020 due to the weaker demand for our products and the destocking trend in the petrochemical and plastics production chain. The demand for resins increased in the third quarter of 2020; therefore, both regions' capacity utilization rates returned to normal levels and kept similar levels up to the end of the year.judgments
In Europe and Mexico, the capacity utilization rates returned to their normal levels in the second quarter, following the gradual recovery in demand, resulting in capacity utilization rates of 83% and 80%, respectively. As disclosed in note 1, operational activities in Mexico were termporarilly interrupted in December. With regard to the fourth quarter, despite the recovery in demand begun in the previous quarter, the capacity utilization rate in Europe was 64% due to the scheduled shutdown.
During 2020, the Company adopted cash-preservation measures to ensure the financial stability and resilience of its business, which include:
The Company also highlights the actions carried out jointly with its clients and partner companies to transform chemicals and plastic resins into items that are essential for combatting COVID-19, which include surgical masks, packaging for liquid and gel alcohol, bleach and 3D printing of bands for protective face shields;
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donations of LPG (cooking gas) to field hospitals; actions to support the chain of clients and suppliers, particularly small and midsized companies; and donations of hygiene kits and food staples to local communities.
The Company’s Management reviewed the accounting estimates for the realization of assets, including the estimates for losses on trade accounts receivables, inventory impairment loss, deferred tax assets and other assets, or those related to the provision for liabilities in the financial statements given the significant changes in the risks to which the company is exposed (see more information in note 20.6). The review considered events after the reporting period that occurred up to the reporting date ofpreparing these financial statements, and no significant effects were identified that should be reflected in the financial statements for the fiscal year ended December 31, 2020.
Due to the uncertainties arising from the COVID-19 pandemic with regard to the global economy, it is impossible to accurately predict the adverse impacts on the equity and financial position of the Company and its subsidiaries after the reporting date. With the recovery in demand for resins, the CompanyManagement has no expectations of additional provisions for impairment testing of its assets in the near future arising from a scenario of demand constraints.
Critical estimates and judgments are those that require the most difficult, subjective or complex judgments by management, usually as a result of the need to make estimates that affect issues thatthe application of the Company’ accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results can differ from these estimates due to differences in the variables, assumptions or conditions used in making estimates.
Judgments and estimates are inherently uncertain. Estimates and judgments are continually reassessedreviewed on an ongoing basis and are based on historical experience and other factors, including expectations of future events that are believed to bedeemed reasonable under the circumstances. Actual results can differ from planned results dueRevision to differencesestimates is recognized prospectively.
Critical judgments and estimates applied by the Company in the variables, assumptions or conditions usedpreparation of these financial statements are presented in making estimates.
Estimates and assumptions are continuously revised. Changes in estimates are recognized prospectively. Actual results may differ from such estimates.
the following notes:
3.1 | Judgments |
Information about judgementsjudgments made inon applying accounting policies that have the most significant effects on the amounts recognized in the financial statements includeare included in the following:following notes:
- Note 19.2: Application of hedge accounting: judgment to define forecast percentage of recurring revenues for which there is a high probability of occurring;
- Note 14(c): lease term: whether the Company will exercise renewal options; and
- Note 15: reverse factoring operations: presentation of amounts related to supply chain financing arrangements in the statements of financial position and in the statement of cash flows.
3.2 |
The Company recognizes the depreciation and amortization of its property, plant and equipment (“tangible assets”) and intangible assets with estimated useful life approved by the Company’s technicians with experience managing Braskem’s plants. The useful lives of assets are reviewed at each reporting date by the Company’s technicians.
The main factors that are taken into consideration in the definition of the useful life of the assets that compose the Company’s industrial plants are the information of manufacturers of machinery and equipment, level of the plants’ operations, quality of preventive and corrective maintenance and the prospects of technological obsolescence of assets.
