Braskem(US:BAK)2022-04-27 16:00Economic Conditions - Brazil's inflation rate reached 2,708% in 1993, with recent rates of 7.1% in 2018, 7.3% in 2019, 23.1% in 2020, and 17.7% in 2021, indicating persistent inflationary pressures [138]. - Mexico's GDP growth was 2.2% in 2018, followed by declines of 0.1% and 8.2% in 2019 and 2020, respectively, before a rebound of 5.0% in 2021, highlighting economic volatility [143]. - The Mexican government has implemented austerity measures and spending cuts, which could adversely affect the economy and the company's financial condition [143]. - Political instability in Mexico may significantly impact economic policies, potentially affecting the company's operations and financial results [147]. - The Mexican economy is increasingly correlated with the U.S. economy, and adverse conditions in the U.S. could significantly impact the financial performance of the company [150]. Financial Performance and Debt - As of December 31, 2021, the company had R$46.9 million in loans subject to the CDI rate, R$590.0 million subject to the IPCA, and R$5,552.9 million subject to LIBOR, with potential fluctuations adversely affecting financial performance [138]. - Foreign currency-denominated debt represented 98.6% of the company's total indebtedness as of December 31, 2021, increasing the risk of default and liquidity issues if payments are not met [140]. - The company has a significant exposure to global financial market disruptions, which could adversely affect its financial condition [171]. - As of December 31, 2021, consolidated corporate debt was R$35,094.2 million (US$6,288.7 million) [173]. - The company is required to distribute 25% of adjusted net profit as mandatory dividends, but may suspend this distribution if financial conditions do not permit [156]. Operations and Supply Chain - The company relies on ethane supplied by Pemex TRI, and any modifications or interruptions to this supply agreement could materially affect operations and financial condition [141]. - The company sources part of its ethane feedstock from Pemex TRI, which is expected to remain the primary source until the Ethane Import Terminal is operational [153]. - Any significant damage to Pemex TRI's facilities or pipelines could materially adversely affect production volumes, net revenue, and profit margins [153]. - The Amended Ethane Supply Agreement (ESA) may be subject to interpretation differences with Pemex TRI, potentially impacting financial results [152]. - The company may face challenges in obtaining ethane of acceptable quality and quantity, which could adversely affect business operations [154]. Environmental and Sustainability Initiatives - The company invests in R&D to develop sustainable solutions, with 81% of its innovation projects focused on sustainability, including partnerships for advanced recycling and bio-based products [288]. - The company has developed a three-pronged approach to sustainability, focusing on sustainable sources, products, and solutions [304]. - The company has announced eight key global initiatives to support the transition to a circular economy, including partnerships for product development and increased investments in renewable products [305]. - The company recycles or reuses 59.1% of the solid waste generated and 22.4% of the water used in production processes [297]. - Consolidated annual expenditures on environmental control were R$857.3 million in 2021, R$537.9 million in 2020, and R$369.8 million in 2019 [293]. Production Capacity and Market Position - As of December 31, 2021, the company is the largest producer of plastics in the Americas, with a global installed capacity of 21.4 million tons per year [176]. - The Brazil Segment accounted for net revenue of R$69,494.9 million, representing 64.1% of the company's consolidated net revenue [176]. - The USA and Europe Segment generated net revenue of R$32,403.6 million, accounting for 29.9% of consolidated net revenue [176]. - The Mexico Segment contributed net revenue of R$6,506.3 million, which is 6.0% of consolidated net revenue [176]. - The company has established a strategic position in the polyolefins business across South America, North America, Europe, and Asia, aiming to reduce exposure to market cyclicality [241]. Regulatory and Compliance Issues - Changes in Brazilian tax laws could affect the taxation of dividends and interest on equity, impacting shareholder returns [158]. - The company operates under Brazilian corporate laws, which may provide fewer protections for shareholders compared to jurisdictions like the U.S. [164]. - The Brazilian Environmental Crimes Law allows fines up to R$50.0 million for corporations causing environmental damage [294]. - The company is subject to fines ranging from R$500 to R$50.0 million for lapses in environmental licenses and permits [295]. - Environmental compliance in the U.S. includes maintaining various permits related to air quality and wastewater treatment, with costs expected to increase due to regulatory requirements [299].