Braskem SA 6-K 2012
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16
OR 15D-16 OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of May, 2012
(Commission File No. 1-14862 )
(Exact Name as Specified in its Charter)
(Translation of registrant's name into English)
Rua Eteno, 1561, Polo Petroquimico de Camacari
Camacari, Bahia - CEP 42810-000 Brazil
(Address of principal executive offices)
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in paper as permitted by Regulation S-T Rule 101(b)(1). _____
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7). _____
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Resin Sales up 9% in the Quarter
Margins in the petrochemical industry remained depressed in the quarter due to the combination of limited demand, which reflected the weak economic growth, especially in developed countries, and higher prices for raw materials, mainly naphtha.
The average naphtha price increased by 16% in 1Q12 compared to the last quarter of 2011, in response to the higher oil prices, reflecting the geopolitical tension in Arab countries, which was further aggravated by Iran. The prices of resins1 and basic petrochemicals2 increased by 7% and 8% in the period. However, the recovery in petrochemical prices was insufficient to offset the increases in feedstock prices, and the spreads of resins and basic petrochemicals, despite a gradual recovery in the quarter, decreased 11% and 6%, respectively, compared to the previous quarter.
Nonetheless, in a seasonally weak period, Brazilian demand3 for thermoplastic resins reached 1.2 million tons in the quarter, up 3% from 4Q11. Braskem s sales totaled 846 kton, up 9% in the quarter, in line with its strategy to expand sales in the domestic market, which led import volume in the period to decrease by 10% to 316 kton. The Company s operations normalized in the quarter, following the scheduled maintenance shutdowns in late 2011, with crackers operating at an average utilization rate of 93%.
EBITDA in 1Q12 was R$787 million or US$442 million, affected by the contraction in the contribution margin, in line with the narrowing of spreads in the international market, as mentioned earlier; and partially offset by the higher sales volume compared to the prior quarter.
On March 30, Braskem s net debt stood at US$6.1 billion, decreasing 4% from year-end 2011. Financial leverage measured by the net debt/EBITDA ratio in U.S. dollar increased from 2.83x to 2.87x in 1Q12.
Brazil s federal government continues to play an important role in helping to strengthen the local industry. On April 24, the Senate approved a measure to unify and reduce the interstate VAT tax for imported goods from 12% to 4%, which will come into force in January 2013, reducing the tax incentive granted by certain Brazilian ports. Also, the state government of Santa Catarina issued decrees revoking some of its benefits for certain imported goods with the aim of attracting investments and promoting the development of local manufacturers in the state.
The commitment of the Brazilian government with the local industry has been further reinforced by measures to combat the overvaluation of the Brazilian real and to incentive and to improve its competitiveness under the Brasil Maior Industrial Policy Plan. Among these measures, we highlight: incentives for converters through reductions in payroll taxes in the plastics industry; the Revitaliza program (more competitive financing lines) and financing for indirect exports.
However, the uncertainties regarding the performance of the world economy reinforce the need for a more comprehensive Industrial Policy to strengthen local industry, following the example being made by other countries. It is expected that new measures are taken in order to improve the competitiveness of the brazilian industry in this scenario.
1 65% PE (USA), 25% PP (Asia) and 10% PVC (Asia)
1 65% PE (USA), 25% PP (Asia) and 10% PVC (Asia)
In 1Q12, consolidated net revenue was US$4.7 billion, decreasing 4% from the previous quarter. The higher sales volume of resins and key basic petrochemicals, as well as the increase in the average price in U.S. dollar, partially offset the lower volume of resales. In Brazilian real, consolidated net revenue was R$8.2 billion, decreasing 5% from the prior quarter and also influenced by the stronger local currency in the period.
Compared to 1Q11, consolidated net revenue in U.S. dollar grew 5%, driven by the higher sales volume, which had been negatively impacted by the power blackout that affected the assets located in the Northeast region until May 2011, and by the better basic petrochemical prices in the period. In Brazilian real, consolidated net revenue grew 11%, driven by the average appreciation in the U.S. dollar of 6% in the period.