The useful lives applied to the assets determined the following average (%) depreciation and amortization rates, using the straight-line method:
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2020 | 2019 | ||||
Buildings and improvements | 2.82 | 6.23 | |||
Machinery, equipment and installations | 6.31 | 7.04 | |||
Furniture and fixtures | 10.03 | 10.02 | |||
IT equipment | 20.23 | 20.60 | |||
Lab equipment | 9.57 | 9.52 | |||
Security equipment | 9.54 | 9.39 | |||
Vehicles | 18.89 | 18.88 | |||
Other | 13.55 | 15.72 |
Information on property, plant and equipment is presented in Note 12.
The information on uncertainties related to the assumptions and uncertainties of estimates at December 31, 2020 withthe reporting date that have a significant risk of resulting in a significant adjustmentmaterial adjustments to the accounting balancescarrying amounts of assets and liabilities within the next fiscal year is included in the following fiscal year are as follows:notes:
The recognition- Note 12(b) and 13: Impairment test of property, plant and equipment, intangibles and goodwill: Determination of the discount rate and the recoverable amount of property, plant and equipment, intangibles and goodwill;
- Note 19.3: Fair value of financial instruments: Determination of the fair value of financial instruments;
- Note 21.2: Recognition of deferred tax assets depend on the generationassets: Expectation of future taxable income against which requiresdeductible temporary differences and tax losses carryforward can be utilized;
- Note 22(a): Recognition and measurement of provisions for recovery of environmental damages: identifying potential environmental impacts, evaluating technical solutions and time of the use of an estimate relatedremediation involve judgment as to the Company’s future performance. These estimates are included in the business plan, which is annually prepared by the Executive Board. This plan uses as main variables projections for the priceprobability and magnitude of the products manufactured by the Company, price of inputs, growth of the gross domestic product of each country where the Company operates, exchange variation, interest rate, inflation rate and fluctuations in the supply and demand of inputs and finished products. In evaluating the plan, the Company uses its historical performance, strategic planning and market projections produced by specialized third party consulting firms, which are reviewed and supplemented based on Management´s experience.
Information on deferred income tax and social contribution is presented in Note 22(c).
Annually, or whenever it is necessary, the Company reviews the carrying amounts of its tangible and intangible assets with definite useful lives to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverability amount is estimated. This analysis is conducted to assess the existence of scenarios that could adversely affect its cash flow and, consequently, its ability to recover the investment in such assets. These scenarios arise from issues of a macroeconomic, legal, competitive, or technological nature.
Some significant and notable aspects considered by the Company in this analysis include: (i) the possibility of an oversupply of products manufactured by the Company or of a significant reduction in demand due to adverse economic factors; (ii) the prospects of material fluctuations in the prices of products and inputs; (iii) the likelihood of the development of new technologies or raw materials that could materially reduce production costs and consequently impact sales prices, ultimately leading to the full or partial obsolescence of the industrial facilities of the Company; and (iv) changes in the general regulatory environment that make the production process of Braskem infeasible or that significantly impact the sale of its products. For this analysis, the Company maintains an in-house team with a strategic vision of the business. If the aforementioned variables indicate any material risk to cash flows, the Management of Braskem conducts impairment tests in accordance with Note 3.2.2(b).
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For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs (“Cash Generating Units”).
The impairment value of an asset or CGU is the greatest of the value in use and its fair value less sales costs. The value in use is based on estimated future cash flows, discounted to present value using a discount rate before tax that reflects the current market assessments of the time value of money and the specific risks related to the asset or CGU.
When identifying whether cash inflows from an asset (or group of assets) are largely independent of cash inflows from other assets (or groups of assets), the Company considers several factors, such as: product lines, individual locations and the way Management monitors and makes decisions about the going concern analysis.
The balances of goodwill arising from business combinations are tested for impairment once a year. Goodwill from business combination is allocated to the CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
These tests are based on the projected cash flow in each CGU or groups of CGUs, which are extracted from the business plan of the Company for a five-year period, mentioned in Note 3.2.1, and the Management plan for a period greater than 5 years to reflect industry cycle patterns, in a total projection period of 10 years. Perpetuity is also calculated based on the long-term vision and excluding real growth. Cash flows and perpetuity are adjusted to present value at a discount rate based on the Weighted Average Cost of Capital (“WACC”).
