bak20190315_6k5.htm - Generated by SEC Publisher for SEC Filing
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16
OR 15D-16 OF THE SECURITIES EXCHANGE ACT OF 1934


For the month of March, 2019

(Commission File No. 1-14862 )

 

 
BRASKEM S.A.
(Exact Name as Specified in its Charter)
 
N/A
(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)



Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F ___X___       Form 40-F ______

Indicate by check mark if the registrant is submitting the Form 6-K
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). _____

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ______       No ___X___

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _____.


 

BRASKEM S.A.

National Register of Legal Entities (C.N.P.J.) No. 42.150.391/0001-70

N.I.R.E. 29300006939

Publicly-Held Company

 

MANAGEMENT PROPOSAL

FOR THE ANNUAL AND EXTRAORDINARY GENERAL MEETING OF BRASKEM S.A.

TO BE HELD ON APRIL 16, 2019

 

Dear Shareholders,

 

The Management of Braskem S.A. (“Company” or “Braskem”) submits this management proposal (“Proposal”) related to the Annual and Extraordinary General Meeting of Braskem to be held on April 16, 2019 (“Meeting”), in accordance with the provisions of the Brazilian Securities Commission (“CVM”) Ruling No. 481, of December 17, 2009, as amended (“CVM Ruling No. 481”).

Considering the Company’s interest, the Management presents the following information with regard to the matters included in the agenda for the aforementioned Meeting:

 

I.             In Annual General Meeting:

 

1.            Review, discuss and vote on the Management Report and respective Manager Accounts and Financial Statements of the Company, containing Explanatory Notes for the fiscal year ended on December 31, 2018, accompanied by the Independent Auditors’ Report and the Fiscal Council’s Report

 

As approved by the Company’s Board of Directors in a meeting held on march, 13th, 2019, pursuant to Article 26, item “V”, of its Bylaws, the Management of the Company submits to your examination the Management Report, the Financial Statements of the Company, containing explanatory notes for the fiscal year ended on December 31, 2018, accompanied by the Independent Auditors’ Report and the Company’s Fiscal Council’s Report, which were made available to the investors on march 13th, 2019. The announcement set forth in the main section and paragraph 1 of article 133 of Law 6,404, of December 15, 1976, as amended (“Corporate Law”), shall be published in the Official Gazette of the State of Bahia and in the newspaper “Correio da Bahia”, pursuant to article 124 of the Corporation Law.

 

Also pursuant to article 133 of the Corporation Law, article 9 of CVM Ruling No. 481, the documents provided by the Company’s management for your analysis of the Management accounts are:

 

(i)             Management Report on the company's business and major administrative events of the fiscal year ended on December 31, 2018;

(ii)           Financial Statements and explanatory notes for the fiscal year ended on December 31, 2018;

(iii)          Form of Standardized Financial Statements - DFP;

(iv)         Independent Auditors’ Report;

(v)           Fiscal Council’s Report;

(vi)         Statement by the Officers that they have reviewed, discussed and agreed with the opinions expressed in the Independent Auditors’ Report, informing the reasons, in case of disagreement;

DOCS - 4196139v4

1


 

(vii)        Statement by the Officers that they have reviewed, discussed and agreed with the Financial Statements;

(viii)      The comments by the Company’s managers, pursuant to item 10 of its Reference Form (Exhibit I to this Proposal); and

 

2.            Examine, discuss and vote on the Management Proposal for the allocation of the net profit of the fiscal year ended on December 31, 2018

 

The Management of the Company proposes that the shareholders resolve on the allocation of the net profit of the fiscal year ended on December 31, 2018, as per Exhibit II to this Proposal.

 

3.            Resolve on the election of members of the Company’s Fiscal Council

 

The Company’s Management proposes to resolve on the election of up to five (05) effective members and their respective alternates to the Company’s Fiscal Council, for a term of office of one (01) year effective up to the date of the next Annual General Meeting concerning the fiscal year to end on December 31, 2019, pursuant to articles 42 and 43 of the Company’s Bylaws.

 

Exhibit III to this Proposal includes the list and information about the candidates recommended by the Company’s controlling company and by Petróleo Brasileiro S.A. Petrobras (“Petrobras”) pursuant to the provisions of article 10 of CVM Ruling No. 481.

 

4.            Resolve on the annual and global compensation of the managers and members of the Fiscal Council related to the fiscal year ending on December 31, 2019.

 

The total amount proposed for the fiscal year of 2019 related to the overall compensation of the Managers in 2019 is 83,039,380.15  Reais (BRL  Eighty-three billion, thirty-nine million, three hundred and eighty thousand reais and fifteen cents ), including fixed and variable fees related to payroll charges recognized in the Company's results and applicable benefits. Moreover, the Management proposes for the fiscal year of 2019 the amount of 1,101,600.00  Reais (BRL One million, one hundred and one thousand, six hundred reais) concerning compensation to the Fiscal Council’s members, in compliance with the provision of article 162, paragraph 3, of the Corporation Law; therefore, totaling a global compensation to the Managers and the Fiscal Council in the amount of 84,140,980.15 Reais RL Eighty-four million, one hundred and forty thousand, nine hundred and eighty reais and fifteen cents )).

Pursuant to article 12 of CVM Ruling No. 481, this Proposal contains thorough information referring to the setting of compensation for Managers and the Fiscal Council, pursuant to its Exhibits IV and V.

The annual and global compensation amount proposed above is based on a composition estimate for Managers’ fees pursuant to market reference, considering monthly fees (offset arising from inflation and merits), short-term (according to seniority and goals) and long-term (according to the Long-Term Incentive Plan - ILP approved for the year) variable fees and benefits.

 

DOCS - 4196139v4

2


 

 

II. In Extraordinary General Meeting:

 

5.            Resolve on the replacement of 3 effective members and 1 alternate member of the Company's Board of Directors, appointed by the controlling shareholder and Petrobras, for the remainder of the current term, which will end on the occasion of the Annual Shareholders' of the fiscal year ending on 12.31.2019

 

The Management of the Company proposes that the shareholders resolve,  on the replacement of 3 effective members and 1 alternate member of the Company's Board of Directors, appointed by the controlling shareholder and Petrobras, for the remainder of the current term, which will end on the occasion of the Annual Shareholders' of the fiscal year ending on 12.31.2019

 

Exhibit III to this Proposal includes the information about the candidate recommended, pursuant to article 10 of CVM Ruling No. 481.

 

Therefore, since this is not the election of a new board of directors but a majority vote election for replacement of 3 effective members of a council composed by 11 effective members, cumulative vote or separate election pursuant to  art. 141, §4 or §5 of the Corporate Law are not applicable. Such understanding is also reflected in the Remote Voting Bulletin (“Bulletin”), which does not encompass the possibility of requesting cumulative vote or separate election for the Board of Directors.

 

The Management of the Company informs that Mr. João Cox Neto, effective member of the board of directors, will no longer be appointed by the controlling shareholder as an independent member, and from now on will be appointed by Petrobras as a non-independent member, remaining in his position at the board of directors, explained by the fact that Mr. João Cox was elected to the Board of Directors of Petrobras, a relevant supplier of products to the Company, which implies the loss of his independence. Mr. João Pinheiro Nogueira Batista is now appointed by the controlling shareholder to hold the position formerly occupied by Mr. João Cox Neto.

 

III. Shareholders’ Representation

 

Shareholders may participate in the Meeting in person or by an attorney-in-fact duly appointed, or through bulletin, and the detailed guidelines regarding the necessary documentation are set forth in the Bulletin. We describe below additional information on the participation in the Meeting:

 

                (a) In person or by Physical Proxy: with the objective of expediting the works of the Meeting, the Company’s Management requests that the Shareholders file with the Company, 72 hours prior to the date scheduled for the Meeting, the following documents: (i) proof of ownership of the share issued by the financial institution depositary of the book-entry shares held thereby, proving ownership of the shares within 8 days from the Meeting; (ii) proxy, duly regularized under the law, in case of representation of the shareholder, with grantor’s signature certified by a notary public, notarization, consularization or apostille annotation (as the case may be) and sworn translation, together with the articles of incorporation, bylaws or articles of association, minutes of the Board of Directors’ election (if any) and minutes of the Executive Board election if the shareholder is a legal entity; and/or (iii) with regard to the shareholders taking part of the fungible custody of registered shares, a statement of the respective ownership interest, issued by the competent body. Shareholders or their legal representatives shall attend the Meeting in possession of the proper identification documents. However, it is worth stressing that, under paragraph 2 of article 5 of CVM Ruling 481, the shareholder that attends the Meeting with the required documents may participate and vote, even if he/she has not delivered them in advance, as requested by the Company. The Company shall not accept powers of attorney granted by shareholders through electronic means.

 

DOCS - 4196139v4

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                (b) Remote Voting Bulletin: the Company shall adopt the remote voting system under the terms of CVM Ruling 481, thus allowing its Shareholders to send their votes: (i) through its respective custody agents; (ii) through the registrar of the Company’s shares (Itaú Corretora de Valores S.A.); or (iii) directly to the Company, as per the guidelines contained in the Bulletin and in item 12.2 of the Reference Form.

 

The Bulletin hereto presents the matters comprising the Meeting’s agenda, described in items 1 to 5 of this Proposal. The shareholders who choose to cast their votes remotely at the Meeting shall fill out the Bulletin made available by the Company, stating if they wish to approve, reject or abstain from voting on the resolutions described in the Bulletin, in compliance with the procedures described above.

 

Finally, all the exhibits are detailed in this Proposal in accordance with the laws and regulations.

 

The Management

***

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EXHIBIT

PAGE

EXHIBIT I - Comments by the Company’s managers, pursuant to item 10 of the Reference Form.

6

 

 

EXHIBIT II – Proposal of allocation of the net profit for the fiscal year ended in 2018, containing, at least, the information indicated in Exhibit 9.1.II of CVM Ruling No. 481.

48

 

 

EXHIBIT III - Indication of manager to hold the position of effective/alternate member of the Board of Directors and to hold the positions of effective and alternate members of the Fiscal Council of the Company, according to information provided in items 12.5 to 12.10 of the Reference Form, under article 10, item I, of CVM Ruling No. 481.

54

 

 

EXHIBIT IV – Proposal for compensation of the managers, under article 12, item I, of CVM Ruling No. 481.

65

 

 

EXHIBIT V – Proposal for compensation of the managers, as informed in item 13 of the Reference Form, under article 12, item II, of CVM Ruling No. 481.

67

 

 

 

OCS - 4196139v4

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BRASKEM S.A.

National Register of Legal Entities (C.N.P.J.) No. 42.150.391/0001-70

N.I.R.E. 29300006939

Publicly-Held Company

 

EXHIBIT I

MANAGEMENT PROPOSAL

FOR THE ANNUAL AND EXTRAORDINARY GENERAL MEETING OF BRASKEM S.A.

TO BE HELD ON APRIL 16, 2019

 

Comments by the Company’s Managers, pursuant to item 10 of the Reference Form.

10.             Officers comments

10.1       General financial and equity conditions

(a)         Officers’ comments on the general financial and equity conditions

The Officers understand that the Company presents financial and equity conditions that are compatible with its area of operation and are enough to implement its strategic goal of meeting the needs of its Clients in the value chain of the chemical, petrochemical and plastic industry in Brazil and in the world, maximizing the value for its shareholders.

In the fiscal year ended on December 31, 2018, the Company registered an EBITDA of USD 3,105 million (BRL 11,315 million), in comparison with USD 3,872 million (BRL 12,334 million) in the fiscal year ended on December 31, 2017, and USD 3,304 million (BRL 11,507 million) in the fiscal year ended on December 31, 2016. For further information, see item 10.2 (b) of this proposal.

The free cash flow generation of the Company1 in the fiscal year ended on December 31, 2018 was BRL 7,068 million in comparison with BRL 2,460 million in the fiscal year ended on December 31, 2017, an increase of 187%, which presented a 9%-growth in relation to the fiscal year ended on December 31, 2016 (BRL 2,247 million). For further information, see item 10.2 (b) of this proposal.

On December 31, 2018, the Company’s net indebtedness (USD 5,129 million/BRL 18,873 million) in Dollars was reduced by 15% in comparison to the indebtedness on December 31, 2017 (USD 6,031 million/BRL 19,951 million), which, in turn, was 2% lower than the net indebtedness in Dollars presented on December 31, 2016 (USD 6,139 million/BRL 20,007 million).

 

 


1 Free Cash Generation refers to the Net Cash Generated by the Operational Activities deducted (i) from the payment of the Leniency Agreement; (ii) from the financial investments on time deposit; and (iii) from the effects of the reclassifications between the lines of Financial Investments and Cash and Cash Equivalents; less the line of Cash Application on Investment Activities.

6


 

The Company’s financial leverage, measured by the ratio net debt/EBITDA in Dollars, in the last three fiscal years, , was respectively of 2.06x, 1.91x and 1.95x, a 8%-increase compared to December 31, 2017, which presented a 2%-reduction compared to December 31, 2016. For further information, see item 10.1 (h) of this proposal.

Regarding the equity conditions of the Company, on December 31, 2018, the consolidated shareholders’ equity attributable to the Company’s shareholders2 was of BRL 6,788 million, compared to BRL 6,518 million on December 31, 2017, and BRL 2,739 million on December 31, 2016. For further information, see item 10.1 (h) of this proposal.

The return on equity, expressed by the net earnings on the shareholders’ equity, in the fiscal years ended on December 31, 2018, 2017 and 2016 were, respectively, of 42%, 63% and -15%.

The Company's liquidity indicators of the last three fiscal years are presented in the table below:

 

Fiscal year ended on December 31,

2018

2017

2016

Net Liquidity (x) (1)

1.54

1.79

1.25

General Liquidity (x) (2)

1.16

1.17

1.07

Leverage (x) (3)

2.06

1.91

1.95

1 General Liquidity = Current Assets / Current Liabilities – Does not consider Braskem Idesa

2 General Liquidity = (Current Assets + Non-Current Assets) / (Current Liabilities + Non-Current Liabilities) - Does not consider Braskem Idesa

3Leverage = [(Gross Debt + Derivatives + Leniency Agreement) – Cash]/ EBITDA – Does not consider Braskem Idesa’s (controlled company) net debt and EBITDA. Sums in USD - Does not consider Braskem Idesa’s net debt, cash and EBITDA. The cash balance and investments exclude [USD 133 million] of financial investments used as collateral for Company’s obligation related to the creation of a reserve account for the project finance of the controlled company Braskem Idesa and considers the financial investments in government bonds kept for trade referring to Treasury Bills (“LFTs”) issued by the Brazilian federal government. These bonds’ maturity exceeds three months, have immediate liquidity and have a short-term realization expectation.

 

(b)        Officers’ comments on the capital structure

The officers indicate, in the table below, the Company’s capital structure evolution in relation to the last three fiscal years:

Capital Structure

Fiscal year ended on December 31,

12/31/2018

12/31/2017

12/31/2016

BRL million

%

BRL million

%

BRL million

%

Net equity

5,911

10%

5,690

11%

1,721

3%

Third-Party Equity

53,283

90%

47,651

89%

50,631

97%

             

 

The third-party equity is mainly formed as follows:

Third-Party Equity

12/31/2018

12/31/2017

12/31/2016

BRL million

%

BRL million

%

BRL million

%

Financing

25,193

 

26,675

50

23,331

46

Stock Market

21,999

41

20,150

42

14,029

28

National Government Officials

330

1

716

2

3,245

6

Foreign Public Officials

1,957

4

742

2

380

1

Structured Operations

499

1

735

2

2,389

5

Working Capital

407

1

1,332

3

3,288

6

Transactions with derivatives

232

0

7

0

890

2

Project Finance Braskem Idesa

10,505

20

9,691

20

10,438

21

Leniency Agreement

1,443

3

1,629

3

2,853

6

Suppliers

8,615

16

5,525

12

6,747

13

Loan from non-controlling shareholder at Braskem Idesa

2,184

4

1,757

4

1,621

3

Others

5,112

10

5,367

11

4,751

9

Total

53,283

100

47,651

100

50,631

100

 

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2 Ignoring (non-controlling shareholder) Idesa S.A.P.I’s equity interest in the controlled company Companhia Idesa S.A.P.I..