Export revenue in 1Q12 was US$2.0 billion, down 9% from the prior quarter, mainly due to the lower resale volume. Compared to 1Q11, export revenue increased 17%, driven by the acquisition of the polypropylene assets and by the higher volume of exports from Brazil (ex-resale) due to higher product availability.
Highlights by Segment
Brazilian market: estimated demand for Polyolefins (PE and PP) in 1Q12 was 957 kton, up 2% from 4Q11, which is explained by the period s seasonality. Compared to 1Q11, this demand increased by 7%.
Production: in 1Q12, production volume was 1,088 kton, up 14% and 11% from 4Q11 and 1Q11, respectively, which resulted in a higher supply of polyolefins for sale in the domestic and export markets. In both cases, the growth is explained by the higher utilization rates, which had been adversely affected by the scheduled and unscheduled maintenance shutdowns (blackout in Northeast).
Domestic sales: Braskem s sales totaled 715 kton, increasing 10% from 4Q11, driven by the expansion of market share from 70% to 75% (in line with historical levels), which reflects the Company's permanent commitment to supply the domestic market. Compared to 1Q11, domestic sales increased by 9%.
Export sales: in the first quarter of the year, exports totaled 332 kton, increasing 8% and 12% from 4Q11 and 1Q11, respectively, reflecting the higher availability of products, as explained above.
Brazilian market: estimated demand for PVC was approximately 282 kton in the quarter, increasing 6% on 4Q11 and 9% on 1Q11. The better performance of PVC reflects the continued strong performance of the Brazilian construction industry, influenced by the country s growing middle class, the opportunities associated with sporting events over the coming years and infrastructure investments.
Production: with a capacity utilization rate of 90%, PVC production reached 115 kton in the quarter, decreasing 2% from 4Q11. Meanwhile, caustic soda production grew by 5% to 116 kton. Compared to 1Q11, PVC and caustic soda production volume increased by 22 kton and 52 kton, driven by their higher utilization rates, which had been impacted last year by the power blackout.
Domestic sales: PVC sales volume was 131 kton in the quarter, or 47% of the total market, increasing 7% from 4Q11, virtually in line with the performance of the local market. Sales of caustic soda were 113 kton. Compared to 1Q11, PVC and caustic soda sales grew at strong rates of 23% and 26%, respectively, driven by the higher supply of these products.
Ethylene production in 1Q12 came to 870 kton, up 15% from 4Q11, reflecting the average utilization rate of 93% in the period. In March, the Company set a new ethylene production record with output of 306 kton in the month, surpassing the previous record set in October 2010 by 3 kton. Compared to the same period of 2011, which was affected by the blackout in the Northeast, ethylene production increased by 131 kton.
Ethylene and propylene: total sales in 1Q12 were 244 kton, up 14% from 4Q11, following the higher production in the period. Compared to 1Q11, sales volume increased 17%.
Butadiene: sales in the first quarter were 74 kton, down 2% from 4Q11, explained by the decrease in sales volume to export markets, which recovered in the quarter, and up 2% compared to 1Q11.
BTX: sales of aromatics increased 4% in 1Q12 to 248 kton. Compared to 1Q11, sales increased by 5%.
4 International Business (Braskem America)
Market: 1Q12 was marked by higher feedstock prices, driven by the gasoline market, higher naphtha prices and limited product availability (scheduled shutdowns), which consequently led to higher polypropylene prices. Despite the relative stability in the U.S. economy, no sign of demand recovery was observed.
Production: production volume in the quarter was 439 kton, increasing 2% from 4Q11, reflecting the capacity utilization rate of 88%. Compared to 1Q11, the strong growth in output is explained by the consolidation of the polypropylene assets acquired since the last quarter of 2011.
Sales: the International Business Unit, represented by the operations in the United States and Europe, recorded sales volume of 428 kton of PP in the quarter, remaining stable in relation to 4Q11, accompanying the stability in demand.
The higher capacity utilization rates for Braskem s main products reflect the normalization of production at the Company's plants following the scheduled and unscheduled maintenance turnarounds during 2011.