Goodwill and results of impairment tests are presented in Note 13(a) and (b).
Impairment loss is recognized in profit or loss if the book value of the asset or CGU exceeds its impairment value. Recognized losses related to assets or CGUs are initially allocated for the reduction of any goodwill allocated, and then for reduction of the book value of other assets of the CGU (or group of CGUs) on a pro rata basis.
Impairment losses related to goodwill are not reversed. In the case of other assets, impairment losses are reversed only to the extent that the new book value of the asset does not exceed the book value that would have been calculated, net of depreciation or amortization, if the impairment loss had not been recognized.
Provisions are recorded when there is a present obligation (legal or constructive) as a result of a past event, and it is more likely than not that an outflow of resources will be required to settle the obligation.resources;
Contingent liabilities are mainly related to discussions in the judicial- Note 23: Recognition and administrative spheres arising from primarilymeasurement of provisions for tax, labor corporate claims,and civil and tax lawsuits.
The Management of Braskem, basedlawsuits: judgement on its assessment and of its external legal advisors, classifies these proceedings in terms of probability of loss as follows:
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The provision for labor, corporate claims, civil and tax lawsuits correspond to the value of the claims plus interests by the estimated value of probable losses. On the acquisition date in business combination operations, a contingent liability is recorded when it represents a present obligation.
The Company’s management believes that the estimates related to the outcome of the proceedings and the possibility of future disbursement may change in view of the following: (i) higher courts may decide in a similar case involving another company, adopting a final interpretation of the matter under discussion and consequently, advancingestimate as to the terminationprobability and magnitude of the proceeding involving the Company, without any disbursement or without implying the needoutflow of any financial settlementresources; and
- Note 24: Recognition and measurement of the proceeding; and (ii) programs encouraging the payment of the debts implemented in Brazil at the Federal and State levels, in favorable conditions that may lead to a disbursement that is lower than the one that is recognized in the provision or lower than the value of the matter.
The Company’s contingencies are presented in Note 24.
The provision recorded stemsfor costs arising from the actions and measures relating to the geological phenomenon in Alagoas, which consider, among its main factors, the dealings of safety of people and the affected districts, the recovery of areas potentially affected by the geological event and discussions within Alagoas: Uncertainties regarding the competent authorities as Termsoutcome of Agreements, disclosed in Note 26.
The amount of the provision could be affected materially by uncertainties relating to the geological phenomenon in Maceió, which include: actions to close and monitor wells, future studies by experts, changes related to the dynamics of the geological event studies and the implementation of socio-environmental and urbanistic measures, implementation of the relocation program for risk areas and individual lawsuits, demands from public service concessionaires, any adherence bywhich could affect the municipality of Maceióprobability and other entities to the Agreement for Socio-Environmental Reparation, as detailed in Note 26.
The provision for environmental liabilities is estimated based on current legal and constructive requirements, technology, price levels and expected remediation plans. Realized costs and cash outflows may differ from current estimates due to the changes in laws and regulations, public expectations, prices, new findings by the ongoing studies and analysis of local conditions and changes in remediation technologies.
The time and value of future expenses related to environmental liabilities are reviewed annually, as well as the interest rate used for discounting to present value.
The environmental liabilities are presented in Note 23 (a).
The Company recognizes derivative financial instruments at their fair value and the main sources of information are the stock exchanges, commodities and futures markets, disclosuresmagnitude of the Central Bankoutflow of Brazil and quotation services such as Bloomberg and Reuters. Nevertheless, the volatility of the foreign exchange and interest rate markets in Brazil has been resulting in significant changes in future rates and interest rates over short periods of time, leading to significant changes in the fair value of swaps and other financial instruments.resources.
Braskem S.A.