7


 

 

The Company seeks to diversify its financing sources by using funds from the stock market, government officials, through working capital and other structured operations. The Company’s financial strategy remains focused on raising funds on the stock market, keeping back credit lines available for working capital operations.

(c)         Officers’ comments on the ability to pay financial commitments undertaken

The Company’s officers believe that the levels of financial leverage and liquidity are proper for the Company to fulfill its present and future obligations and to capture commercial opportunities as they appear, although the Company’s officers cannot guarantee that this situation will remain the same.

The Company assumed commitments (raising funds from third parties3) in the fiscal year ended on December 31, 2018, in the total amount of BRL 4,302 million, compared to BRL 8,492 million raised in the fiscal year ended on December 31, 2017, and BRL 4,108 million raised in the fiscal year ended on December 31, 2016. The strategy of undertaking commitments has the purpose of stretching the debt profile. Considering the funds from third parties taken by the controlled company Braskem Idesa, the total amount of funds raised is of BRL 4,302 million in the fiscal year ended on December 31, 2018, BRL 8,680 million in the fiscal year ended on December 31, 2017, and BRL 4,612 million in the fiscal year ended on December 31, 2016.

In all three fiscal years, the Company tried to keep its level of liquidity elevated, reflecting its payment ability via operational cash flow generation and the maintenance of stand-by line, thus ensuring the coverage of its obligations in 48 months on December 31, 2018.

The Company’s ability to pay, however, may be affected by several risk factors.

In short, it is possible to say that the Company’s main cash needs comprise: (i) working capital needs; (ii) payment of the debt service; (iii) capital investments related to investments in operations, modernization and strategic investments; and (iv) payment of dividends referring to the shares. In order to meet these cash needs, the Company has been traditionally relying on the cash flow derived from its operating activities, with short and long-term loans and issuing bonds in the national and international stock markets.

 

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3 This indicator does not consider the controlled company Braskem Idesa’s debt, in the amount of USD 2.7 billion, because it is a project finance

and therefore must be exclusively repaid with the project’s cash generation.

8


 

On December 31, 2018, the Company maintained its investment grade ratings given by Standard & Poor's and Fitch Ratings and presented a credit risk that exceeded the sovereign risk by the three major risk credit rating agencies (S&P, Fitch and Moody’s).

In the fiscal year ended on December 31, 2018, Moodys and S&P changed the Company's perspective of risk from negative to stable. In addition, the Company's credit risk by S&P is 3 notches above Brazil’s sovereign risk for the first time.

Agency/Year

2018

2017

2016

Fitch Ratings

BBB- Stable

BBB- Stable

BBB- Stable

Standard & Poor’s

BBB- Stable

BBB- Negative

BBB- Negative

Moody’s

BBB- Stable

Ba1 Negative

Ba1 Negative

 

(d)        Sources of financing for working capital and capital expenditures  used

The Company used as sources of funds for financing of working capital and capital expenditures, in addition to the commitments (raising funds from third parties4) mentioned in the previous item, the generation itself of operational cash, which was BRL 9,250 million in the fiscal year ended on December 31, 2018, in comparison with BRL 2,462 million in the fiscal year ended on December 31, 2017 and BRL 4,458 million in the fiscal year ended on December 31, 2016.

§   Loans and financing for the working capital: in the last three fiscal year, the Company raised funds with export credit operations, in the types ACCs (Advances on Exchange Contracts) and PPEs (Export Pre-Payment), and true sale/assignment of receivable operations.

§   Financing of current investment and other strategic projects: in the last three fiscal years, direct and indirect funds were used, as well as credits insurances, of Brazilian and foreign governmental bodies, such as: Banco Nacional de Desenvolvimento Econômico e Social, Banco do Nordeste do Brasil, FINEP, Fundo de Desenvolvimento do Nordeste, NEXI (Japanese credit agency), SACE (Italian credit agency) and Euler-Hermes (German credit agency).

(e)   Sources of financing for working capital and capital expenditures that it intends to use as a means of covering liquidity shortfalls

The officers believe they can cover occasional liquidity shortfalls of the Company with a combination of: (i) funds from general operations of the Company; (ii) funds from financing, including new raising and refinancing of the already existing debt; and (iii) funds from the reduction of the operational cycle and consequent reduction of the need of financing working capital.

 

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4 This indicator does not consider the controlled company Braskem Idesa’s debt, in the amount of USD 2.7 billion, because it is a project finance and therefore must be exclusively repaid with the project’s cash generation.

9


 

(f)          Indebtedness levels and the characteristics of such debts

The table below shows the Company’s financial leverage evolution in the last 3 fiscal years, measured by the “Net Debt/EBITDA” indicator:

(Millions)

12/31/2018

12/31/2017

12/31/2016

Reais

Dollar

Reais

Dollar

Reais

Dollar

Net Debt(1)

19,873

5,129

19,951

6,031

20,007

6,139

EBITDA LTM

9,052

2,486

10,045

3,153

11,022

3,155

Leverage (x)

2.20

2.06

1.99

1.91

1.82

1.95

(1)Net Indebtedness = Short-Term Loans + Long-Term Loans + Derivatives + Leniency Agreement – Cash and Cash Equivalents. This indicator does not consider the controlled company Braskem Idesa’s debtbecause it is a project finance, and therefore must be exclusively repaid with the project’s cash generation. Accordingly, Mexico’s cash and EBITDA are not considered. The cash balance and investments exclude [USD 133 million] of financial investments used as collateral for Company’s obligation related to the creation of a reserve account for the project finance of the controlled company Braskem Idesa and considers the financial investments in government bonds kept for trade referring to Treasury Bills (“LFTs”) issued by the Brazilian federal government. These bonds’ maturity exceeds three months, have immediate liquidity and have a short-term realization expectation.

The Company’s indebtedness profile can be summarized by the table below, which does not consider the controlled company Braskem Idesa’s debt, in the amount of USD 2.7 billion , because it is a project finance, and therefore must be exclusively repaid with the project’s cash generation:

 

12/31/2018

12/31/2017

12/31/2016

(BRL million)

Short-Term Debts

765

1,212

2,594

Long-Term Debts

27,427

22,463

20,737

Debts in Reais

5%

6%

21%

Debts subject to Dollar exchange variation

95%

94%

79%

Debts subject to other currencies exchange variation

0%

0%

0%

Unsecured Debts

98%

96%

86%

Asset-Backed Debts

2%

3%

12%

Debts covered by other types of guarantees

0%

1%

1%

 

The Company’s amortization schedule can be summarized by the table below, which does not consider the controlled company Braskem Idesa’s debts, as explained above:

 

2019

2020

2021

2022

2023

2024

2025 onwards

TOTAL

 

(BRL million)

 

Brazilian Currency (1)

155

131

102

97

265

256

26

1,032

Foreign Currency (1)

673

1,723

3,941

2,260

2,183

3,152

10,365

24,298

Total

828

1,854

4,044

2,357

2,448

3,407

             10,391

25,330

(1)      This does not consider transaction costs

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10


 

 

(i)    Material loan and financing agreements

 

The officers of the Company describes below: (I) the main conditions, guarantees and restrictive clauses connected to the loan and financing agreements that they classify as material; (ii) other long-term relationships with financial institutions; (iii) debt subordination levels; and (iv) any possible restrictions imposed to the issuer.

COMPANY

Fixed-rate Notes

Date of Issue/
Date of the Agreement

Operation Currency

Amount Issued (Operation Currency in MM)

Due Date

Interest

Repayment of Principal

Debt Balance

Principal and Interest

on 12/31/2018

Index

Spread
(% p.a.)

Payment

Amount
USD million

Amount
BRL million

May-10

USD

750

May-20

Pre

7.000%

Semi-annual

Final

375

1,451

Apr-11

USD

1,000

Apr-21

Pre

5.750%

Semi-annual

Final

944

3,656

Jul-11

USD

750

Jul-41

Pre

7.125%

Semi-annual

Final

773

2,997

May-12

USD

500

May-22

Pre

5.375%

Semi-annual

Final

504

1,954

Feb-14

USD

750

Feb-24

Pre

6.450%

Semi-annual

Final

770

2,983

Oct-17

USD

500

Jan-23

Pre

3.500%

Semi-annual

Final

508

1,970

Oct-17

USD

1.250

Jan-28

Pre

4.500%

Semi-annual

Final

1,277

4,947

 

11


 

 

Perpetual Bonds

Date of Issue

 Amount
(USD million)

Due Date

Interest

Debt Balance

Principal and Interest

on 12/31/2018

Index

Spread
(% p.a.)

Payment

Amount
USD million

Amount
BRL million

Oct-10

700

Oct-15

Pre

7.375%

Quarterly (1)

509

1,972

1 On September 26, 2018, the Company made the partial redemption of USD 200 million, as part of its strategy to reduce the indebtedness cost.

 

Credit Lines for Export Pre-Payment

Date of the Agreement

Operation Currency

Amount Issued (Operation Currency in MM)

Due Date

Interest

Repayment of Principal

Debt Balance

Principal and Interest

on 12/31/2018

Index

Spread (% p.a.)

Payment

Amount
USD million

Amount
BRL million

Apr/18

BRL

400

Mar/24

CDI

100.0% CDI + 0.70

Final

Final 1

105

406

1The company has a swap operation to compensate the CDI fluctuation.

 

Financing Lines with Foreign Public Officials

Date of the Agreement

Operation Currency

 Amount Issued (Operation Currency in MM)

Due Date

Interest

Repayment of Principal

Debt Balance

Principal and Interest

on 12/31/2018

Index

Spread (% p.a.)

Payment

Amount
USD million

Amount
BRL million

Jan/13

USD

200

Nov/22

LIBOR

1.10%

Semi-annual

Semi-annual (1)

80

311

Sep/17

USD

135

Mar/27

LIBOR

1.61%

Semi-annual

Semi-annual (2)

129

499

Jul/18

USD

225

Dec/28

LIBOR

0.65%

Semi-annual

Semi-annual (3)

160

620

Nov/18

USD

295

Nov/28

LIBOR

0.90%

Semi-annual

Semi-annual (4)

296

1,147

 

1 Amortization began in May/13.

2 The principal will begin to be repaid in Sep/18.

3 The principal will begin to be repaid in Nov/20.

4 The principal will begin to be repaid in May/19.

DOCS - 4196139v4

12


 

 

Financing Lines with National Public Officials

Date of the Agreement

Operation Currency

 Amount Issued (Operation Currency in MM)

Due Date

Interest

Repayment of Principal

Debt Balance

Principal and Interest

on 12/31/2018

Index

Spread

Payment

Amount
USD million

Amount
BRL million

(% p.a.)

Dec/10

BRL

200

Dec/22

Pre

8.5%

Monthly

Monthly

89

23

The purpose of the agreement listed above was to finance specially modernization projects of the Company's industrial plants in Brazil.

BRASKEM IDESA - Project Finance

Date of the Agreement

Operation Currency

Amount Issued (Operation Currency in MM)

Due Date

Interest

Repayment of Principal

Debt Balance

Principal + Interest

on 12/31/2018

Index

Spread
(% p.a.)

Payment

Amount
USD million

Amount
BRL million

Jul/13 - Sep/15

USD

3,193.1

Feb-19

PRE

4.33% - 6.17%

Quarterly

Quarterly

682

2,641

Libor

2.73% - 4.65%

Quarterly

Quarterly

2,053

7,953

 

DOCS - 4196139v4

13


 

(ii)  Other long-term relations with financial institutions

Except for the relations derived from loan and financing agreements, whose more relevant items were described in item 10.1.f(i) above, the Company has the following long-term relations with financial institutions arising from transactions with derivatives:

Identification

Type

Nominal Value

Protection

Due Date

Fair value, net BRL million

USD Million

(Interest rate p.a.)

2018

Interest rate swap linked to Libor (Braskem Idesa)

Swap Libor I to VI

                  798

1.9825%

Aug-2025

                            (68)

 

Identification

Type

Nominal Value

Average Strike

Due Date

Fair value, net BRL million

BRL million

(foreign exchange BRL / USD)

2018

Dollar purchase and sale option

Puts purchase and calls sale

               7,341

 3.2983 (put) and 4.6068 (call)

Jan-2019 to Dec-2020

                                                   36

 

Identification

Type

Nominal Value

Due Date

Fair value, net BRL million

BRL million

2018

Swap IPCA - Dollar

Swap IPCA - Dollar

               1,348

Jan-2019 to Jan-2023

                           184

 

Identification

Type

Nominal Value

Due Date

Fair value, net BRL million

BRL million

2018

Swap NCE

Swap NCE

                  400

Apr-2019 to Mar-2021

                               5

 

Identification

Type

Nominal Value

Due Date

Fair value, net

USD Million

2018

NDF Braskem Argentina

Foreign exchange swap

                       3

Jan-2019

                               1

DOCS - 4196139v4

14


 

Subordination level between the Company’s debts

Fiscal Year (12/31/2018)

Type of obligation

Type of Collateral

Less than one year

One to three years

Three to five years

Longer than five years

Total

Loan

Mortgage of plants, pledge of machinery and equipment

292

132

 

 

                     424

Financing

Mortgage of plants, pledge of machinery and equipment

91,436

80,629

            22,222

 

             193,287

Loan

Unsecured guarantees

69,803

116,244

316,244

403,427

             905,718

Financing

Unsecured guarantees

202,472

502,901

461,660

948,706

          2,115,738

Bonds

Unsecured guarantees

412,676

5,050,000

3,874,800

12,593,100

        21,930,576

Financing

Another type of guarantee or privilege

24,261

46,033

28,960

64

99,318

Bonds

Another type of guarantee or privilege

27,994

97,024

101,257

69,524

 295,799

Total

827,934

5,892,963

4,805,143

14,014,820

        25,540,860

Another Type of Guarantee or Privilege

Bank guarantee

Note

The information above refers to the Company’s consolidated financial statements. It does not consider Braskem Idesa’ project finance. Amount in BRL thousand

 

For the purpose of raking the credit, the Company’s debts are not guaranteed, except the debts before BNDES, BNB, FINEP and NEXI, which are covered real or financial guarantees. From the contractual point of view, there is no subordination between debts, so the payment of each one of them must respect the maturity date set in each contract, regardless of the payment of the other debts.

We stress that the Company paid approximately BRL 1.6 billion of its debt with BNDES in November 2017. This means that a relevant portion of the asset-backed indebtedness (mortgages) was released. In addition, it should be noted that the Company's new financial agreements in 2018 are free of any real or financial guarantees. Therefore, there has been an improvement in the Company’s credit rating due to the reduction of the subordination degree between its debts.

 

15


 

 

12/31/2018

12/31/2017

12/31/2016

(BRL million)

Current and Non-Current Liabilities

53,283

47,651

50,631

Shareholders’ Equity Attributable to Shareholders

6,788

6,158

2,739

Indebtedness Index

7.8

7.3

18.5

 

(iii) Restrictions imposed on the Company, especially with regard to indebtedness ratios and limits on new indebtedness, distribution of dividends, divestiture, issuance of new securities, and disposal of ownership control

The Company does not have in force restrictions to limits for certain indicators related to the indebtedness capacity and to the payment of interest. However, some of the financing agreements signed by the Company provide for other obligations that restrict, among other things, the Company and its subsidiaries’ ability to assume guarantees or undergo merger or consolidation processes with other entities, change its controlling interest, and otherwise sell its assets. The agreed restrictions, when not formally waived by the creditors, do not cause the acceleration of the financing agreements signed by the Company.

 

(g)         Limits of the contracted financing and percentages already used

All credit limits hired by the Company have been entirely used, except for the stand-by credit line in the amount of USD 1 billion, to become mature in 2023.

In 2018, the Company entered into two financing agreement with foreign government agents. The SACE operation for US$ 295 million was fully disbursed in November 2018. The Euler Hermes operation for US$ 225 million was partially disbursed at US$ 160 million in 2018. It is worth noting that for the latter; disbursements are linked to the expenses related to the construction of the new polypropylene plant in the United States. The remaining amount is expected to be disbursed between 2019 and 2020.