Braskem s consolidated EBITDA4 in 1Q12 was R$787 million, up 10% from 4Q11, with EBITDA margin excluding naphtha/condensate/oil resales ( resales ) of 10.3%. In U.S. dollar, EBITDA increased 11% to US$442 million. The higher sales volume was offset by the lower contribution margin, which followed international spreads for thermoplastic resins and key basic petrochemicals, which decreased by around 11% and 6%, respectively. However, the recognition of compensation for one of the propylene supply contracts for the Marcus Hook plant (see Note 1(a) to the Quarterly Financial Statements ITR) had a positive impact of R$236 million. Excluding this nonrecurring effect, the Company s EBITDA was R$551 million, with an EBITDA margin ex-resales of around 7%.
Braskem was communicated about the shutdown at one of the refineries responsible for supplying around 55% of the propylene consumed by the Marcus Hook plant, which has annual production capacity of 350 kton. The plant has operated using other feedstock suppliers, and the Company is already dedicated to find logistics and commercial solutions to ensure its operation. Braskem operates four other plants in the United States, which have combined production capacity of 1,075 kton, that were not supplied by this refinery.
Compared to 1Q11, EBITDA decreased 14% in Brazilian real and 20% in U.S. dollar. The higher sales volume and 6% appreciation in the dollar in the period were insufficient to offset the lowers spreads in thermoplastic resins and basic petrochemicals, which decreased 31% and 22%, respectively, between the periods.
In 1Q12, the net financial result was an expense of R$104 million, compared to an expense of R$607 million in the prior quarter. This variation is basically explained by the depreciation of the U.S. dollar5 against the Brazilian real of 3% in the quarter, compared to the 1% appreciation in 4Q11.
Since Braskem holds net exposure to the U.S. dollar (more dollar-pegged liabilities than dollar-pegged assets), any change in the exchange rate has an impact on the book financial result. On March 31, 2012, this net exposure was composed of: (i) in operations, 55% of the suppliers account, which is partially offset by 67% of accounts receivable; and (ii) in the capital structure, by 82% of net debt. Given its heavily dollarized operational cash flow, the Company considers this exposure adequate. Virtually 100% of its revenue is directly or indirectly pegged to the variation in the U.S. dollar exchange rate, and approximately 80% of its costs are also pegged to this currency.
It is important to note that the foreign exchange effect, which was a gain of R$263 million in the quarter, does not have a direct cash impact in the short term. This amount represents exchange-variation accounting impacts, especially on the Company s debt, with any expenditure occurring upon the maturity of the debt.
Excluding the effects from exchange and monetary variation on the balance-sheet accounts exposed to the dollar, the net financial result in 1Q12 was an expense of R$300 million, decreasing by R$37 million from the expense in the prior quarter. Compared to 1Q11, despite the reduction in the average debt cost, the financial result was affected by the Brazilian real depreciation of close to 10% between the periods.
The following table shows the composition of Braskem's net financial result on quarterly and annual bases.
In the quarter, Braskem recorded Net Income of R$152 million. This result was mainly driven by the reduction in financial expenses and the extraordinary effect related to the compensation received from the supply contract, as previously explained.
On April 27, 2012, the Annual Shareholders Meeting approved the distribution of dividends in the total amount of R$483 million, based on the unrealized profit reserve, which was also used to absorb the balance of accumulated losses in 2011 of R$496 million. The dividend payment will be made from November 20, 2012.
4 Cash Flow
Operating cash flow, adjusted by Financial Investments, was R$1,702 million in 1Q12, compared with operating cash flow of R$519 million in the prior quarter. The increase is explained by the positive contribution from working capital driven by (i) the positive variation in Suppliers explained by the increase in feedstock consumption (production growth) and the better payment term obtained from Petrobras, in the amount of R$900 million; which was partially offset by the negative variation in (ii) Accounts Receivable due to the higher sales volumes, (iii) Inventories, and (iv) Other Accounts Receivable, which includes the balance relating to the compensation of the raw material contract, as previously mentioned.
Adjusted Free Cash Flow was positive R$721 million, increasing by R$1,832 million from the prior quarter. The main factors in this increase were (i) the reduction in the line of interest expenses, which in 4Q11 was affected by the payments of semiannual coupons on the bonds issued by Braskem; and (ii) the lower disbursement for investments, which was affected by the payment related to the acquisition of the PP assets in 4Q11.