Notes to the consolidated financial statements at December 31, All amounts in
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The fair values of non-derivative quoted financial instruments are based on current bid prices. If the market for a financial asset and for unlisted securities is not active, the Company establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models that make maximum use of market inputs and rely as little as possible on information provided by the Company’s Management.
Information on derivative and non-derivative financial instruments is presented in Note 20.
4 Risk management
The Company designated non-derivate financial liabilities in foreign currency to hedge the future cash flows generated by its exports. This decision was based on two important concepts and judgments: (i) the high probability of performing exports according to its business plan, which are inherent to the market and business where it operates, and (ii) the ability of the Company to refinance its liabilities in U.S. dollar, since the priority financing in U.S. dollar is part of the Company’s guidelines and strategy and the maintenance of a minimum level of net liabilities in U.S. dollar is envisaged in the Financial Policy of the Company.
The subsidiary Braskem Idesa designated all of the financing it obtained from financial institutions for the construction of its industrial plant to protect part of its sales to be made in the same currency as said financing, the U.S. dollar. Braskem Idesa’s sales projection is reviewed periodically based on historical performance, strategic planning and market projections prepared by specialized external consulting firms, which are reviewed and complemented based on Management’s experience.
All hedge transactions conducted by the Company are in compliance with the accounting procedures and practices adopted by Braskem, and effectiveness tests are conducted for each transaction every quarter, which prove the effectiveness of its hedge strategy.
The Company determined that hedged items for the Braskem S.A. will be characterized by the first exports in in each quarter until the amount designated for each period is reached, while for the subsidiary Braskem Idesa, these items will be characterized by the first sales in U.S. dollar in the domestic market, disclosed in Notes 20.4(a.i) and 20.4(a.ii), respectively. The liabilities designated for hedge will be aligned with the hedging maturity schedule and the Company’s financial strategy.
According to the Financial Policy, the Company may contract derivatives (swaps, non-deliverable forwards (“NDFs”), options, etc.) to manage its exposure to foreign exchange and interest rates. These derivatives may be designated for hedge accounting based on the judgment of Management and when such designation is expected to better demonstrate the compensatory effects on the fluctuations in the items protected by the hedge. The Company currently has derivatives designated for cash flow hedge accounting, as reported in Note 20.3.
Braskem is exposed to market risks arising from variations in commodity prices, foreign exchange rates and interest rates, credit risks of its counterparties in cash equivalents, financial investments and trade accounts receivable, and liquidity risks to meet its obligations from financial liabilities.
BraskemThe Company adopts procedures for managing market and credit risks that are in conformity with its Financial Policy, which is reviewed by the Board of Directors quarterly. The purpose of risk management is to protect the Company’s cash flows and reduce the threats to the financing of its operating working capital and investment programs.
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4.1 Market risks |
BraskemThe Company prepares a sensitivity analysis for foreign exchange rate and interest rate risks to which it is exposed, presented in Note 20.6(c.2).
19.8.
Management of the interest rate benchmark reform and associated risks
Overview
The planning for an organized replacement of interbank offered rates (“IBORs”) for alternative, nearly risk-free interest rates (RFRs, or “Risk-Free Rates”) iswas concluded, with IBORs being taken under several market initiatives. However, several details regarding the time and transition methods are still being discussed. discontinued in June 2023.
The Company usesused IBORs as reference rates on several of its financial instruments, and as part of these market-wide initiatives, RFRs will eventuallydue to this discontinuation, the Company took measures to replace such reference rates. While the transition will forceforced modifications on contracts that useused IBORs as reference rates, the Company expectshad no significant impact on its risk management and hedge accounting procedures after its completion. However, it will continue to monitor the transition and implement whatever changes or new controls are deemed to be appropriate as potential issues arise.
Derivatives
The Company holds interest rate swaps for risk management purposes, which are designated in cash flow hedging relationships. The interest rate swaps have floating legs that are indexed to LIBOR. The Company’s derivative instruments traded on over-the-counter market are governed by contracts based on the master agreements of the International Swaps and Derivatives Association (“ISDA”).
and agreed with counterparties in the international banking market.