DOCS - 4196139v4

16


 

h) material changes in each item of the financial statements

INCOME STATEMENT FOR THE FISCAL YEAR

Income Statement (BRL million)

CONSOLIDATED

2018

(A)

AV%

2017

(B)

AV%

2016

(C)

AV%

2018x2017

(A)/(B)

2017x2016

(B)/(C)

Net Revenue

58,000

100%

49,261

100%

47,664

100%

18%

3%

Cost of Goods Sold

(46,407)

-80%

(36,401)

-74%

(34,986)

-73%

27%

4%

Gross Profit

11,592

20%

12,860

26%

12,678

27%

-10%

1%

Selling and Distribution Expenses

(1,546)

-3%

(1,460)

-3%

(1,404)

-3%

6%

4%

General and Administrative Expenses

(1,633)

-3%

(1,434)

-3%

(1,286)

-3%

14%

12%

Research and Development Expenses

(200)

0%

(167)

0%

(162)

0%

19%

3%

Shareholding interest results

(1)

0%

40

0%

30

0%

-102%

33%

Other Net Revenues (Expenses)

91

0%

(479)

-1%

(3,906)

8%

n.a.

-88%

Operating Profit Before Financial Result

8,304

14%

9,359

19%

5,951

12%

-11%

57%

Net Financial Result

(4,651)

-8%

(3,942)

-8%

(6,091)

-13%

18%

-35%

Financial Expenses

(2,984)

-5%

(3,747)

8%

(3,571)

-7%

-20%

5%

Financial Revenues

589

1%

604

1%

690

1%

-2%

-13%

Exchange rate variations, net»

(2,257)

-4%

(799)

-2%

(3,210)

-7%

183%

-75%

Profit Before income tax and social contribution

3,653

6%

5,417

11%

(140)

0%

-33%

n.a.

Income tax / Social Contribution

(745)

-1%

(1,292)

-3%

(616)

-1%

-42%

110%

Discontinued operations results

-

0%

9

0%

27

0%

n.a.

-67%

Net Profit (Loss)

2,907

5%

4,133

8%

(729)

-2%

-30%

-667%

Attributable to

 

 

 

 

 

 

 

 

Company’s Shareholders

2,867

5%

4,083

8%

(411)

-1%

-30%

n.a.

Interest of non-controlling shareholder of Braskem Idesa

41

0%

50

0%

(318)

-1%

-19%

n.a.

The main variations in the operating results of the last three fiscal years are explained in item 10.2 (b) below.

 

17


 

 

EQUITY ACCOUNTS

ASSETS (BRL million)

Dec/18

(A)

AV%

Dec/17

(B)

AV%

Dec-16

(B)

AV%

2018x2017

(A)/(B)

2017x2016

(B)/(C)

Current Assets

21,384

36%

17,992

34%

16,426

31%

19%

10%

Cash and cash equivalents

5,548

9%

3,775

7%

6,702

13%

47%

-44%

Financial Investments

2,358

4%

2,303

4%

1190

2%

2%

93%

Trade accounts receivable

3,075

5%

3,281

6%

1,634

3%

-6%

101%

Inventories

8,487

14%

6,847

13%

5,238

10%

24%

31%

Taxes recoverable

423

1%

453

1%

1,356

3%

-7%

-67%

Income Tax and Social Contribution

774

1%

896

2%

0

0%

-14%

0%

Dividends and interest on capital

1

0%

11

0%

15

0%

-92%

-28%

Prepaid expenses

240

0%

134

0%

102

0%

78%

32%

Derivative operations

28

0%

4

0%

8

0%

631%

-55%

Other assets

452

1%

288

1%

181

0%

57%

59%

Non-current assets held for sale

-

0%

-

0%

360

1%

0%

-100%

Non-current assets

37,810

64%

35,349

66%

35,566

68%

7%

-1%

Financial investments

10

0%

10

0%

0

0%

-3%

0%

Trade accounts receivable

18

0%

37

0%

70

0%

-53%

-47%

Advances to suppliers

31

0%

46

0%

62

0%

-32%

-24%

Taxes recoverable

1,369

2%

813

2%

1088

2%

68%

-25%

Income tax and Social Contribution

242

0%

211

0%

1,653

3%

15%

-87%

Deferred Income tax and Social Contribution

1,104

2%

1,166

2%

0

0%

-5%

0%

Judicial Deposits

170

0%

290

1%

233

0%

-41%

24%

Insurance claims

63

0%

40

0%

51

0%

58%

-21%

Derivative operations

47

0%

33

0%

29

0%

43%

11%

Other Assets

190

0%

113

0%

141

0%

68%

-20%

Investments

66

0%

101

0%

92

0%

-35%

10%

Property, plant and equipment

31,760

54%

29,762

56%

29,337

56%

7%

1%

Intangible assets

2,741

5%

2,727

5%

2,809

5%

0%

-3%

Total Assets

59,194

100%

53,342

100%

52,352

100%

11%

2%

 

LIABILITIES AND NET EQUITY (in BRL million)

Dec/18 (A)

AV%

Dec/17

(B)

AV%

Dec-16

(B)

AV%

2018x2017

(A)/(B)

2017x2016

(B)/(C)

Current liabilities

23,116

39%

19,138

36%

23,473

45%

21%

-18%

Trade Payables

8,341

14%

5,266

10%

6,545

13%

58%

-20%

Borrowings

737

1%

1,185

2%

2,594

5%

-38%

-54%

Braskem Idesa Borrowings*

10,505

18%

9,691

18%

10,438

20%

8%

-7%

Debenture

28

0%

27

0%

0

0%

2%

0%

Derivative Operations

70

0%

7

0%

29

0%

923%

-76%

Payroll and related charges

645

1%

631

1%

562

1%

2%

12%

Taxes Payable

432

1%

421

1%

1,154

2%

3%

-64%

Income Tax and Social Contribution

419

1%

840

2%

0

0%

-50%

0%

Dividends

672

1%

4

0%

3

0%

17365%

25%

Advances from Customers

153

0%

353

1%

203

0%

-57%

74%

Leniency agreement

288

0%

257

0%

1,354

3%

12%

-81%

Sundry provisions

192

0%

179

0%

113

0%

7%

58%

Other Payables

633

1%

277

1%

476

1%

128%

-42%

Liabilities related to non-current assets held for sale

-

0%

-

0%

95

0%

0%

-100%

Non-current liabilities

30,167

51%

28,513

53%

27,063

52%

6%

5%

Trade Payables

273

0%

260

0%

202

0%

5%

29%

Borrowings

24,161

41%

22,177

42%

20,737

40%

9%

7%

Debenture

267

0%

286

1%

0

0%

-7%

0%

Derivative operations

162

0%

0

0%

861

2%

0%

-100%

Taxes payable

86

0%

53

0%

24

0%

63%

119%

Loan to non-controlling shareholder of Braskem Idesa

2,184

4%

1,757

3%

1621

3%

24%

8%

Deferred income tax and social contribution

325

1%

940

2%

511

1%

-65%

84%

Post-employment benefits

206

0%

194

0%

162

0%

7%

20%

Advances to customers

0

0%

0

0%

163

0%

0%

-100%

Contingencies

965

2%

1,093

2%

985

2%

-12%

11%

Leniency Agreement

1,155

2%

1,372

3%

1,499

3%

-16%

-8%

Sundry provisions

233

0%

235

0%

206

0%

-1%

14%

Other payables

150

0%

148

0%

93

0%

1%

60%

Net Equity

5,911

10%

5,690

11%

1,721

3%

4%

231%

Capital

8,043

14%

8,043

15%

8,043

15%

0%

0%

Capital reserve

232

0%

232

0%

232

0%

0%

0%

Revenue reserves

4,673

8%

3,946

7%

835

2%

18%

373%

Equity assessment adjustment**

-6,111

-10%

-5,654

-11%

-6,322

-12%

8%

-11%

Treasury shares

-50

0%

-50

0%

-50

0%

0%

0%

Accumulated profits

0

0%

0

0%

0

0%

0%

0%

Total Attributable to the Company’s shareholder

6-788

11%

6-518

12%

2,739

5%

4%

138%

Interest of non-controlling shareholder of Braskem Idesa

-876

-1%

-828

-2%

-1,018

-2%

6%

-19%

Total Liabilities and Net Equity

59,194

100%

53,342

100%

52,352

100%

11%

2%

DOCS - 4196139v4

18


 

Comparison between the main variations in equity accounts in the fiscal years ended on December 31, 2018 and December 31, 2017

Current Assets

The balance of Current Assets in the fiscal year ended on December 31, 2018 was of BRL 21,384 million, representing 36% of the Total Assets. In the previous fiscal year, the balance was of BRL 17,992 million, representing 34% of the Company's Total Assets.

The main variations in Current Assets are detailed below:

Non-Current Assets

The balance of Non-Current Assets in the fiscal year ended on December 31, 2018 was of BRL 37,810 million, compared to the BRL 35,349 million in the previous fiscal year. The balance of the Company’s Fixed Assets represented 54% and 56%, respectively, of the Total Assets in the fiscal years ended on December 31, 2017 and 2018. The increase in the balance of Fixed Assets in the 2018 fiscal year results mainly from the adjustments of foreign currency, which generated an increase of BRL 2,228 million (Explanatory Note 12(a) of the 2018 Financial Statements).

Another material variation in “Taxes to be recovered”, which contemplates the recognition of BRL 520 million, related to the exclusion of ICMS from the tax basis of PIS [Social Integration Program] and COFINS [Social Security Financing Contribution] (Explanatory Note 10(c) of the 2018 Financial Statements).

In relation to the Total Assets, the Non-Current Assets represented, in the fiscal years of 2018 and 2017, 64% and 66% respectively.

Current Liabilities

The balance of Current Liabilities in the fiscal year ended on December 31, 2018 was of BRL 23,116 million, representing 39% of the Total Liabilities, and in the previous fiscal year, it was of BRL 19,138 million, representing 36% of the Total Liabilities.

The main variations in Current Assets are explained by:

 

19


 

Non-Current Liabilities

The balance of Non-Current Liabilities in the fiscal year ended on December 31, 2018 was of BRL 30,167 million, and in the previous fiscal year, it was of BRL 28,513 million. In relation to the Total Assets, the Non-Current Assets represented, in the fiscal years of 2018 and 2017, 51% and 53% respectively.

Among the main variations, the increase in “Financing” resulting mainly from the appreciation of the US Dollar against the amount of BRL 3,608 million, raising of BRL 2,042 million and transfer to the current liabilities in the amount of BRL 3,303 million stands out.

Net Equity

On December 31, 2018, the Shareholders’ Equity was of BRL 5,911 million, compared to BRL 5,690 million in the same period of the previous year, mainly impacted by the net income for the year in the amount of R$ 2,867 million.

Comparison between the main variations in equity accounts in the fiscal years ended on December 31, 2017 and December 31, 2016

DOCS - 4196139v4

20


 

 

Current Assets

The balance of Current Assets in the fiscal year ended on December 31, 2017 was of BRL 17,992 million, representing 34% of the Total Assets. In the previous fiscal year, the balance was of BRL 16,426 million, representing 31% of the Company's Total Assets.The main variations in Current Assets are detailed below:

Non-Current Assets

The balance of Non-Current Assets in the fiscal year ended on December 31, 2017 was of BRL 35,349 million, compared to the BRL 35,566 million in the previous fiscal year. The balance of the Company’s Fixed Assets represented 56% of the Total Assets in the fiscal years ended on December 31, 2017 and 2016.

The main variation was in “Deferred income tax and social contribution”, which contemplates the realization of income tax and social contribution credits (tax loss and negative base of calculation), and credits on temporary provisions being written-off.

In relation to the Total Assets, the Non-Current Assets (excluding Non-Current Assets kept for sale) represented, in the fiscal years ended on December 31, 2017 and 2016, 66% and 68% respectively.

Current Liabilities

The balance of Current Liabilities in the fiscal year ended on December 31, 2017 was of BRL 19,138 million, representing 36% of the Total Liabilities, and in the previous fiscal year, it was of BRL 23,743 million, representing 45% of the Total Liabilities.

The main variations in Current Assets are detailed below:

§  reduction in “Financing” due to early payments with funds from Bonds (Explanatory Note 15(c) of the 2017 Financial Statements); and

§  “Leniency Agreement Provision”: it refers to the agreement signed by the Company and the Federal Public Prosecutor’s Office in Brazil, with the Department of Justice - DOJ and with the U.S. Securities Exchange Commission-SEC and with the Prosecutor’s Office of Switzerland in December 2016. The sum paid in 2017 under the agreement was of approximately BRL 1,344 million (Explanatory Note 23.3 (a) of the 2017 Financial Statements).

DOCS - 4196139v4

21


 

Non-Current Liabilities

The balance of Non-Current Liabilities in the fiscal year ended on December 31, 2017 was of BRL 28,513 million, and in the previous fiscal year, it was of BRL 27,063 million. In relation to the Total Assets, the Non-Current Assets represented, in the fiscal years of 2017 and 2016, 53% and 52% respectively.

Among the main variations, we highlight:

Net Equity

On December 31, 2017, the Shareholders’ Equity was of BRL 5,690 million, compared to BRL 1,721 million in the same period of the previous year.

The main variations derive from:

DOCS - 4196139v4

22


 

10.2       Operating and Financial Result

a)         Results from the Company’s transactions

i)             description of any significant revenue element

The information in this item is presented in item 10.2 (b) below.

ii)         factors with a material impact on operating results

Growth of Brazil’s GDP and Domestic Demand for The Company’s Products

The Company’s sales in Brazil represented 56% of its net sales revenue in the fiscal year ended on December 31, 2018. Thus, the Company is significantly affected by economic conditions in Brazil. The Company’s results of operations and financial condition have been, and will continue to be, affected by the growth rate of Brazilian GDP because its products are used in the manufacture of a wide range of consumer and industrial products.

The following table sets forth the growth rates of Brazilian GDP and domestic apparent consumption for PE, PP and PVC for the periods presented.

 

2018

2017

2016

 

 

 

 

Brazilian GDP

1.1%

1.1%

(3.3)%

Brazilian consumption of PE

3.2%

4.8%

(1.3)%

Brazilian consumption of PP

1.9%

5.9%

1.1%

Brazilian consumption of PVC

1.4%

(-1.9%)

(2.3)%

Source: Brazilian government, Tendências Consultoria and Fundação Getulio Vargas

Brazilian GDP growth has fluctuated significantly, and the Company anticipates that it will likely continue to do so. The Company’s management believes that economic growth in Brazil should positively affect its future net sales revenue and results of operations. However, continued recession or low growth in Brazil would likely reduce its future net sales revenue and have a negative effect on its results of operations.

Brazil’s Macroeconomic Environment

The following table shows data inflation, interest rates and the U.S. Dollar exchange rate for the fiscal years ended on the respective dates:

 

2018

2017

2016

GDP growth / Reduction (1)

1.1%

1.1%

(3.3)%

Inflation (IGP-M)(2)

7.5%

(0.42%)

7.2%

Inflation (IPCA)(3)

3.7%

2.9%

6.2%

CDI rate(4)

6.40%

6.99%

13.6%

Appreciation (depreciation) of Real vs. U.S. Dollar

17.1%

1.5%

4.3%

Period-end exchange rate (per USD 1.00)

BRL 3.8742

BRL 3.308

BRL 3.259

Sources: Fundação Getulio Vargas, Central Bank and Bloomberg

(1)      Brazilian GDP according to Sistema IBGE de Recuperação Automática–SIDRA. For 2018, the amount is an estimate of Fundação Getulio Vargas

(2)      Inflation (IGP-M) is the general market price index measured by Fundação Getulio Vargas.

(3)      Inflation (IPCA) is a national extended consumer price index measured by IBGE - Brazilian Geography and Statistics Institute [Instituto Brasileiro de Geografia e Estatística].

(4)      The CDI rate is average of inter-bank overnight rates in Brazil (as of the last date of the respective period).