It is important to mention that the investment of R$834 million includes R$187 million disbursed in the Mexican project, which is fully consolidated by the Company. The portion corresponding to Braskem s equity was R$34 million and the remaining balance is explained by the project s bridge loan, the investments made by Idesa and by the use of its own cash. The bridge loan will be refinanced in the 1st disbursement of the project finance, which should be completed by July 2012.
As of March 31, 2012, Braskem s consolidated gross debt was US$8,099 million, virtually in line with the level registered on December 31, 2011. Note that this amount includes the total amount of the bridge loan for the Mexico project of US$32 million, which should be repaid once the Project Finance structure is implemented. In Brazilian real, consolidated gross debt decreased by 3%, impacted by exchange variation. At the end of the period, 66% of gross debt was pegged to the dollar. The balance of cash and investments increased 17% to US$1,993 million.
In April, the Company obtained consent for amending the financial covenants of its bond issues (with the new covenants already reflected in the 2041 bond issue) for the bonds coming due in 2018, 2020, 2021 and for the perpetual bonds. This amendment was made to segregate and preserve Braskem and its subsidiaries from the risks and obligations associated solely to the strategic projects of the Company financed by project finance structure.
The project finance structure for the Mexico project remains on schedule and should be concluded by July 2012. Approval has already been obtained for US$600 million from SACE and the A Loan of US$300 million from the Inter-American Development Bank (IDB), which will be complemented by a B Loan of up to US$800 million. The negotiations with the BNDES, BANCOMEX and IFC are in the approval phase.
The Company's consolidated net debt in U.S. dollar decreased by 4% to US$6,106 million. When measured in Brazilian real, Braskem s consolidated net debt decreased by 7%, influenced by the U.S. dollar depreciation of 3% in the period. At the end of the period, 82% of net debt was denominated in U.S. dollar.
In line with its strategy of maintaining high liquidity and financial solidity, Braskem maintains two revolving stand-by credit facilities with combined value of US$600 million that do not include any restrictive covenants on withdrawals during times of Material Adverse Change (MAC Clause). Only prime banks with low default rates (credit default swap) and high credit ratings participated in the transactions.
Financial leverage measured by the net debt/EBITDA ratio increased from 2.83x to 2.87x when measured in U.S. dollar. In Brazilian real, the ratio decreased 4% to 3.08x, reflecting the U.S. dollar depreciation in the period, as previously mentioned.
Despite the volatile global scenario, S&P, Moody s and Fitch issued reports in the March-May period that reinforced the Company s solid long-term fundamentals, and all agencies reaffirmed their investment-grade ratings and stable outlooks for Braskem. As of March 31, 2012, the average debt term was 15 years, compared to 12 years at the end of 2011. Considering only the portion denominated in U.S. dollar, the average debt term was around 21 years.
The longer debt term reflects the pre-payment of short term debts with higher costs, as well as the issue, in early January, of US$250 million via the reopening of the 2021 bond issue at par value and a yield of 5.75% p.a., down 25 bps from the original issue; and the reopening of the perpetual bond issue in the amount of US$250 million originally issued in October 2010. With coupon of 7.375% p.a., the perpetual bonds were placed in the market at 100.375% of face value, which represents a yield of 7.345%, down from the initial price. The average cost of servicing the Company's debt as of March 31, 2012 was 6.17% in U.S. dollar and 8.92% in Brazilian real, versus 5.98% in U.S. dollar and 9.82% in Brazilian real in the prior quarter.
In April, Braskem returned to capital markets and raised US$500 million through the issue of bonds due in April 2022, with a yield of 5.40% p.a., which is the lowest yield ever paid by the Company in a debt issue.
The following charts show Braskem s gross debt by category and indexer.
The following chart shows the Company s consolidated amortization schedule as of March 31, 2012.
Only 7% of Braskem s total debt matures in 2012, and its high liquidity ensures that its cash and cash equivalents cover the payment of obligations maturing over the next 32 months. Considering the standby lines, this coverage is 37 months.