As part of the IBOR reform, the ISDA published a protocol that changed all master agreements in force to include RFRs as replacement rates (fallback) for use upon discontinuation of the various IBORs. The protocol comescame into force onas of January 25, 2021, and Braskem S.A.,2021. The Company already hashave carried out its adoption; other entities of the Company are still in the adoption process.adoption.
Hedge accountingLiabilities
As of December 31, 2020, Braskem has cash flow hedges indexed to LIBOR. The2023, the Company expects that indexation of the hedged items and hedging instruments to LIBOR will be replaced with SONIA (“Sterling Overnight Interbank Average Rate”) in 2021. Whenever the replacement occurs, Braskem expects to apply the amendments related to hedge accounting, however, there is uncertainty about when and how replacement may occur. Hedging relationships may experience hedge ineffectiveness if there is a timing or other mismatch betweenhad already conducted the transition of the hedged itemits bank loans with interest rates linked to LIBOR in US$ (see notes 16 and that of the hedging instrument to SONIA. Braskem does not expect that the amount accumulated in the other comprehensive income will be immediately reclassified to profit or loss because of IBOR transition. Meanwhile, the Company will ensure that all relevant hedge accounting documentation is evaluated and updated appropriately.
17). The Company will apply the changes described in IFRS 9, issued in September 2019, to the relationships directed affected by the IBOR reform. Theoretically, hedge accounting designations could present ineffectiveness if the amendment in thebenchmark interest rate benchmark occurs on a date other than the redesignation of these transactionsloans was changed to hedge accounting. However, we expect both changes (of interest rate benchmark and redesignations) to co-occur.
Liabilities
To date, there are no broad initiatives to replaceguaranteed forward rates at the benchmarks of IBORs in financial agreements; any modifications will be negotiated bilaterally among the parties.
Security Overnight Financing Rate (SOFR).
Braskem S.A.
Notes to the consolidated financial statements at December 31, All amounts in
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(a) | Exposure to commodity price risks |
MostThe main purposes of the commodity price risk management are:
• Identifying potential origins of this risk;
• Defining mitigation controls;
• Establishing limits and powers to execute commodity derivative operations; and
• Defining the controls of transactions.
The commodity price risk arises from the dependence of the Company costs and revenues on commodity prices in the global market. In general, there is a strong correlation between prices of raw materials acquired for production and of the products sold in the petrochemical industry, forming a natural hedge. Mismatches inherent to the business may lead to occasional net risk exposures, which will be assessed and treated, such as: (i) when time lags between the pricing of the Company's raw materials and finished products creates a mismatch between prices, increasing the volatility of the petrochemical margin; (ii) one-off sales contracts at fixed prices without hedging the price of raw materials; and (iii) when different petrochemical price references have different levels of volatility and correlations between them.
The Company actively manages pricing periods and indexers, considering the following exposure allocation conditions: (i) always observing the market conditions associated with the profile of indexes and the Company's operating dynamics; (ii) in case of transactions for exchange of international references, indexes associated with the petrochemical market are considered; and (iii) not increasing the risk associated with its margin by fixating only the price of Braskem’s feedstocks (naphtha, ethane, propane and propylene) and main products (PE, PP and PVC) are commodities quoted on international markets. A series of factors determine the dynamics of these quotes, nevertheless our sales prices are also impacted in a similar proportion when compared with our feedstock supply chain.own operating chain (raw materials or finished products).
In order to manage the Risk associated with commodity price, the Company may either (i) adopt negotiation measures with suppliers or clients or (ii) contracts derivative transactions, which should always respect the volumes associated with the identified exposures, not generating financial leverage.
(b) | Exposure to foreign exchange risk |
Considering the dynamics of the international petrochemical market, where prices are mostly pegged to international dollar-denominatedUS$ denominated references, Braskem’sthe Company’s sales in Brazil and Mexico are strongly correlated to the U.S. currency.US$.