23


 

Effects of Fluctuations in Exchange Rates between the Real and the U.S. Dollar

The Company’s 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 since: (i) a substantial portion of the Company’s net sales revenue is denominated in or linked to U.S. Dollars; (ii) the Company’s costs for some of its raw materials, principally naphtha, ethane, propane, propene and certain catalysts required in its production processes, are incurred in U.S. Dollars or are linked to U.S. Dollars; (iii) the Company have operating expenses, and make other expenditures, that are denominated in or linked to U.S. Dollars; and (iv) the Company 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 the Company’s sales are of petrochemical products for which there are international market prices expressed in U.S. Dollars. In general, the management seeks to fix prices that take into account: (1) the price of the Company's petrochemical products in the international markets; and (2) in Brazil, the variations of the Real/Dollar exchange rate. As a result, although a significant portion of its net sales revenue is denominated in Reais, substantially all of its products are sold at prices that are based on international market prices that are quoted in U.S. Dollars. On the other hand, fluctuations of Real will also affect the cost of naphtha, ethane, propane, propene and other raw materials linked to the U.S. Dollar.

The depreciation of the real against the U.S. Dollar generally increases the production cost for the Company’s products and the Company generally attempts to increase the Brazilian prices for its products in Reais (to the extent possible in light of then-prevailing market conditions in Brazil), which may result in reduced sales volumes of its products. To the extent that the Company’s price increases are not sufficient to cover the increased costs for raw materials, its operating margin decreases. Conversely, the appreciation of the real against the U.S. Dollar generally decreases the production cost for its products and the Company generally decreases the Brazilian prices for its products in Reais, which may result in increased sales volumes of the Company’s 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 the Company is able to pass on increased costs, or is required to pass on reduced costs, in Reais to the Company’s 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, the Company may incur significant financial losses. However, since those strategies will be implemented only for non-speculative purposes (in accordance with the Company’s financial policy), potential losses on derivatives transactions should be offset by more competitive fixed costs in Reais.

 

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The Company’s consolidated U.S. Dollar-denominated indebtedness represented 96% 5 of its outstanding indebtedness as of December 31, 2018. As a result, when the real depreciates against the U.S. Dollar: (i) the interest costs on the Company’s U.S. Dollar-denominated indebtedness increase in Reais, which adversely affects its results of operations in Reais; (ii) the amount of the Company’s U.S. Dollar-denominated indebtedness increases in Reais, and its total liabilities and debt service obligations in Reais increase; and (iii) the Company’s financial expenses tend to increase as a result of foreign exchange losses that the Company must record, mitigated by its decision to designate, on May 1, 2013, part of its U.S. Dollar-denominated liabilities as a hedge for its future exports.

Effects of Brazilian Inflation

Brazilian inflation affects the Company’s financial performance by increasing some of its operating expenses denominated in Reais (and not linked to the U.S. Dollar). A significant portion of its costs of sales and services rendered, however, are denominated in or linked to the U.S. Dollar and are not substantially affected by the Brazilian inflation rate. Some of the Company’s 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 its financial expenses and debt service obligations. In addition, a significant portion of its real-denominated debt bears interest at the TJLP or the CDI rate, which are partially adjusted for inflation.

Effect of Sales Outside Brazil on The Company’s Financial Performance

The Company have significant production capacity located outside of Brazil from its plants located in the United States, Germany and Mexico.

During the fiscal year ended on December 31, 2018, 44% of the Company’s net sales revenue was derived from sales of its products outside Brazil as compared 41.7% during 2017 and 48.4% during 2016. Net sales revenues derived from sales outside Brazil increased by 14% during 2018, which in turn increased by 0.3% during 2017 against 2016.

Cyclicality Affecting the Petrochemical Industry

Global consumption 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 the Company’s products, leading to increased domestic prices and operating margins. These periods have often been followed by periods of capacity additions, which have resulted in declining capacity utilization rates and international selling prices, leading to declining domestic prices and operating margins. 

 

 

 


5 The Project finance debt of the controlled company Braskem Idesa is not taken into consideration, nor is the debt balance of the Leniency Agreement.

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The Company expects that these cyclical trends in international selling prices and operating margins relating to global capacity shortfalls and additions will likely persist, principally due to the continuing impact of the Company’s general factors: (i) cyclical trends in general business and economic activity produce swings in demand for petrochemicals; (ii) during periods of reduced demand, the high fixed cost structure of the capital intensive petrochemicals industry generally leads producers to compete aggressively on price in order to maximize capacity utilization; (iii) significant capacity additions, whether through plant expansion or construction, can take three to four years to implement and are therefore necessarily based upon estimates of future demand; and (iv) as competition in petrochemical products is, in most cases, focused on price, being a low-cost producer is critical to improved profitability. This favors producers with larger plants that maximize economies of scale, but construction of plants with high capacity may result in significant increases in capacity that can outstrip demand growth.

Effects of the fluctuation of the international prices of the main raw materials

In Brazil, naphtha, ethane and propane are the main raw materials used in the production of the products of the first and second petrochemical generation, which corresponded to 41.8%, 0.9% and 1.2%, respectively, of the consolidated cost of the Company’s products sold in 2018. The Company also purchases from third parties part of the propene used in the PP plants in Brazil, which represented 5.4% of the consolidated cost of the Company’s products sold in 2018. In the United States and Europe, propene is the main raw material consumed in the production of PP in those regions, and represented 16.2% of the consolidated cost of the Company’s products sold in 2018. In Mexico, ethane is the main raw material used in the integrated production of PE, which corresponded to 1.0% of the consolidated cost of the Company’s products sold in 2018.

Naphtha is purchased at prices based on the prices of naphtha in the Amsterdam-Rotterdam-Antwerp market (“ARA”), or ARA reference price, and ethane and propane priced based on the Mont Belvieu market. The Company purchases the propane used in Brazil, and by the USA and Europe Unit at prices based on the reference of the Golf of the US and Europe. The Company purchases light hydrocarbon of refinery (HLR) in Brazil at prices based on the price of the imported natural gas.

The prices of naphtha, ethane, propane and propene have been and can be maintained volatile. An increase in the prices of naphtha, ethane, propane or propene would reduce the gross margin of the Company and affect in a negative manner its total financial result, if it is not possible to transfer this increase in costs to the clients, and could reduce the volume of sales of our products. Conversely, significant decreases in the price of these raw materials and, consequently, the cost of producing its products, generally increase its gross margins and its results of operations and may increase the sales volumes if this lower cost allow the Company to lower its prices. In periods of high volatility in the price of these raw materials, there is usually a lag between the increase or decrease of these prices and the time that the Company is able to pass on increased, or required to pass on reduced, costs to its customers. These pricing discrepancies decrease when the prices are less volatile.

 

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Effects of the fluctuation of the international prices of the products sold

In Brazil, the prices charged by the Company for many of its chemical products and thermoplastic resins in general are established taking as reference the prices charged by foreign producers in the international markets. Usually the prices of the second generation products exported from Brazil are practiced in the international spot market. In the United States and in Europe, the prices of PP commercialized on those regions are determined based on the pricing of the regional market. In Mexico, the price of PE is defined based on the prices of the polymers in the Gulf Coast of the United States.

Significant increases in the international market prices of the Company’s petrochemical products and, consequently, the prices that the Company is able to charge, generally increase its net sales revenue and its results of operations to the extent that the Company is able to maintain its operating margins and increased prices do not reduce sales volumes of its products. Conversely, significant decreases in the international prices of the petrochemical products, and, consequently, the prices that the Company charges, generally reduce its net sales revenue and its results of operations if the Company is unable to increase its operating margins or these reduced prices do not result in increased sales volumes of its products.

Capacity Utilization

The Company’s operations are capital intensive. Accordingly, to obtain lower unit production costs and maintain adequate operating margins, the Company seeks to maintain a high capacity utilization rate at all of its production facilities.

The table below sets forth capacity utilization rates with respect to the production facilities for some of the Company’s principal products for the periods presented.

 

Year Ended on December 31,

 

2018

2017

2016

 

 

 

 

Ethylene

91%

94%

92%

PP USA and Europe   

87%

97%

100%

PE Mexico (*)

77%

88%

42%

(*) Mexico complex commenced operations during 2016.

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 the Company operates. The Brazilian government has adopted, or is considering adopting, measures to boost the competitiveness of domestic companies, as described below.

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 thereby increasing Brazilian demand for the Company’s products. The original program ended in the end of December 2013. In August 2014, the Brazilian government permanently reinstated Reintegra, the program was established on a permanent basis and with mobile rates, that could vary by up to 5% of the revenue of the companies with exports, with a refund tax rate of 0.1%. 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 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 9,148, that amended the Decree 8,543, the Reintegra rate increased to 2% effective as of January 1, 2017 until December 31, 2018. However, on May 30, 2018, the President issued a new Decree reducing the Reintegra rate to 0.1% from June 1, 2018 on.

 

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Import Tariffs at Local Ports

Historically, tariffs on imports have been established by the federal government. However, in recent years, some Brazilian states established tax benefits to attract imports at local ports in order to raise revenue and develop local port infrastructure, primarily in the form of reductions of ICMS taxes that would otherwise be due to these states. Industry and union leaders have alleged that such legislation creates a subsidy for imported products, thereby harming local industry.

On January 1, 2013, legislation took effect reducing the maximum ICMS tax that the state can charge from a rate of 12% to 4% on interstate sales of imported raw materials and other goods that are not wholly or partially manufactured in Brazil. In addition to certain other limited exceptions, this tax reduction does not apply to imported goods that do not have Brazilian-made substitutes. As a result, current tax benefits offered by some Brazilian states for the import of goods in the form of reduced ICMS tax rates have become less attractive.

Pricing and Tariffs

The Company set prices for ethylene, the principal first generation petrochemical product that the Company sell to third-party second generation producers, by reference to international market prices. Prices paid by second generation producers for imported first generation petrochemical products partly reflect transportation and tariff costs. The Company establishes 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 the Company’s company, 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 PE, PP and PVC resins are 14.0%.

 

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Imports and exports within the free trade area in South America (Mercado Comum do Sul), 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, Equator, Peru and Venezuela are not subject to tariffs, due to a number of trade agreements. Imports of suspension from Mexico are subject to reduced tariffs of 11.2%, due to a trade agreement. Imports and exports among Mercosur and Colombia, Ecuador e Venezuela are not subject to tariffs due to a trade agreement since 2005.

Imports of suspension PVC from the U.S. 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 been also subject to duties 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. The taxes and fees charged on imports from USA and Mexico will be due in 2021. The taxes and fees charged on imports from China and South Korea, in turn, will be due in 2019.

Additionally, in December 2010, CAMEX imposed an anti-dumping duty of 10.6% on PP imports from the United States. Those measures were renewed in November 2016. In August 2014, the Brazilian government imposed anti-dumping duties on PP imports from South Africa, India and South Korea of 16.0%, 6.4 to 9.9% and 2.4 to 6.3%, respectively. The taxes and fees charged on PP imports from USA will be due in 2021. The taxes and fees charged on imports from South Africa, India and South Korea, in turn, will be due in 2019.

In 2018, about 29% of the Brazilian PE, PP and PVC resins were imported, which represented an increase of 12% in the volume of imported resins in relation to 2017.

Increased Import Duties on PE

As part of its initiative to strengthen domestic manufacturers, on October 1, 2012, the Brazilian government adopted a resolution that increased import duties on 100 products related to various industries, including an increase on the import tariff for PE from 14% to 20%. In October 2013, the Brazilian government reduced the import tariff for PE to the previous level of 14%.

Special Regime of the Chemical Industry (REIQ) - PIS/COFINS Tax Incentive

In 2013, the Public Authorities approved the reduction of the PIS and COFINS tax rates on the purchase of raw materials by first and second generation producers, which serve several economic sectors. The measure aimed at partially reestablishing the competitiveness of the industry, weakened by factors related to infrastructure, productivity, costs of raw material and energy, and foreign exchange, which made pressure on the commercial deficit of the chemical industry, according to ABIQUIM [Brazilian Association of the Chemical Industry], which ended 2018 in USD 29.6 billion. At the end of 2018, the Company had a refund of 3.65% of the PIS and COFINS tax rate on the purchase of petrochemical raw material.

 

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In May 2018 REIQ [Special Regime of the Chemical Industry] was revoked by Provisional Measure 836/18 with effects from September 1, 2018. However, in October 2018, the Provisional Measure was not converted into definitive legislation and, therefore, the refund of 3.65% of the PIS and COFINS tax rate on the purchase of petrochemical raw materials was maintained.

Effect of Level of Indebtedness and Interest Rates

As of December 31, 2018, the Company’s total outstanding indebtedness, ex-project finance and ex-Leniency Agreement, net of transaction costs, was BRL 25,198 million. The debt balance of the project finance indebtedness was BRL 10,505 million, and of the Leniency Agreement was BRL 1,6276 million. The level of its indebtedness results in significant financial expenses that are reflected in its statement of operations. 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 30 to its 2018 audited consolidated financial statements. In the year ended December 31, 2018, the Company recorded total financial expenses of BRL 2,984 million, of which BRL 2,085 million consisted of interest expense. The Company recorded financial revenue of BRL 589 million, of which BRL 530 million corresponds to interest income. In addition, the Company recorded a loss of BRL 2,257 million in connection foreign exchange variation on the Company’s financial assets and liabilities. The interest rates that the Company pays depend on a variety of factors, including prevailing Brazilian and international interest rates and risk assessments of the Company, the Company’s industry and the Brazilian economy made by potential lenders to the Company, potential purchasers of its debt securities and the rating agencies that assess the Company and its debt securities.

Effect of Taxes on The Company’s Income

The Company is subject to a variety of generally applicable federal and state taxes in multiple jurisdictions on its operations and results. The Company is generally subject to Brazilian federal income tax (combined with Social Contribution on Net Income (CSLL) at an effective rate of 34%, which is the standard corporate tax rate in Brazil. The Company 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 have been granted for varying lengths of time to each of its manufacturing plants located in these states.

The Company are entitled to pay 25% of the statutory income tax rate on the profits arising from the sale of: (i) PE manufactured at one of the Company’s PE plants in the Northeastern Complex until 2026; and (ii) PE manufactured at one of the plants in the Northeastern Complex and caustic soda, chlorine, ethylene dichloride and PVC produced at the plants in the Northeastern Complex and Alagoas until 2024.

Each of the exemptions entitles the Company to pay 15.25%, a reduction of 44.9% of the statutory income tax rate (of 34%) on the profits arising from products manufactured at these plants.

 

 


6 It includes SWAP of IPCA to US Dollar in the amount of BRL 184 million on 12/31/2018

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Income tax loss carryforwards available for offset in Brazil do not expire. However, the annual offset is limited to 30% of the Company’s adjusted net profits. This limit also affects the social contribution on net profit, or CSLL.

The consolidated amount includes the impact from the different tax rates in countries where foreign subsidiaries are located, as follows:

·      Braskem Europe (Germany) - 31.18%

·      Braskem America and Braskem America Finance (United States) - 21.00%

·      Braskem Argentina (Argentina) - 30.00%

·      Braskem Petroquímica Chile (Chile) - 27,00%

·      Braskem Holanda, Braskem Holanda Finance and Braskem Holanda Inc Netherland (The Netherlands)- 25.00%

·      Braskem Idesa, Braskem Idesa Serviços, Braskem México, Braskem México Serviços and Braskem México Sofom (Mexico) - 30.00%

The Company's export sales are currently exempt from: (1) Social Integration Program - PIS; (2) Social Security Financing Contribution - COFINS, federal tax on the added value; (3) Tax on Manufactured Products - IPI, federal added value tax on manufactured products; and (4) ICMS.

b)        Variations in revenues attributable to price changes, currency exchange rates, inflation, volume alterations and the introduction of new products and services and c) Impact caused by the inflation, the variation in prices for the most important inputs and products, the currency exchange and the interest rate in the Company’s operation income and the financial result, if applicable.

OPERATING INCOME

The Officers present below the analysis of the three last years per region where the Company operates:

The spread of the main chemicals produced by Braskem decreased in 2018, explained by smaller spreads of (i) butadiene, which in 2017 was impacted in a positive manner by the demand stimulated in China, and (ii) cumene due to the increase in offer after the starting of operation of new capacities in Asia. In 2017, the spread of chemicals was higher than 2016, mainly due to the increases of price of butadiene and benzene in the first quarter of the year.