In line with its medium and long term strategy, which is focused on expanding in the Brazilian market, diversifying its energy matrix, advancing its international expansion and consolidating its leadership in the biopolymer market, Braskem s project portfolio comprises the following projects:
4 Innovation Pipeline - Product Development
BRASKEM S COMPETITIVE ADVANTAGES:
Braskem continues to actively participate in the discussions of the National Commission for Rio+20, the United Nations conference on Sustainable Development to be held in Brazil this year, as part of the Company s effort to strengthen its corporate contribution to leverage society s commitment to sustainability.
In January, the Company participated in the preparatory meetings organized by the UN. Titled The Future We Want , the preparatory text for Rio+20 highlighted the importance of the business community's participation as a solution for sustainability and the contributions made by the business coalition Business Actions for Sustainable Development (BASD).
Braskem also defined some of the events it will support at Rio+20: the Corporate Sustainability Forum organized by the UN Global Compact and the Brazilian Committee of the Global Compact; the Rio+20 Business Day event to promote engagement by business and organized by the BASD; the Sustainable 2012" congress organized by the Brazilian Business Council for Sustainable Development (CEBDS); the event Meeting of Industry for Sustainability organized by the National Confederation of Industries (CNI); and the technology expo The Future is Sustainable organized by the Federal University of Rio de Janeiro (UFRJ). Braskem will also support the event as an official supplier and demonstrate solutions for a more sustainable life. This set of initiatives to support Rio+20 is based on the importance of the conference and of the business community s participation as an agent contributing to sustainability.
In relation to Braskem, the first quarter was marked by advances in the permanent effort to strengthen the management of Processes and Workplace Safety. In terms of Workplace Safety, the quarter registered the best indicators ever in Braskem s history, with an Injury Frequency Rate with and without Lost Time per million man-hours worked of 0.94. More specifically in March, the rate was 0.23, with the occurrence of just one lost-time event in Braskem s entire operations, which reinforces our belief that achieving a Zero Accident rate is possible.
Positive data on the U.S. economy and the expectation of a milder recession in Europe in response to the policies adopted to manage the sovereign debt crisis led the International Monetary Fund (IMF) to revise its forecast for world economic growth in 2012 to 3.5%. However, the risk factors continue to be associated with the strengthening of European economies and the geopolitical uncertainties in the Persian Gulf, which have the potential to trigger sharper increases in commodity prices.
Despite the still-volatile global environment, the expectation, to be confirmed, points to a Brazilian demand growth, influenced by the lower level of unemployment and higher income levels. The federal government has also responded and the stimulus measures adopted to promote credit and increase the competitiveness of local producers, which have led to higher job growth, should help support stronger GDP growth in Brazil.
In this scenario, Braskem s strategy remains centered on strengthening its business and increasing its competitiveness, which include: (i) strengthening its partnerships with Clients, which led its market share to expand in Brazil; (ii) supporting the development of Brazil s petrochemical and plastics chain; (iii) pursuing operational efficiency and cost reductions; (iv) adding value to existing streams; and (v) maintaining its solid financial position.
Regarding the petrochemical market, the short-term scenario remains marked by sharp fluctuations in prices and costs. For the year, a gradual recovery in consumption is expected, driven by the stronger economy in Southeast Asia (post-tsunami Japan), by the positive signs coming from Germany and the potential impacts on other countries in the region, and by the shift in China s policy for its domestic growth.
In the medium and long term, the outlook for the petrochemical industry remains positive. In this context, Braskem maintains its commitment to sustainable growth and development and will continue to act proactively to pursue the best opportunities, seeking to create value for its Clients, Shareholders and Society and to increase competitiveness throughout the entire petrochemical and plastics production chain, while maintaining its focus on financial discipline.
4 1Q12 Earnings Conference Call
This press release contains forward-looking statements. These forward-looking statements are not historical data, but rather reflect the targets and expectations of Braskem s management. Words such as "anticipate", "wish", "expect", "foresee", "intend", "plan", "predict", "project", "aim" and similar terms seek to identify statements that necessarily involve known and unknown risks. Braskem does not undertake any responsibility for transactions or investment decisions based on the information contained in this document.
* As of 2Q11, we began once again to fully consolidated Cetrel, retroactive to January 2011. Therefore, Starting Cash in 2011 includes additional Cash at Cetrel.
Sales Volume - Export Market Main products and International Business
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.Date: May 10, 2012
This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates offuture economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.