Therefore, with the goal of partially mitigatingTo mitigate the long-term exchange risk, as ofsince September 2016, the Company started to contract financial derivatives to compose a Long-Term Foreign Exchange Hedge Program. The Program, mainly aims to mitigate dollarby US$ call and put option contracts, hedging expected cash flows over a 24-monthan 18-month horizon, as detailed in Note 20.3.
19.5.
In addition to this program, to maintain the Hedge Program, to balance between the composition between dollar-denominatedUS$ denominated assets and liabilities Braskem’sexposure, as established in its Financial Policy, requires the Company towill maintain a percentage of at least 70% of the dollar-denominated portion of net debt.debt exposed to the US$. If convenient,economic benefits are expected, the Company may maintain a percentage of more than 70%, although subject to a sensitivity analysis of key financial indicators and proof of the inexistence of significant risk of deterioration of these indicators.
On December 31, 2020, Braskem prepared a sensitivity analysis for its exposure to the fluctuation in the U.S. dollar, as disclosed in Note 20.6.
(c) | Exposure to interest rate risk |
BraskemThe Company is exposed to the risk that a variation in floating interest rates causes an increase in its financial expenseexpenses due to payments of future interest. Debt denominated in foreign currency subject to floating rates is mainly subject to fluctuations in Libor.SOFR. Debt denominated in local currencyR$ is mainly subject to the variation in the Interbank Certificate of Deposit (“CDI”) rate.
In 2020, Braskem held swap contracts (Note 20.3.1) in which it receives Libor and pays a fixed rate.
On December 31, 2020, Braskem prepared a sensitivity analysis for the exposure to the floating interest rates Libor, CDI and Extended National Consumer Price Index (“IPCA”), as disclosed in Notes 20.6(c.1) and (c.2).
F-17 |
Braskem S.A.
4.2 Exposure to credit risk |
The transactions that subject Braskemthe Company to the concentration of credit risks are mainly in bank checking accounts, financial investments, and trade accounts receivable in which Braskemthe Company is exposed to the risk of the financial institution or customer involved. In order to manage this risk, Braskemthe Company maintains bank current accounts and financial investments with major financial institutions, weighting concentrations in accordance with the credit rating and the daily prices observed in the Credit Default Swap ("CDS") market for the institutions, as well as netting contracts that minimize the total credit risk arising from the many financial transactions entered into by the parties.
OnAs of December 31, 2020, 45.9%2023, 27% of the amounts recorded as “Cash and cash equivalents” (Note 5) and “Financial Investments” (Note 6) were allocated to financial institutions that had offset agreements with the Company. The obligations under these agreements are accounted for under “Borrowings” (Note 16). The effective netting of these amounts is possible only in the event of default by one of the parties.
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With respect to the credit risk of customers, Braskemthe Company protects itself by performing a rigorous analysis before granting credit and obtaining secured and unsecured guarantees when considered necessary, including credit insurance.
The maximum exposure to credit risk of non-derivative financial instruments on the reporting date is the sum of their carrying amounts less any provisions for impairment losses. On December 31, 2020, the balance of trade accounts receivable was net of allowance for doubtful accounts (Note 7).
4.3 Liquidity risk |
BraskemThe Company has a calculation methodology to determine a minimum cash “monthly vision” (30-day horizon) and a minimum cash “yearly vision” (up to 12-month horizon) for the purpose of, respectively: (i) ensuringmonitoring the liquidity needed to comply with obligations of the following month; and (ii) ensuring thatmonitoring the Company maintainsCompany´s liquidity during potential crises. crisis.
The amounts to determine the minimum cash “yearly vision” are calculated mainly based on the projected operating cash generation, less short-term debts and working capital needs. The amounts used for determining the minimum cash “monthly vision” consider the projected operating cash disbursement, debt service and contributions toinvestments in projects, as well as the planned disbursement for derivatives maturing in the period, among other items. TheAccording to its Financial Policy, the Company uses as a minimum cash in its financial policy the greater of these two references.