The average international spread of polyolefins produced by Braskem in Brazil was lower in 2018 in comparison with 2017, due to the start up of new PE capacities, mainly in the USA, as well as to weaker demand in Asia. In 2017, the average spread decreased in relation to 2016, mainly due to the higher value of the raw material and to the beginning of the opening of new PE plants in North America.

The international spread of vinyl decreased in 2018 mainly due to the higher price of naphtha, which followed the trend of increase of the oil price, and to high levels of caustic soda stock in the United States, combined with the decrease in the demand for the product, after a large producer of alumina having operated at low utilization rates during most of the year. In 2017, the spreads were higher than in 2016, due to the lack of new PVC and chlor-alkali production capacities, due to the environmental restrictions, mainly in China.

 

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The demand of resins in the Brazilian market was of 5.2 million tons, an increase of 2.4% in relation to 2017, explained by the improvement in the level of economic activity, leveraged by the demand of the agricultural, cosmetics, pharmaceutical and food packaging sectors. In 2017, the demand increased 4.3% in relation to 2016, due to the higher level of activity in the packaging sectors and resumption in the automotive, agricultural, retail and electronics sectors.

The utilization rate was 91% in 2018, 3 p.p. lower than 2017, mainly due to: (i) the truck drivers’ strike in May; (ii) the incident in the chlor-alkali plant in Alagoas in January; (iii) the interruption in the supply of electric power to the Northeastern plants in March; and (iv) lower demand in 4Q18. In 2017, the utilization rate had been 94%, 2 p.p. higher than 2016, mainly explained by (i) the good operational performance of the petrochemical plants, in line with the Company's strategy of guaranteeing operational efficiency to supply the Brazilian market, while exporting the non-absorbed volume and (ii) the lack maintenance shutdowns in the three largest crackers of the Company.

The resins sales in the Brazilian market were 3.4 million tons, 2% lower than 2017, which in turn was 5% higher than 2016; and of the main chemicals were 2.9 million tons, 1% higher than 2017, which increased 8% in relation to 2016.

In 2018 the resins exports were 1.3 million tons and the main chemicals exports were 571 thousand tons, 14% and 31% lower than 2017, respectively, which in turn were 11% and 8% lower in comparison with 2016.

The Brazil units and exports presented EBITDA of USD 1,905 million (BRL 6,985 million) in the year, 27% lower in relation to 2017.

The spread of PP in the United States increased in 2018, explained by a larger offer of propene given the goo operational performance of the propane dehydrogenation (PDH) plants, which had the highest utilization rates of the year. In addition, after the increase in the prices of ethane, many producers replaced the gas with heavier raw material, such as LPG [liquefied petroleum gas] (propane and butane) and naphtha, which contributed to the increase in the propene offer in the region. In 2017, the spread was lower than 2016 due to the increase in the price of propene as a result of the increase in the exports and the lower levels of stock of this product.

The spread of PP in Europe was lower in 2018 due to a lower demand of PP in the region, mainly to the automobile market, which had its chain of supply affected by regulations aiming at ensuring the decrease of the greenhouse gas emissions. In 2017, the spread was above that registered in 2016, due to the economic recovery of the European countries, which had become stronger throughout the year, contributing to the increase in the demand of PP.

 

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The demand of PP in the North-American market was about 3% higher in 2018 when compared to 2017, with emphasis to the segments of covers and oriented film, widely used in food packaging. In 2017, the North-American market had grown in comparison with 2016, mainly due to the food packaging and non-woven sectors.

In relation to the European market, the demand of PP decreased in comparison with 2017, following the weak economic performance of the region, especially countries such as Germany and Italy. In 2017, the market had grown in relation to 2016, leveraged by the automotive sector.

In 2018, the utilization rate was 87%, 10 p.p. lower than 2017, mainly due to: (i) non-scheduled shutdown in the United States plants due to the severe winter in the region; (ii) scheduled shutdown of the unit in Oyster Creek, Texas, which lasted 50 days; and (iii) logistics constraints on propylene shipments to the plants in Europe due to low river levels. In 2017, the utilization rate was 97%, 3 p.p. lower than 2016 due to the review of the production capacity implemented in the beginning of the year.

In this scenario, the PP sales in 2018 were 9% lower than 2017, in 1.9 million tons. In its turn, in 2017, PP sales presented a record and were 5% higher than the previous year, mainly due to the capacity increases implemented in the plants in the USA and in Germany, and of the strong demand of PP in those regions.

The United States and Europe units presented EBITDA of USD 608 million (BRL 2,208 million) in the year, 6% lower in relation to 2017, which, in its turn, presented a decline of 7.4% in relation to 2016, in the amount of USD 647 million (BRL 2,063 million).

The spread of PE in North America was lower in 2018 in comparison to 2017, given the excess in offer of PE and increase in the prices of ethane, due to the increase in the demand of the newly launched crackers, combined with the lack of pipelines for the transportation of that gas and of fractionators for the ethane separation.

In 2017, the spreads were higher than the previous year, mainly due to the excess of ethane capacity resulting from the shale gas, and to the delay in the entry of new ethane and byproducts  capacities in the USA.

PE Demand in Mexico was 2.1 million tons, compared to 2.0 million tons in 2017, representing growth of 2.7%. Demand growth was led by blow molding and film and sheets, which are used extensively in the food packaging and personal care sectors. In 2017, PE demand increased 1% in relation to 2016, below expectations of growth of 2% of Mexican GDP, according to the International Monetary Fund, negatively impacted by the drop in consumption given the rise in interest rates.

The utilization rate of the plants of PE was 77%, 11 p.p. lower than 2017, due to the lower supply of ethane in the period and of the scheduled shortage held in May. In 2017 the average utilization rate was 88%, 46 p.p. higher than the previous year, since the plants were still in ramp-up process in 2016.

Therefore, the PE sales were 18% lower than 2017, in a total of 799 thousand tons, of which 67% were directed to serve the Mexican market. In 2017, given the higher availability of product, the total volume of PE sales was 124% higher than 2016. Out of the total sales in 2017, 46% were directed to the Mexican market.

 

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In 2018, Mexico's result includes a revenue of USD 95 million relating to the delivery-or-pay provision of the ethane supply agreement.

The Mexico units presented EBITDA of USD 617 million (BRL 2,251 million) in the year, 1% lower than 2017,which, in its turn, increased 282% in relation to 2016, in the total amount of USD 623 million (BRL 1,987 million).

 

CONSOLIDATED

In 2018, the consolidated net revenue was USD 15,874 million, 3% higher than 2017, explained mainly by the high price of resins in the international market. In Reais, the revenue was BRL 58,000 billion, 18% higher than the previous year.

In 2017, the net revenue was USD 15,441 million, 12% higher than 2016, explained: (i) by the sales volume in the Mexican complex; (ii) by the recovery in the domestic demand; (iii) by the higher prices of resins and chemicals in the international market; and (iv) by the expansion in the capacity of the USA and Germany plants. In Reais, the revenue was BRL 49.261 billion, 3% higher than the previous year.

In 2018, the consolidated cost of goods sold (COGS) was USD 12,689 million, an increase of 11% in relation to 2017 due to the higher price of the raw materials in the international market. In Reais, COGS was BRL 46,407 million, 27% higher than 2017 due to the impact of the depreciation of Real against Dollar.

In 2017, the consolidated cost of goods sold (COGS) amounted to USD 11,407 million, an increase of 13% in relation to 2016, due to the higher sales volumes, mainly from Mexico after the ending of the production ramp-up and to the increase in the raw material prices in the international market. In Reais, COGS was BRL 36,401 million, 4% higher than 2016.

In 2018, the Sales, General and Administrative Expenses amounted to BRL 3,378 million, 10% higher than 2017, due to the higher expenses with people, institutional campaigns, consulting services, attorneys’ fees and rent of rail cars for the USA and Mexico units.

In 2017, the Sales, General and Administrative Expenses amounted to BRL 3,061 million, 7% higher than in 2016, due to the higher expenses with sales in Mexico and expenses with audits.

In 2018, other income (expenses) net posted revenues of BRL 91 million, compared to an expense of BRL 479 million in 2017, due to: (i) a revenue in the amount of BRL 337 million related to a fine over contract for the supply of raw material, the main contract being the supply agreement of ethane in Mexico; and (ii) a revenue of BRL 236 million concerning to the PIS and COFINS debts paid in excess during 2017. For more information on the recognition of this revenue, see Note 10 to the Financial Statements for 2018.

 

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In the comparison between 2017 and 2016, other expenses were lower by BRL 3.4 billion, mainly due to the fine related to the Leniency Agreement signed in 2016 and provisioned in the fourth quarter of 2016.

In 2018, the Company's EBITDA was USD 3,105 million, 20% lower than 2017, explained by: (i) lower petrochemical spreads; and (ii) lower capacity utilization rate due to outages and the trucker’s strike in Brazil.

In 2017, the consolidated EBITDA was USD 3,872 million, 17% higher than 2016, impacted in a positive manner by: (i) higher sale volume in Mexico, due to the conclusion of the ramp-up of the complex; (ii) by the higher spreads in the international market of chemicals, PP in Europe and PE in Mexico; (iii) by the expansion in the capacity and increase in the sales volume of the USA and Europe units, with record in the PP production in the USA; (iv) by the higher sales volume in the Brazilian market with records in the production of the main chemicals, PP and PE; and (v) by the capital gain of USD 88 million regarding the sales of quantiQ.

In 2018, the financial transactions decreased in relation to 2017, a period when the “Other Expenses” were impacted in BRL 471 million by the early liquidation of derivatives transactions. The financial revenues in the year were lower than 2017, influenced by the decrease in the basic interest rate in Brazil. The net foreign exchange variations, when compared to 2017, were impacted by the depreciation of Real in the period on the net exposure of the financial results not designated to hedge accounting, and by the expense with the transition of the export hedge accounting, which was contained in the equity, in the amount of BRL 1,023 million at Braskem and BRL 237 million at Braskem Idesa.

In 2017, the net financial result was an expense of BRL 3,131 million, a decrease of BRL 1,084 million in relation to 2016. Excluding the effects of the exchange rate variation, the net financial result of 2017 was an expense of BRL 2,194 million, in line with the expense of the previous year. Not considering the impact of BRL 471 million in the line of “Other Expenses” due to the liquidation of the derivatives transactions, the financial expenses were aligned with that presented in 2016. The financial revenues were 11% lower, influenced by the decrease in the basic interest rate in Brazil. The net foreign exchange variations were influenced by the depreciation of Real in the period and by the transition of the export hedge accounting, in the amount of BRL 1,023 million.

In 2018, the Company presented net cash generation of BRL 7 billion, 187% higher than 2017, mainly explained: (i) by the positive variation of the operational working capital; (ii) by the depreciation of Real against US Dollar; (iii) by the lower payment of income tax in the United States; and (iv) by the lower payment of interest due to the early settlement of higher-cost liabilities denominated in Brazilian real, including the partial redemption of the perpetual bond. In that scenario, the return on the free cash flow was 19%.

 

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In 2017, Braskem recorded a free cash generation of BRL 2,460 billion, 9% higher than 2016. Not considering (i) BRL 608 million regarding the purchase of interest in Cetrel and in Distribuidora de Água Camaçari; (ii) BRL 450 million received with the sale of quantiQ; and (iii) BRL 39.6 million received for the sale of lands in ABC/SP, the free cash generation in the year was BRL 2,579 million, 15% higher than 2016. This increase is explained mainly by the (i) higher cash generation of the transactions; (ii) reduction of 20% in the payment of IR [Income Tax]/CSLL [Social Contribution on Net Profit] in the United States; and (iii) reduction of 10% in the investments due to the completion of the construction of the petrochemical plant of Braskem Idesa.

In 2018, the Company presented net profit to be allocated to the shareholders of BRL 2,867 million, while in 2017 this amount was BRL 4,083 million. In 2016 the Company had presented a net loss of BRL 411 million, due to the provision of the fine regarding the Global Agreement.

c)       Impact of inflation, price variation of the main inputs and products, exchange rate and interest rate in the operating result and in the financial result of the Company, when relevant.

The information related to this item 10.2(c) are described in item 10.2(a) (ii) of this proposal.

10.3       Past and expected events with material effects in the financial statements

a)      Launch or divestiture of a field of business

In the fiscal years ended on December 31, 2018 and December 31, 2017, there has been no launch or divestiture of a field of business.

In the fiscal year ended on December 31, 2016, due to the beginning of operations of Braskem Idesa S.A.P.I.’s (“Braskem Idesa”) petrochemical plant, the Mexico plant started to be a reportable segment of the Company. This segment includes, in addition to Braskem Idesa’s operating results, the results of other companies directly or indirectly controlled by the Company in Mexico. In this same fiscal year, with the Company’s management decision to sell the assets of quantiQ’s and its controlled company IQAG, the Company sold the Chemical Distribution field of business, as explained in item 10.3 (b) below.

b)      Creation, acquisition or disposal of ownership interest

In April 2018, the Company received the amount of BRL 81 million (already monetarily adjusted) related to the remaining balance of the BRL 100 million expected for the sales of the controlled companies Quantiq Distribuidora Ltda. and IQAG Armazéns Gerais Ltda., which occurred in 2017. The difference between the updated expected amount and the amount received was recognized in the 2nd quarter of 2018 in “Other net revenues (expenses)”, in the amount of BRL 20 million, as per adjustments set forth in an agreement.

c)       Extraordinary events or operations

 

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In the fiscal year ended on December 31, 2018, there have been no extraordinary operations that have had an impact on the consolidated financial statements of the Company.

10.4       Material changes in the accounting practices - qualifications and caveats in auditor’s opinion

a. Material changes in accounting practices

In the fiscal year ended on December 31, 2018, the main change in the accounting practices of the Company results from the methodology used for calculating a reduction in the recoverable amount (“impairment”) according to CPC48 / IFRS 9, the impact of which was a reduction of BRL 9.4 million in the consolidated net worth, net of any tax. Any other changes in the accounting practices are demonstrated in Explanatory Note No. 2.3 of the 2018 Financial Statements.

There have been no material changes in accounting practices in the fiscal years ended on December 31, 2017 and 2016. However, in 2016, in the context of the “Lava Jato” (Car Wash) Operation, the Company received information on misappropriations of payments. Based on this information, it has been confirmed that payments were made between 2006 and 2014, as payment for services, without proof of the consideration. The identification of these payments led to the recognition, in October 2016, of taxes owed to the Federal Government and to other adjustments to the deferred income tax and social contribution. In accordance with Pronouncement CPC 23, the recognition of these obligations, considered as a rectification of a material mistake, was made retroactively to the 2015 Financial Statements and previous statements. Detailed information on this new delivery is disclosed in the Explanatory Notes 2.4, 23.3 and 35(b) of the 2016 Financial Statements.

b.    Material effects from changes in accounting practices

As described in item 10.4(a) of this document, and except for the new delivery due to the mistake also described in the same item above, there have been no material changes to the Company’s accounting practices in 2018, 2017 and 2016.

 

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c.   Qualifications and caveats contained in auditor’s opinion

Comment on the independent auditors’ report 2018

The report of the Company’s independent auditors on the financial statements for the year ended on December 31, 2018 did not contain any qualifications or emphasis of matter paragraph.

Comment on the 2017 independent auditors’ report

The report of the independent auditors on the Company's financial statements for the year ended December 31, 2017, did not contain any qualifications or emphasis of matter paragraph.

Comment on the 2016 independent auditors’ report

The emphasis presented in the independent auditors’ report is related to the Car Wash Operation, which confirmed the existence of undue payments made by the Company between 2006 and 2014, as payment for services provided by third parties, without proof of the consideration. (Explanatory Note 23.3 of the 2016 Financial Statements).

 

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10.5       Critical Accounting Policies

Are considered critical accounting policies those that require that the Management perform estimates, judgments, and define premises based on the historical experience that may affect the values reported in the financial statements.