In May 2018,December 2021, the Company, in keeping with its commitment to maintain its financial liquidity, contractedrenewed an international revolving credit facility in the amount of US$R$ 5.2 billion (US$1 billion,billion), which expires in 2023.2026. This credit linemay be used without restrictions to improve the Company’s credit qualityliquidity or in the event of deterioration in the macroeconomic scenario. As of December 31, 2020,2023, this new credit line had not been used.
On December 31, 2020, due to the breach of certain covenants provided for in its financing agreement (Note 16), the subsidiary Braskem Idesa recorded under current liabilities its financial obligations with original long-term maturities. Note that Braskem Idesa has been settling all its obligations in accordance with the original maturity schedule and no creditor required or indicated the intention of requiring immediate reimbursement of these obligations or early debt payment.
Considering that the group of creditors of Braskem Idesa will continue not requiring prepayment of the debt, Braskem's financial liabilities by maturity, including the amounts due under the Leniency Agreement (Note 25)22), are shown in the table below. These amounts are calculated based on cash flows not discounted that consider future financial charges and may not be reconciled with the amounts disclosed in the statement of financial position.
Maturity | ||||||||||||
Until | Between one and | Between two and | More than | |||||||||
one year | two years | five years | five years | Total | ||||||||
Trade payables | 9,978,595 | 7,233 | - | - | 9,985,828 | |||||||
Borrowings | 1,439,079 | 4,365,497 | 7,953,182 | 71,000,361 | 84,758,119 | |||||||
Debentures | 56,988 | 125,320 | 97,057 | - | 279,365 | |||||||
Braskem Idesa borrowings | 1,194,805 | 2,340,108 | 2,911,775 | 10,212,681 | 16,659,369 | |||||||
Derivatives | 1,314,675 | 223,813 | 354,483 | - | 1,892,971 | |||||||
Loan to non-controlling shareholder of Braskem Idesa | - | - | - | 4,747,673 | 4,747,673 | |||||||
Leniency agreement (Note 25) | 399,039 | 313,562 | 852,766 | - | 1,565,367 | |||||||
Lease | 870,587 | 641,313 | 898,124 | 1,070,768 | 3,480,792 | |||||||
At December 31, 2020 | 15,253,768 | 8,016,846 | 13,067,387 | 87,031,483 | 123,369,484 |
If Braskem Idesa’s group of creditors require the early payment of this debt, the Company’s financial liabilities by maturity date, including the amounts due under the Leniency Agreement (Note 25), are shown in the table below. These amounts are gross and undiscounted and include contractual interest payments, therefore may not be reconciled with the statement of financial position.
Braskem S.A.
Notes to the consolidated financial statements at December 31, All amounts in
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Maturity | ||||||||||||
Until | Between one and | Between two and | More than | |||||||||
one year | two years | five years | five years | Total | ||||||||
Trade payables | 9,978,595 | 7,233 | - | - | 9,985,828 | |||||||
Borrowings | 1,439,079 | 4,365,497 | 7,953,182 | 71,000,361 | 84,758,119 | |||||||
Debentures | 56,988 | 125,320 | 97,057 | - | 279,365 | |||||||
Braskem Idesa borrowings | 8,064,401 | - | - | 7,785,795 | 15,850,196 | |||||||
Derivatives | 1,314,675 | 223,813 | 354,483 | - | 1,892,971 | |||||||
Loan to non-controlling shareholder of Braskem Idesa | - | - | - | 4,747,673 | 4,747,673 | |||||||
Leniency agreement (Note 25) | 399,039 | 313,562 | 852,766 | - | 1,565,367 | |||||||
Lease | 870,587 | 641,313 | 898,124 | 1,070,768 | 3,480,792 | |||||||
At December 31, 2020 | 22,123,364 | 5,676,738 | 10,155,612 | 84,604,597 | 122,560,311 |
Schedule of financial liabilities by maturity | |||||||||||
Until | Between one | Between two | More than | ||||||||
one year | and two years | and five years | five years | Total | |||||||
Trade payables | 13,522 | 13,522 | |||||||||
Borrowings and debentures | 2,138 | 3,000 | 11,197 | 64,359 | 80,694 | ||||||
Braskem Idesa borrowings | 950 | 71 | 979 | 15,403 | 17,402 | ||||||
Derivatives | 60 | 27 | 105 | 29 | 222 | ||||||
Loan from non-controlling shareholder of Braskem Idesa | 3,288 | 3,288 | |||||||||
Leniency agreement | 847 | 206 | 1,053 | ||||||||
Lease | 1,347 | 932 | 1,817 | 1,282 | 5,377 | ||||||
At December 31, 2023 | 18,864 | 4,236 | 14,098 | 84,361 | 121,558 | ||||||
Interest discounted to present value | (1,000) | (2,773) | (1,956) | (41,484) | (47,213) | ||||||
Carrying amount | 17,864 | 1,463 | 12,141 | 42,877 | 74,345 |
4.4 Capital management |
The Company’s policy is to maintain solid capital management to ensure the continuity and development of its business and to maintain the trust of investors, creditors and the general market. The ideal capital structure, according to Braskem’sthe Management view, considers the balance between own capital and the sum of all payables less the amount of cash and cash equivalents and financial investments.net debt. This composition meets the Company’s objectivespolicy of perpetuity and of offering an adequateproviding a consistent return to shareholders and other stakeholders. This structure also permitsallows borrowing costs to remain at adequate levels to maximize shareholder remuneration. The company’s capital structure was in 2023 and 2022 as follows (Ex- Braskem Idesa):
Schedule of capital structure | |||||||
Capital structure | 2023 | 2022 | |||||
Equity attributable to the Company's shareholders | 3,992 | % | 7,322 | % | |||
Third-party capital | 64,038 | 94.1% | 57,445 | 88.7% | |||
Total | 68,030 | 100% | 64,767 | 100% |
Due to the impact of the U.S. dollarUS$ on the Company’s operations, the Management of Braskem believes that the own capital used for capital management purposes should be measured in this currency and on a historical basis.US$. Moreover, the Company may temporarily maintain aanother capital structure, that is different from this ideal. This occurs, for example, during periods of growth, when the Company may finance a large portion of its projects through borrowings, provided that this option maximizes return for shareholders once the financed projects start operating. In order to adjust and maintain the capital structure, the Management of Braskem may also consider the sale of non-strategic assets, the issue of new shares or even adjustments to dividend payments.
As is the case of liquidity, capital is managed at the consolidated level, except for the liquidity and capital of the subsidiary Braskem Idesa and other subsidiaries with non-controlling interest, whose specific management is concentrated at the subsidiarysubsidiaries level.
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Braskem S.A.
Cash equivalents The cash equivalents in foreign market consist of Time Deposit and interest bearing accounts held outside of Brazil. 6 Financial investments
In 2023, financial investments and cash equivalents (Note 5) in Brazilian Real had an average yield of 101.37% of the Brazil interbank deposit certificate (“CDI”) p.a. (2022: 102.59%) and financial investments and cash equivalents in foreign currency (Note 5) had an average yield of 5.30% p.a. (2022: 1.18%).
receivable The Company’s average receivables term is generally 30 The Company realizes part of its trade accounts receivable through the sale of trade As of December 31, 2023, the amounts of trade accounts receivable transferred and derecognized maturing after December 31, 2023 was R$ Loss recognized at the date of transfer of the abovementioned receivables was R$
In credit risk management, guarantees are pledged by the counterparties, which mainly consist of sureties and letter of credit granted by prime banks (Only banks with the minimum risk classification equal to BBB- by Fitch Rating or Baa3 by Moody’s Investor or BBB- by Standard & Poor’s), credit insurance and mortgage assets. The guarantees obtained by the Company did not change significantly as of December 31, 2023, and 2022. The guarantees received are considered in measuring both the credit risk of each counterparty and the ECL.
The
The changes in the
Write-off The gross carrying amount of a financial asset is
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