We highlight the following critical policies that require subjective or complex judgments that affect the result:

Deferred income tax and social contribution

The recognition and the amount of active deferred taxes depend on the future generation of taxable income, which required the use of estimates related to the Company’s future performance. These estimates are in the business plan that is prepared every year by the Executive Office and submitted to the Board of Directors’ approval. This plan has as main variables the projection of prices of products manufactured by the Company, the price of raw materials, growth of the gross domestic product of each country where the Company operates, foreign exchange variation, interest rate, inflation rate, and fluctuation of the offer and demand for inputs and finished products. These projections are made based on specialized external advice and on the Company’s historical performance.

The information on the deferred income tax and social contribution are presented in Explanatory Note 21 of the 2018 Financial Statements.

Fair value of the derivative and non-derivative financial instruments

The Company values the financial derivatives by their fair value, using as main source of data the stock exchanges, the disclosures made by the Central Bank of Brazil, and the quotation services, such as Bloomberg and Reuters. It should be stressed that the volatility of the exchange markets and of the interest in Brazil has been causing material changes to the future rates and to the interest rates in short periods of time, causing material variation to the fair value of swaps and other financial instruments.

The fair value of publicly-traded non-derivative financial instruments are based on current purchase prices. If the market of a financial asset and of bonds not listed in stock exchanges is not active, the Company sets the fair value using valuation techniques. These techniques include the use of recent operations with third parties, reference to other instruments that are materially similar, the analysis of discounted cash flows or pricing models for options that use the largest possible amount of information generated by the market and rely, the least possible, on information generated by the Management of the Company.

The information on the derivative and non-derivative financial instruments are presented in Explanatory Note 19 of the 2018 Financial Statements.

Useful life of assets

 

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The Company recognizes the depreciation and depletion of its tangible and intangible assets with defined useful lives based on their estimated useful life approved by the Company’s experts with experience in the management of Braskem’s plants. The useful lives of the assets are reviewed at the end of every year by the Company’s experts in order to confirm whether they need to be changed.

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 Company’s management also decided that: (i) depreciation should cover all assets value because when the equipment and installations are no longer operational, they are sold by amounts that are immaterial; and (ii) land is not depreciated because it has an indefinite useful lifeThe information on the fixed assets are presented in Explanatory Note 12 of the 2018 Financial Statements.

Recoverability analysis and test

On an annual basis, or when there is an indication that an asset may be impaired, the Company analyzes the existence of indicators that the accounting balance of long-duration tangible assets and intangible assets with a finite useful live may be not recoverable. This analysis is made to verify if there are scenarios that could have a negative impact on the Company’s cash flow, and the consequent recovery of sums invested in such assets. These scenarios derive from macro-economic, legal, competition or technological matters.

The Company takes into account relevant topics to be considered in this analysis: (i) possibility of excessive supply of the products manufactured by the Company or a significant reduction in demand due to adverse economic factors; (ii) prospect of relevant fluctuations in the prices of products and inputs; (iii) possibility of arrival of new technologies or raw materials that may significantly reduce production costs and, as a result, affect the selling price, ultimately leading to the obsolescence of all or part of the Company’s industrial plant; and (iv) changes in the regulatory environmental, in general, that render Braskem’s process unfeasible or which significantly affect the marketing of its products. For that analysis, the Company has its own team, which has a strategic view of the business, in addition to being in constant contact with external consultants. If the variables mentioned indicate material risks for the cash generation, Braskem’s Management performs the recoverability test, as described in Explanatory Note 3.4(b) of the 2018 Financial Statements.

 

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The balances of future profitability premiums derived from business combinations are tested annually to measure the recoverability. These tests are based on the 5-year projection of cash generation (except for Chemicals unit which is tested at the cash generating unit level), taken from the Company’s business plan, mentioned in (Explanatory Note No. 3.1 of the 2018 Financial Statements). In addition to the projected cash flow for 2019 to 2023, the perpetuity based on the long-term view is also calculated, without considering the growth in real terms for this calculation. The cash flows and the perpetuity are brought to preset value by a discount rate based on the Weighted Average Cost of Capital (“WACC”).

The premium allocated to the Polyolefins operating segment was generated in a business combination that led to the simultaneous purchase of polypropylene and polyethylene plants. The main raw materials of these plants were already supplied by the Controlling Company, which enabled relevant synergies in the operation. These synergies were one of the main driving forces of that purchase. Because of this, the Management of the Company evaluates the recoverability of this premium within the field of business, since the benefits of the synergy are related to all units purchased.

The other existing premiums are allocated to Chemicals unit and in the Vinyl field of business.

The premiums on future profitability are presented in Explanatory Note No. 13 of the 2018 Financial Statements. This Explanatory Note also presents the results of the impairment test.

Contingencies

The contingent liabilities and existing provisions are mainly related to judicial and administrative discussions mostly derived from labor, social security, civil and tax proceedings.

Braskem’s Management, based on the opinion of its external legal advisors, classifies these proceedings in terms of their chance of loss, as follows:

Probable Loss - proceedings where the chance of losing is higher than the chance of winning or, in other words, the chance of loss exceeds 50%. For these proceedings, the Company maintains an accounting provision that is assessed as follows:

(i)      tax and social security-related proceedings - the provisioned amount corresponds to the value of the claim, plus any applicable charges; and

(ii)    tax and social security-related proceedings - the provisioned amount corresponds to the value of the claim, plus any applicable charges.

Possible loss - proceedings the chance of loss of which is more than remote and less than likely. A loss may happen, however, the elements available are not sufficient or clear enough to allow the conclusion that a loss or success is likely to occur. In percentage, the possibility of loss is between 25% and 50%. For these proceedings, except for cases derived from business combinations, the Company creates no provisions and highlights the most relevant ones in an Explanatory note (Explanatory Note 23.2 of the 2018 Financial Statements).

 

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In business combinations, in compliance with CPC 15 and IFRS 3, the Company registers the fair value of these proceedings with the chance of loss. The provisioned amount corresponds to the amount involved, in addition to the charges corresponding to the SELIC rate variation, multiplied by the percentage of the probability of loss.

The Management of the Company believes that estimates related to the conclusion of the proceedings and the possibility of future expenditures may change due to: (i) higher levels of the judicial system may make a  decision in similar cases involving another company, adopting a definitive interpretation regarding the case and, consequently, anticipating the finalization of the process, involving the Company, without any disbursement or entailing the need to financially settled the proceedings; and (ii) debt payment incentive programs, implemented in Brazil on a Federal and State level, under favorable conditions, which may lead to disbursement lower than the one provisioned or lower than the value of the claim.

The Company’s contingencies are presented in Explanatory Note 23 of the 2018 Financial Statements.

Hedge accounting

The Controlling Company designated financial liabilities in foreign currency to protect the cash flow generated by its exports. This decision was based on two important concepts and judgments: (i) the realization of exports included in its business plan, which are inherent to the market and business where it operates, and (ii) the Company’s ability to refinance its liabilities in Dollars, since the priority financing in Dollar is a part of the Company’s orientation and strategy and the Company’s Financial Policy sets out the maintenance of a minimum level of net liabilities in Dollars.

Controlled company Braskem Idesa designated all the funds obtained from financial institutions for the construction of its industrial plant for the protection of a portion of the sales, which will be conducted in the same currency as the financing, the U.S. Dollar. The sales estimates are contemplated in the project that was presented to the banks/lenders that, due to the consistency of projections, granted a loan to Braskem Idesa that will be exclusively paid with the cash to be generated by such sales. All these commercial considerations of the project are backed by market studies made by specialized consulting companies during the analysis of its feasibility.

All of the Company’s hedge operations are in accordance with the accounting practices and procedures adopted by Braskem and, on quarterly basis, effectiveness tests are performed for each operation, proving the effectiveness of its hedge strategy.

The Company has determined that the subject of the hedge, both for the Controlling Company and for controlled company Braskem Idesa, will be characterized by the first sales in Dollars made every quarter up to the amount defined in each period (Explanatory Note 19 of the 2018 Financial Statements). The liabilities designated for hedge are aligned with the maturity schedule of the hedge and with the Company’s financial strategy.

 

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In accordance with the Financial Policy, the Company may enter into financial derivatives agreements (swaps, NDFs, options, etc.) the volatility of the foreign exchange and interest rate. These derivatives may be designated for hedge accounting in accordance with the Management’s judgment and whenever it is expected that the investment will cause a material improvement in the demonstration of the compensatory effect over the variations of the hedge items. Currently, the Company has derivatives designated for hedge accounting of cash flow disclosed in Explanatory Note No. 19.3 of the 2018 Financial Statements.

10.6       Relevant items not evidenced in the financial statements

a)      The off-balance-sheet assets and liabilities directly or indirectly owned by the Company

In the fiscal year ended on December 31, 2018, there were no relevant items not evidenced in the Company’s financial statements.

b)      Other off-balance-sheet items

There were no relevant items not evidenced in the Company’s financial statements on December 31, 2018.

10.7       Comments on items not evidenced in the financial statements

a)      How such items affect or are likely to affect the income, expenses, operating results, financial expenses or other items on the issuer’s financial statements

There were no relevant items not evidenced in the Company’s financial statements on December 31, 2018.

b)      The type and purpose of the transaction

There were no relevant items not evidenced in the Company’s financial statements on December 31, 2018.

c)       The type and extent of obligations undertaken by and rights generated to the issuer as a result of the transaction

There were no relevant items not evidenced in the Company’s financial statements on December 31,2018.

10.8       Business Plan

a.    Investments

The Company’s business plan is built based on the following strategic objectives: (i) seek continuous improvements in productivity and competitiveness in the current operation, with focus on operating efficiency and cost leadership; (ii) diversify the profile of raw material, by increasing exposure to gas and maintaining the flexibility of assets; (iii) expand global footprint outside Brazil, with scale gains in PE and PP, reinforcing our leadership in the Americas; and (iv) strengthen Braskem’s image and reputation, before members, the company and investors, through advances in compliance, sustainability and innovation in people management.

 

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In line with such objectives, the Company invested BRL 2,770 million in investments during the fiscal year ended on December 31, 2018.

2018 Operating Investments7:

The investment made was BRL 1,944 million, 2% below the forecast, due to gains in business negotiations with suppliers and cancellation/postponement of projects. In dollars, disbursement was 13% below the estimates, which is explained by the depreciation of the Brazilian real in view of the foreign exchange prospects for 2018. Out of the total invested, BRL 145 million were directed at Healthcare, Safety and Environmental projects, and BRL 44 million were directed at Innovation and Technology.

2018 Strategic Investments

Investment in strategic projects totaled BRL 826 million, 7% below the expected if measure in Brazilian Reais. Out of the total amount disbursed, BRL 778 million (USD 210 million), equivalent to 98% of the total, was invested in the construction of the new PP plant in the United States.

With approved investment of up to USD 675 million, the Company has already invested USD 382 million, with total physical progress of 48.3%, where: (i) engineering detailing: 97.4% completed; (ii) acquisitions of equipment and materials: 94.7% completed; and (iii) civil construction: 41.6% completed.

The new plant, located at the La Porte site, in the U.S. State of Texas, will have a production capacity of 450 thousand tons of PP and the start of its operations is expected to occur in the second quarter of 2020. This project is in line with the diversification strategy for the raw material and geographic expansion in the Americas, reinforcing the leadership position in the PP production in the United States.

2019 Investments

Braskem will invest approximately BRL 3,315 million this year, from which BRL 1,236 million is linked to the Dollar (USD 331 million), corresponding to operating investments in the United States and European units. Out of the total amount invested, BRL 300 million will be allocated to Healthcare, Safety and Environmental projects (HSE) and BRL 1,968 million to projects related to maintenance, productivity and operating efficiency, including the investment in planned stoppage of Bahia’s cracker, set out for 4Q of 2019. The remaining balance will be directed to other strategic projects, such as the investment in the new PP plant in the USA (USD 223 million).

(ii)          sources of investment financing

The Company tries to follow its investment plan, preferably with credit lines from national and international government officials (including funding financial institutions, such as those described in item 10.1(f) of this proposal), since these officials, in general, offer less burdensome conditions for the Company.

Investments not eligible for such funding sources shall be funded by: (i) cash flow arising from the Company’s operating activities; or by (ii) other sources such as loans and financing (such as those described in all of the other subitems of item 10.1(f) of this proposal).

 


7 It does not take into account any investments of Braskem Idesa’s controlled company

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In order to fund part of the construction of the new PP plant in the United States, Braskem America took out a financing of up to USD 225 million with collateral from Euler Hermes, a German export credit agency. For further information, see item 10.1(f) of this proposal.

(iii)        material divestments in progress and planned divestments

There are no current and/or planned material divestments processes.

b.    the acquisition of plants, equipment, patents and other assets that may have a material impact on the issuer’s production capacity (if already disclosed)

There is no acquisition of plants, equipment, patents or other assets that should materially influence the production capacity of the Company.

c.    new products and services

 (i)          description of research in progress already disclosed and (iii) projects under development already disclosed

In the fiscal year ended on December 31, 2018, the Innovation and Technology portfolio contemplated 308 projects for the development of new products and processes.

A relevant part of the pipeline amount is represented by long-term projects and greater technological complexity, divided into programs for the development of new technologies, creation of new product families and conquer new markets.

The importance of the innovation program in the Company and its pipeline is also reflected in the result the launch of new Polyolefins products in all regions where approximately 8% of consolidated sales are from products launched in the past three years. In 2018, 27 new resin grades were added to its portfolio, among which the following stand out:

 

 

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Moreover, the Innovation and Technology area presented the following highlights of the year:

(ii)          total amounts spent on research for the development of new products or services and (iv) total amounts spent on the development of new products or services

In the last three fiscal years, the total amount spent by the Company was the following:

Fiscal year ended on

 

12/31/2018

12/31/2017

12/31/2016

Expenses with R&D

BRL 200 million

BRL 167 million

BRL 162 million

Investments in R&D

BRL 44 million

BRL 23.1 million

BRL 13 million

TOTAL

BRL 244 million

BRL 190.1 million

BRL 175 million

 

10.9 Other relevant factors

Not applicable.

 

 

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BRASKEM S.A.

National Register of Legal Entities (C.N.P.J.) No. 42.150.391/0001-70

N.I.R.E. 29300006939

Publicly-Held Company

 

EXHIBIT II

MANAGEMENT PROPOSAL

FOR THE ANNUAL AND EXTRAORDINARY GENERAL MEETING OF BRASKEM S.A.

TO BE HELD ON APRIL 16, 2019

 

Proposal of Allocation of Net Income for the fiscal year of 2018

(according to Exhibit 9.1.II of CVM Ruling No. 481/2009)

 

The Company’s Management provides below the information required by Exhibit 9-1-II to CVM Ruling No. 481:

1                Net Income of the year:

The net income attributable to  the Company’ shareholders for the fiscal year in 2018 was two billion, eight hundred and sixty-six million, six hundred and seventy-five thousand, ninety-two Reais and seventeen centavos (BRL 2,866,675,092.17).

2                Global Amount and the value per share of the dividends, including interim dividends and interest on net equity already declared:

On December 12, 2018, under article 204 of Corporation Law, coupled with article 44, paragraph 4, of the Company’s Bylaws, the Company allocated the global amount of six hundred and sixty-seven million, four hundred and eighteen thousand, five hundred and seventy-one Reais and fifty-eight centavos (BRL 667,418,571.58) as mandatory dividends (“Mandatory Dividends”) of the fiscal year of 2018.

In addition to such amounts, the proposed additional dividend (“Additional Dividend”) by the Management to be distributed, if approved by the Company’s Annual General Meeting to be held on April 16, 2019 (“Meeting”), amounts to two billion, two million, two hundred and fifty-five thousand, seven hundred and fourteen Reais and seventy-three centavos (BRL 2,002,255,714.73).

The global amount of Mandatory Dividends and Additional Dividends (“Global Dividend Amount”) amounts to two billion, six hundred and sixty-nine million, six hundred and seventy-four thousand, two hundred and eighty-six Reais and thirty centavos (BRL 2,669,674,286.30), of which three Reais, thirty-five centavos and fraction (BRL 3.35565826658) for each common and class “A” preferred share and sixty centavos and fraction (BRL 0.60628536320) for each class “B” preferred share8.

 

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3                Percentage of distributed net income of the fiscal year:

The Global Dividend Amount corresponds to 100% of the net income of the fiscal year, adjusted for calculation of the dividends.

Adjusted net income pertain to the income specified for the fiscal year, attributable to the Company’s shareholders, decreased by the portions intended for the legal reserve and for the tax incentive reserve, added to the realization of the additional indexation of the Company’s property, plant and equipment and to the time-barred dividends that returned to the Company’s cash.

4                Global Amount and the value per share of dividends distributed based on income from previous fiscal years:

Not applicable, given that there was no dividend distribution or interest on net equity statement, based on income of previous years.

5.            (a) information on the gross value of the dividend and interest on net equity, sorted by share of each type and class, to be distributed/declared at the annual general meeting:

The gross unit value of the Global Dividend Amount is 8:

§  Three Reais, thirty-five centavos and fraction (BRL 3.35565826658) per common share, equivalent to one billion, five hundred and fifteen million, six hundred and forty-five thousand, six hundred and forty-five Reais and eighty-four centavos (BRL 1,515,645,645.84);

§  Three Reais, thirty-five centavos and fraction (BRL 3.35565826658)per class “A” preferred share, equivalent to one billion, one hundred and fifty-three million, seven hundred and twenty-five thousand, three hundred and fifty-eight Reais and thirty-four centavos (BRL 1,153,725,358.34);

§  Sixty centavos and fraction (BRL 0.60628536320) per class “B” preferred share, equivalent to three hundred and three thousand, two hundred and eighty-two Reais and thirteen centavos (BRL 303,282.13)

 

 


8 The company informs that there may be a request for conversion of class “B” preferred share into class “A” preferred share, under the terms of the bylaws, as of the present date until the date of the Annual General Meeting, which may result in an irrelevant variation in the amount of dividend per class “B” preferred share and per class “A” preferred share.

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5.         (b) Information on the form and term of payment of the dividends and interest on net equity to be distributed/declared at the annual general meeting:

The Management shall propose to the Meeting that the payment of the Global Dividend Amount be made in full within 60 days of the resolution.

5.         (c) Information on possible levying of interest and adjustments on the dividends and interest on net equity to be distributed/declared at the annual general meeting:

No interest or adjustment is levied on the dividends to be declared at the Meeting.

5.            (d) Information on the date of declaration of payment of the dividends and interest in net equity, taken into account to identify the shareholders that will be entitled to receive the dividends and interest on net equity distributed/declared at the Meeting:

Once the dividend payment is approved at the Meeting, the date of declaration shall be the very date of the Meeting, that is, April 16, 2019, and the Company's shares will be traded "ex dividends" as of April 17, 2019.

6.            Information on dividends or interest on net equity declared based on incomes calculated in half-yearly balance sheets or shorter periods and already distributed:

Not applicable, given that there was no dividend distribution or interest on net equity statement, based on income determined in semiannual balance sheets or in shorter periods of the fiscal year of 2018.

7.            (a) Comparative table stating the net profits of the fiscal year (controlling company) and of the three (3) previous years, per share of each kind and class, presented in thousands of BRL:

 

            2018

            2017

            2016

            2015

Net Profits (loss) of the year:

2,886,675

4,082,990

(411,472)

3,001,720

Weighted Average of the number of shares:

 

 

 

 

Common Shares

451,669

451,669

451,669

451,669

Class “A” Preferred Shares

343,809

343,776

343,771

343,784

Class “B” Preferred Shares

513

578

 

594

Net profits (loss) per share

 

 

 

 

Common Shares

3.6033318

5.1325258

(0.5172885)

3.7731620

Class “A” Preferred Shares

3.6033411

5.1325244

(0.5172889)

3.7731327

Class “B” Preferred Shares

0.5910348

0.6069199

 

0.6064506

7.            (b) Comparative table stating the dividends and interest on net equity declared/distributed over the three (3) previous years, per share of each kind and class:

 

Common Shares

Class “A” Preferred Shares

Class “B” Preferred Shares

 

Dividends

JCPs

Dividends

JCPs

Dividends

JCPs

Fiscal year ended on 12/31/2018

3.35565827

3.35565827

0.60628536

Fiscal year ended on 12/31/2017

3.14245599

3.14245599

0.60625562

Fiscal year ended on 12/31/2016

-

-

-

Fiscal year ended on 12/31/2015

2.51343672

2.51343672

0.6062498

 

 

 

 

             

 

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8.            Amount allocated to the legal reserve:

8.            (a) Identify the sum allocated to the legal reserve:

The sum allocated to the legal reserve was BRL 143,334 thousand.

8.         (b) Form of calculation of the legal reserve, stated in thousands of BRL:

 

2018

Net income for the year of the Company’s shareholders

2,866,675 thousand

Portion intended for the legal reserve - 5%

143,334 thousand

 

 9.           (a) Description of the form of calculation of the fixed or minimum dividends:

Pursuant to Company’s Bylaws, especially their article 9, the preferred shares are entitled to the payment of a priority non-cumulative dividend of six percent (6%) of their “unit value”, obtained by dividing the share capital by the total shares in circulation, according to the profits available for distribution. Only the class “A” preferred shares shall have a part equal to that of the common shares in the remaining profits, and they shall only be entitled to the dividend after the payment of the priority dividend to the preferred shares. Only the class “A” preferred shares shall also be assured equal conditions with the common shares in the distribution of shares resulting from capitalization of other reserves. On the other hand, the Company’s Bylaws set out the payment of the minimum mandatory non-cumulative dividend, which is equivalent to 25% of the adjusted net profit, on the terms of the Corporation Law. When the priority dividend paid for the preferred shares is greater than or equal to 25% of the net profit for the fiscal year, the full payment of the mandatory dividend has been characterized.

9.            (b) Information on whether the profits of the fiscal year suffice to fully pay the fixed or minimum dividends:

The net profits of 2018 fiscal year attributed to the Company’s shareholders sufficient to fully pay the minimum dividends.

9.            (c) Information on a possible unpaid portion being cumulative:

On the terms of Company’s Bylaws, the priority dividend is not cumulative.

9.            (d) Information on the global sum of the fixed or minimum dividends to be paid to each class of preferred shares:

§  Two hundred and eighty-eight million, three hundred and thirty-three thousand, twenty-eight Reais and seventy-one centavos (BRL 288,333,028.71) for class “A” preferred shares8; and

 

50


 

§  Three hundred and three thousand, two hundred and eighty-two Reais and thirteen centavos (BRL 303,282.13) for class “B” preferred shares8.

9.            (e) Information on the fixed or minimum dividends to be paid per preferred share of each class:

§   Eighty-three centavos and fraction (BRL 0.83862862536) for class “A” preferred shares8; and

§  Sixty centavos and fraction (BRL 0.60628536320) for class “B” preferred shares8.

10.       (a) Description of the form of calculation of the mandatory dividend set forth in the bylaws:

The shareholders are entitled to receive as mandatory dividend twenty-five percent (25%) of the adjusted net profits of the fiscal year, as set out in the Corporation Law. Calculation of such dividend for the 2018 fiscal year presented in thousands of BRL is demonstrated below:

 

            2018

Net income attributed to the company’s shareholders

2,866,675

Amounts recorded directly to retained earnings

 

Portion allocated for the legal reserve

(143,334)

Tax incentive reserve distribution

(81,863)

Adjustment portion allocated to the tax incentive reserve - 2017

130

Additional indexation of PPE

27,679

Time-barred dividends

387

 

      2,667,674

 

Minimum mandatory dividends - 25% on the adjusted net income

 

667,419

 

10.       (b) Information on whether the mandatory dividend is being fully paid or not:

Global Dividend Amount, proposed by the Management, exceeds the minimum mandatory dividend.

10.       (c) Information on the sum possibly withheld due to the Company’s financial situation:

No sum has been withheld.

11.          Information on the withholding of the mandatory dividend due to the Company’s financial situation:

No sum has been withheld.

12.          Information on the allocation of results to the contingency reserve:

No sums have been allocated to the contingency reserve.

 

 

51


 

13.          Sum allocated to the realizable profits reserve:

No sums have been allocated to the unearned profits reserve.

14.          Information on the allocation of results to reserves set up pursuant to the Bylaws:

No sums were allocated to reserves set up pursuant to the Company’s Bylaws.

 

15.          Information on the withholding of profits, set forth in the capital budget:

(a)           Identify the amount withheld:

There was no profit withholding.

(b)          Provide a copy of the capital budget: (stated in thousands of BRL)

Not applicable

16.          (a)          Sum allocated to the tax incentive reserve:

The sum allocated to the tax incentive reserve was BRL 81,863 thousand.

16.          (b) Nature of destination:

The Company has an ICMS tax incentive granted by the State of Alagoas through the Integrated Development Program of the State of Alagoas – PRODESIN with the objective of implementing and expanding the industries in such State. This incentive is addressed as a reduction of the taxes levied on sales. In the fiscal year of 2018, the amount assessed was of BRL 81,863.

Supplementary Law 160/17, which amends the wording of Law No. 12,973/14, sets forth that tax incentives cannot be distributed to the shareholders. For this reason, such law sets forth that the amounts allocated to a specific reserve account of tax incentives in the net equity.

 

 

 

 

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EXHIBIT III

MANAGEMENT PROPOSAL

FOR THE ANNUAL GENERAL MEETING OF BRASKEM S.A.

TO BE HELD ON APRIL 16, 2019

 

Appointment of candidates to fill the position of effective and alternate members of the Board of Directors and effective and alternate member of the Fiscal Council of the Company, according to information presented in items 12.5 to 12.10 of the Reference Form, pursuant to article 10, item I, of CVM Ruling 481.

 

12.5 / 12.6 – Composition and professional experience of the management, board of directors and fiscal council.

 

CANDIDATES TO THE BOARD OF DIRECTORS

Name

Date of birth

Management body

Election date

Term of Office

Number of consecutive terms of office

Individual Taxpayer’s Register (CPF)

Profession

Elective position indicated

Date of investiture

Indicated by the controller

Percentage of attendance at the meetings (%)

Other positions and duties performed in the Company

ANA LÚCIA POÇAS ZAMBELLI

11/25/1972

Belongs only to the Board of Directors

04/16/2019

Until AUG 2020

Indication is for the 1st term of office

024.818.357-51

Engineer

Board of Directors (Effective)

04/16/2019

No

-

No other positions or offices held at the Company

       

 

JULIO SOARES DE MOURA NETO

03/20/1943

Belongs only to the Board of Directors

04/16/2019

Until AUG 2020

Indication is for the 1st term of office

033.409.377- 53

Fleet Admiral

Independent Board of Directors (Effective)

04/16/2019

No

-

No other positions or offices held at the Company

-

MARCELO ROSSINI DE OLIVEIRA

08/21/1978

Belongs only to the Board of Directors

04/16/2019

Until AUG 2020

Indication is for the 1st term of office

786.634.075-72

Economist

Board of Directors (Alternate)

16/04/2019

Yes

 

No other positions or offices held at the Company

 

-

JOÃO PINHEIRO NOGUEIRA BATISTA

08/13/1956

Belongs only to the Board of Directors

04/16/2019

Until AUG 2020)

Indication is for the 1st term of office

546.600.417-00

Economist

Board of Directors (Effective)

04/16/2019

Yes

-

No other positions or offices held at the Company.

 

               

 

CANDIDATES TO THE FISCAL COUNCIL

 

 

Name

Date of birth

Management body

Election date

Term of Office

Number of consecutive terms of office

 

Individual Taxpayer’s Register (CPF)

Profession

Elective position indicated

Date of investiture

Indicated by the controller

Percentage of attendance at the meetings (%)

 

Other positions and duties performed in the Company

 

ISMAEL CAMPOS DE ABREU

08/14/1955

Belongs only to the Fiscal Council elected by the Controlling Shareholder

04/16/2019

1 YEAR

Indication is for the 17th term of office

 

075.434.415-00

Accountant

Fiscal Council (Effective)

04/16/2019

Yes

 

 

No other positions or offices held at the Company.

100%

 

GILBERTO BRAGA

10/08/1960

Belongs only to the Fiscal Council elected by the Controlling Shareholder

04/16/2019

1 YEAR

Indication is for the 3rd term of office

 

595.468.247-04

Economist

Fiscal Council (Effective)

04/16/2019

Yes

 

 

No other positions or offices held at the Company.

100%

 

CARLOS ALBERTO RECHELO NETO

05/06/1978

Belongs only to the Fiscal Council

04/16/2019

1 YEAR

Indication is for the 2nd term of office

 

262.997.388-39

Engineer

Fiscal Council (Effective)

04/16/2019

No

-

 

No other positions or offices held at the Company.

 100%

 

VIVIANA CARDOSO DE SÁ E FARIA

10/03/1973

Belongs only to the Fiscal Council

04/16/2019

1 YEAR

Indication is for the 1st term of office

 

026.921.737-16

Economist

Fiscal Council (Effective)

04/16/2019

No

 

 

No other positions or offices held at the Company.

100%

 

IVAN SILVA DUARTE

10/11/1973

Belongs only to the Fiscal Council

04/16/2019

1 YEAR

Indication is for the 4th term of office

 

611.242.065-15

Accountant

Fiscal Council (Alternate)

04/16/2019

Yes

 

 

No other positions or offices held at the Company

0%

 

BRUNO CARVALHO BARUQUI

05/29/1978

Belongs only to the Fiscal Council

04/16/2019

1 YEAR

Indication is for the 2nd term of office

 

082.002.957-59

Manager

Fiscal Council (Alternate)

04/16/2019

No

-

 

No other positions or offices held at the Company.

 14%

 

BRUNO PASSOS DA SILVA MELO

          03/17/1976

Belongs only to the Fiscal Council

 

04/16/2019

1 YEAR

IIndication is for the 1st term of office

 

071.927.757-46

        Accountant

Fiscal Council (Alternate)

 

04/16/2019

No

 

No other positions or offices held at the Company.

-

0%

TATIANA MACEDO COSTA REGO TOURINHO

  04/28/1978

Belongs only to the Fiscal Council

04/16/2019

1 YEAR

Indication is for the 2nd term of office

 

951.929.135-00

Manager

Fiscal Council(Alternate)

04/16/2019

Yes

 

 

No other positions or offices held at the Company.

 0%

 

                               

 

53


 

 

Professional experience / Declaration of possible adverse sentences / Independence Criteria

ANA LÚCIA POÇAS ZAMBELLI -024.818.357-51

Mrs. Ana Lúcia Poças Zambelli is appointed as Effective Member of Braskem´s Board of Directors, by recommendation of Petrobras. She is a senior executive officer, with 22 years of experience in O&G, a degree in Mechanical Engineering, a Master’s Degree in Oil Engineering and a Post graduation Degree in Leadership, Strategy and Innovation. Mrs. Ana Lúcia Poças does not occupy a management position in any third sector organization. The Director states that she is not the object of: (a) any criminal conviction; (b) any conviction in an administrative proceeding of the CVM; and (c) any final and unappealable conviction, in the judicial or administrative sphere, that has suspended or disqualified her from practicing any professional or commercial activity. The Director states that she is not a politically exposed person, pursuant to CVM Ruling No. 301/99.

 

54


 

 

JULIO SOARES DE MOURA NETO -033.409.377-53

Mr. Julio Soares de Moura Neto is appointed as Effective Member of Braskem´s Board of Directors, by recommendation of Petróleo Brasileiro S.A. The Fleet Admiral Julio Soares de Moura Neto has a degree in Command and General Staff (Escola de Guerra Naval), Navy War Higher Course (Escola de Guerra Naval) and Navy War Higher Course (Instituto Superior Naval de Guerra - Portugal), with experience in the Strategic Consulting Board of Fundação EZUTE (SP), in the Consulting Board of Cia Brasileira de Cartuchos (CBC) (SP) and in the Consulting Board of Sindicato Nacional das Indústrias de Materiais de Defesa (SIMDE). Mr. Julio Soares de Moura Neto does not hold a management position in any third-sector organization. . The director hereby represents that he does not have: (a) any criminal conviction; (b) any conviction in an administrative proceeding of the CVM; and (c) any final and unappealable conviction, in the judicial or administrative sphere, that has suspended or disqualified him from practicing any professional or commercial activity. In addition, Mr. Julio is considered an independent member based on the independence criteria defined by level 2 of B3. The Director declares he is not a politically exposed person, pursuant to CVM Ruling No. 301/99.

 

MARCELO ROSSINI DE OLIVEIRA -033.409.377-53

Mr. Marcelo Rossini de Oliveira is appointed as Alternate Member of Braskem’s Board of Directors, by recommendation of Odebrecht S.A. He is currently the Treasury and IR Officer of Odebrecht S.A. From 2005 to 2018, he worked as a financial analyst, Capital Market and Operations Structure Manager and Treasury Manager of Braskem S.A.. He previously worked as senior auditor and financial analyst of Deloitte - Auditores e Consultores. Mr. Rossini has a degree in Economical Sciences from Universidade Católica do Salvador, a post graduation degree in Finance by Fundação Getulio Vargas and a MBA in Finance by Insper. The Director hereby represents that he does not have: (a) any criminal conviction; (b) any conviction in an administrative proceeding of the CVM; and (c) any final and unappealable conviction, in the judicial or administrative sphere, that has suspended or disqualified him from practicing any professional or commercial activity. The Director declares he is not a politically exposed person, pursuant to CVM Ruling No. 301/99.

 

GILBERTO BRAGA – CPF 595.468.247-04

Mr. Gilberto Braga is appointed as Effective Member of Braskem’s Fiscal Council, by recommendation of Odebrecht. Mr. Braga is a business consultant with expertise in financial, capital markets, corporate and tax areas, and provides expert advice in judicial proceedings. In addition, Mr. Braga is a member of fiscal, management and audit committees of listed companies and professional associations. He was a member of the Advisory Committee on Accounting Standards for the Investment Funds of the CVM, teaches undergraduate corporate governance courses at Fundação Dom Cabral, IBMEC, PUC and FGV, a commentator at Rádio CBN, FM 94 from Rio de Janeiro and is a columnist for the newspaper O Dia. Mr. Braga holds degrees in economics from UCAM Ipanema and accounting from UGF, a post graduation degree from IAG-PUC Rio in financial management and an MBA (Finance and Capital Markets) by IBMEC- Rio. Member of IBGC. The Director hereby represents that he does not have: (a) any criminal conviction; (b) any conviction in an administrative proceeding of the CVM; and (c) any final and unappealable conviction, in the judicial or administrative sphere, that has suspended or disqualified him from practicing any professional or commercial activity. Mr. Braga declares that he is not a politically exposed person, pursuant to CVM Ruling No. 301/99, and that he does not occupy a position in a third-sector organization.

 

JOÃO PINHEIRO NOGUEIRA BATISTA – CPF 546.600.417-00

Mr. João Nogueira is an economist by PUC-RJ and holds an MBA in Economic Engineering – Universidade Gama Filho, Rio de Janeiro. He has been working for more than 10 years in Boards of Directors of companies in Brazil. In the Odebrecht Group, he was an independent member of the Boards of Directors of Odebrecht Engenharia e Construção since June 2017 and Ocyan since April 2018, where he remained until January 2019, and joined the Board of Directors of Odebrecht SA in November 2018. In addition, he is a member of the Board of Directors of Light SA, of Evoltz Transmission. He was CEO of Swiss Re, Bertin S.A. and Suzano Petroquímica, as well as directorships in companies such as Petrobras, Dresdner Bank, Citibank, Radiobras and Siderbras. Mr. João Pinhero declares that he does not have: (a) any criminal conviction; (b) any conviction in an administrative proceeding of the CVM; and (c) any final and unappealable conviction, in the judicial or administrative sphere, that has suspended or disqualified him from practicing any professional or commercial activity. Mr. João Pinheiro states that he is not a politically exposed person, pursuant to CVM Ruling No. 301/99, but that he holds a position in a third sector organization, namely, as director of the Instituto de Reciclagem do Adolescente and of Associação Maria Helena Drexel.

 

ISMAEL CAMPOS DE ABREU – CPF 075.434.415-00

Mr. Ismael Campos de Abreu is appointed as Effective Member of Braskem’s Fiscal Council, by recommendation of Odebrecht. Mr. Ismael worked until May 2017 as an Officer at Kieppe Participações e Administração Ltda. between 1995 and March 2011, he acted as controller of Odebrecht S.A., company that indirectly holds interest in excess of 5% of same species and class of securities of the Company. He served as manager of the tax consulting division of PricewaterhouseCoopers from 1978 to 1985, as controller of Corrêa Ribeiro S.A. Comércio e Indústria from 1986 to 1988, as manager of the consulting area of Arthur Andersen from 1989 to 1991 and as partner of Performance Auditoria e Consultoria from 1992 to 1995. Previously, he served as a member of the fiscal council of Petroflex Indústria e Comércio S.A. until the sale of the stake held by the Company in Petroflex in April 2008. Between March 2006 and March 2008, he served as member of the Fiscal Council of Companhia Petroquímica do Sul. Mr. Ismael holds a degree in accounting from Fundação Visconde de Cairú and a post graduation degree in economic engineering from the Inter-American Development Center. Mr. Ismael does not occupy a management position in any third sector organization. The director hereby represents that he does not have: (a) any criminal conviction; (b) any conviction in an administrative proceeding of the CVM; and (c) any final and unappealable conviction, in the judicial or administrative sphere, that has suspended or disqualified him from practicing any professional or commercial activity. The Director declares he is not a politically exposed person, pursuant to CVM Ruling No. 301/99.

 

 

55


 

 

IVAN SILVA DUARTE – CPF 611.242.065-15

Mr. Duarte is appointed as Alternate Member of Braskem’s Fiscal Council, by recommendation of Odebrecht. Mr. Duarte is an officer at ODBINV S.A. since June 2018 and at Kieppe Participações e Administração Ltda. since January 2016, which belongs to the same economic group of the issuer and holds over 5% of indirect interest of its share capital. Previously, he served as manager of KPMG—Auditores Independentes from 1995 to 2001 and senior manager at PricewaterhouseCoopers Auditores Independentes from 2001 until 2008. Between 2008 and 2015, Mr. Duarte was an executive officer at EAO Empreendimentos Agropecuários e Obras S.A, an Odebrecht Group company operating in the Agricultural and Food and Beverage segments. Mr. Duarte holds a degree in accounting from the University of Salvador (UNIFACS), an MBA in corporate finance from Fundação Getúlio Vargas and an MBA in entrepreneurship from Babson College. Mr. Duarte does not occupy a management position in any third sector organization. The director hereby represents that he does not have: (a) any criminal conviction; (b) any conviction in an administrative proceeding of the CVM; and (c) any final and unappealable conviction, in the judicial or administrative sphere, that has suspended or disqualified him from practicing any professional or commercial activity. The Director declares he is not a politically exposed person, pursuant to CVM Ruling No. 301/99.

 

VIVIANA CARDOSO DE SÁ E FARIA – CPF - 026.921.737-16

Mrs. Faria is appointed as an effective member of Braskem´s Fiscal Council, by recommendation of Petrobras. At Petrobras, she is a master economist and holds the coordination position of the tax department since 2008, working at the tax assessment and planning for the gas and energy segments. With experience in investment and acquisition projects and divestiture and strategic initiatives under the tax scope. She currently leads the tax area at Petrobras, coordinating necessary actions within the internal and external environments, in order to enable the entrance of new agents in the natural gas market through assets for the transportation, processing of natural gas and regasification of LNG, she has coordinated the tax area of Gás para Crescer initiative coordinated by the MME. She has a degree in Economics by UFF, a Master’s degree in energetical planning by PPE/COPPE/UFRJ, a post graduation degree in Tax Management by PUC-Rio and an extension course in Comparative Tax Policy and Administration by Harvard Kennedy School. The Director states that she is not the object of: (a) any criminal conviction; (b) any conviction in an administrative proceeding of the CVM; and (c) any final and unappealable conviction, in the judicial or administrative sphere, that has suspended or disqualified her from practicing any professional or commercial activity. The director declares she is not a politically exposed person pursuant to CVM Ruling No. 301/99.

 

BRUNO PASSOS DA SILVA MELO– 071.927.757-46

Mr. Melo is appointed as an alternate member of Braskem´s Fiscal Council, by recommendation of Petrobras. Mr. Melo works at Petrobras for over 16 years, working since 2017 as Accounting Planning Manager, being the person in charge for process management involving studies, analyses and implementation of new accounting rules. Since 2006, he has managed several accounting processes, and we may highlight, more recently, the management of the preparation process of accounting statements of the Subsidiaries and Controlled Companies in Brazil and abroad and the Equity Control of the Petrobras System. He is currently the Chairman of the Fiscal Council of BR distribuidora. Mr. Melo has a degree in Accounting Sciences by Universidade Federal do Rio de Janeiro – UFRJ and has a MBA in Accounting Management by FIPECAFI – USP. The Director states that he is not the object of: (a) any criminal conviction; (b) any conviction in an administrative proceeding of the CVM; and (c) any final and unappealable conviction, in the judicial or administrative sphere, that has suspended or disqualified him from practicing any professional or commercial activity. The director declares he is not a politically exposed person pursuant to CVM Ruling No. 301/99.

 

TATIANA MACEDO COSTA REGO TOURINHO – 951.929.135-00

Mrs. Tourinho is appointed as an alternate member of Braskem´s Fiscal Council, by recommendation of Odebrecht. Mrs. Tourinho is currently in charge of OEC’s (Odebrecht Engenharia e Construção) controllership area. Previously, Mrs. Tourinho has been in charge of the Tax Planning of Construtora Norberto Odebrecht S.A. (“CNO”). From 2000 to April 2007, Mrs. Tourinho worked in the tax area of VIVO S/A in the telephone industry, having held the position of Tax Planning Division Manager. She previously worked at Arthur Andersen for 2 years. Mrs. Tourinho has a degree in Public and Private Businesses Management by Universidade Federal da Bahia and a MBA in Management by IBMEC. Mrs. Tourinho does not occupy a management  position in any third sector organization. The Director states that she is not the object of: (a) any criminal conviction; (b) any conviction in an administrative proceeding of the CVM; and (c) any final and unappealable conviction, in the judicial or administrative sphere, that has suspended or disqualified him from practicing any professional or commercial activity. The Director declares she is not a politically exposed person, pursuant to CVM Ruling No. 301/99.

 

56


 

 

 

CARLOS ALBERTO RECHELO NETO – 262.997.388-39

Mr. Carlos Alberto Rechelo Neto  is appointed as an Effective Member of Braskem´s Fiscal Council, by recommendation of Petrobras S.A. Mr. Rechelo started working at Petrobras in 2007, starting his career in the management of assets risk and Gas & Energy businesses. as an Executive Manager for almost 3 years, he led the structuring process of corporate risk management of Petrobras S.A. and coordinated, as a Governance team leader, the corporate effort to adjust internal policies and procedures to Law 13,303/2016, which allowed Petrobras to obtain the maximum degree in the certification process Destaque em Governança of B3. Mr. Rechelo is currently CFO of Transportadora Brasileira Gasoduto Bolívia-Brasil S.A., Officer of Petrobras Europe Limited (trading company of Petrobras in London) and member of the Supervisory Board of POG BV, JV which collets oil production assets in Africa. Mr. Rechelo is an engineer, he has a specialization in Portfolio Management by Wharton, master's degree in Energy by Universidade de São Paulo (partially carried out in Ecole Nationale Supérieure du Pétrole et des Moteurs – Institut Français du Pétrole), MBA in Finance by Universidade Federal do Rio de Janeiro and FRM certification by GARP. Mr. Rechelo does not occupy and has not occupied a management position in any third sector organization. The Director represents that he does not have: (a) any criminal conviction; (b) any conviction in an administrative proceeding of the CVM; and (c) any final and unappealable conviction, in the judicial or administrative sphere, that has suspended or disqualified him from practicing any professional or commercial activity. The Director declares he is not a politically exposed person, pursuant to CVM Ruling No. 301/99.

 

 

BRUNO CARVALHO BARUQUI – 082.002.957-29

Mr. Baruqui is appointed as an alternate member of Braskem´s Fiscal Council, by recommendation of Petrobras. Mr. Baruqui is a Governmental Interest Sector Manager since April 2010, being subordinated to the Accounting and Tax Executive Management, and also worked as Tax Systemic Solutions Sector Manager between July 2008 and March 2010. He was an alternate member of the Fiscal Council of e-Petro. He has a degree in Management from Universidade Estadual do Rio de Janeiro (UERJ), an MBA in Tax Management from PUC-RJ and an MBA in Business Management from FIA-USP. Mr. Baruqui does not hold a management position in any third-sector organization. The director hereby represents that he does not have: (a) any criminal conviction; (b) any conviction in an administrative proceeding of the CVM; and (c) any final and unappealable conviction, in the judicial or administrative sphere, that has suspended or disqualified him from practicing any professional or commercial activity. The Director declares he is not a politically exposed person, pursuant to CVM Ruling No. 301/99.

 

 

 

 

57


 

12.7 / 12.8 – Composition of the statutory committees and of the audit, financial and compensation committees

As set forth in article 26, item VI, of the Company’s Bylaws, the Board of Directors may, among other activities, create specialized committees to support its resolution processes, as well as to approve any possible internal regulations of such committees. In that sense, the data related to the current composition of the Company’s Committees are set out below, but the curriculum vitae of the members of the Committees listed below can be found in item 12.5 above, as regards the qualification of those recommended to be part of the Board of Directors of the Company.

 

Name

Type of committee

Position held

Profession

Date of election

Term of office

Percentage of atendance at the meetings

Individual Taxpayer’s Register (CPF)

Description of other committees

Description of other positions held

Date of birth

Date of investiture

Number of Consecutive Terms of Office

 

Other positions/duties exercised at the issuer

 

CARLA GOUVEIA BARRETTO

Other Committees

 

Business Administrator

06/27/2017

2 YEARS

100%

617.162.195-15

PEOPLE AND ORGANIZATION COMMITTEE

Member of the Committee (Effective)

11/22/1967

06/27/2017

2

 

Member of the Company’s Board of Directors

           

ANDRÉ AMARO DA SILVEIRA

Other Committees

 

Civil Engineer

06/08/2016

2 YEARS

100%

520.609.346-72

PEOPLE AND ORGANIZATION COMMITTEE

Member of the Committee (Effective)

07/18/1963

06/08/2016

1

 

Member of the Company’s Board of Directors

           

PEDRO OLIVA MARCILIO DE SOUSA

Other Committees

 

Lawyer

06/27/2017

2 YEARS

100%

726.224.745-04

STRATEGY & COMMUNICATION COMMITTEE

Member of the Committee (Effective)

03/01/1973

06/27/2017

2

 

Member of the Board of Directors

 

 

 

 

 

 

LUIZ DE MENDONÇA

Other Committees

 

Production Engineer

04/06/2016

2 YEARS

 

063.523.448-36

STRATEGY & COMMUNICATION COMMITTEE

Member of the Committee (Effective)

05/30/1963

04/06/2016

2

100%

Member of the Board of Directors

 

 

 

 

 

 

JOÃO CARLOS TRIGO DE LOUREIRO.

Other Committees

 

Economist

04/06/2016

2 YEARS

100%

245.706.997-15

STRATEGY & COMMUNICATION COMMITTEE

Member of the Committee (Effective)

10/27/1952

04/06/2016

1

 

Member of the Board of Directors

 

 

 

 

 

 

MARCELO MOSES DE OLIVEIRA LYRIO

Other Committees

 

Economist

06/27/2017

2 YEARS

100%

746.597.157-87

FINANCE AND INVESTMENT COMMITTEE

Member of the Committee (Effective)

04/25/1963

06/27/2017

2

 

Member of the Company’s Board of Directors

 

 

 

 

 

 

JOÃO COX NETO

Other Committees

 

Economist

06/08/2016

2 YEARS

100%

239.577.781-15

COMPLIANCE COMMITTEE