Currency Issues Whip Braskem's Revenue

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Braskem's (BAK Quote) Q3 FY08 revenue plunged 37.1% to $1.75 billion from $2.77 billion in the prior year's quarter due to currency translations. In terms of domestic currency, net revenue grew 8.8% to Brazilian reais (R$) 5.03 billion from R$4.62 billion in Q3 FY07 primarily due to higher revenue from the export market. Geographically, revenue from the domestic market increased 5.1% to R$3.76 billion from R$3.57 billion while revenue from the export market soared 21.5% to R$1.28 billion from R$1.05 billion a year ago.

Looking at the company's operating statistics, total production volume of Thermoplastic Resins, consisting of Polyethylene, Polypropylene and Polyvinyl Chloride, ascended 8.5% to 775,240 tons from 714,337 tons while total production of Basic Petrochemicals, comprising of Ethylene, Propylene and Benzene, Toluene, Ortoxylene and Paraxylene (BTX) remained flat at 1.15 million tons.

During the quarter under review, gross profit margin widened 92 basis points to 19.42% from 18.50% a year ago despite a 12.9% increase in cost of goods sold which stood at R$4.27 billion compared to R$3.78 billion in Q3 FY07. The increase was primarily due to a R$527.00 million jump in naphtha costs. Selling expenses inched up to R$128.00 million from R$126.00 million while general and administrative expenses increased 2.4% to R$173.00 million from R$169.00 million. Conversely, operating margin advanced 197 basis points to 11.37% from 9.40%. Interest expense mounted 21.8% to $89.35 million from $73.37 million thereby deteriorating the interest coverage ratio to 2.22 from 3.55. Finally, net loss for the quarter stood at $491.24 million or $3.08 per share compared to a profit of $83.27 million or $0.59 per share in the prior year's quarter due to net financial expense in the quarter, which was impacted by the Brazilian real depreciation in the period. In terms of domestic currency, net loss for the quarter stood at R$849.00 million or R$1.62 per share compared to a profit of R$237.00 million or R$0.29 per share in Q3 FY07.

Braskem's cash and cash equivalents spiked 3.8% to $958.56 million from $923.75 million. Net operating cash flow declined 21.2% to $185.99 million. Return on assets stood at a negative 1.61% from a positive 3.20%. Similarly, return on equity stood at a negative 5.98% from a positive 10.41% a year ago. Total debt for the quarter augmented 42.6% to $5.30 billion from $3.71 billion. Stockholders' equity dipped 4.6% to $3.12 billion from $3.27 billion. Therefore, the debt-to-equity ratio worsened to 1.70 from 1.14. Moreover, the company has a quick ratio of 0.75, which clearly shows its inability to meet short-term cash requirements.

During the quarter under review, BAK announced signing of a new agreement with Pequiven to supply up to 5,000 thousand tons of polyethylene and polypropylene resins for exclusive commercialization in Venezuela per month. Furthermore, the company appointed Bernardo Gradin as its new Chief Executive Officer. The company along with Toyota Tshusho Corporation signed an agreement to sell green polyethylene in Japan and other Asian countries.

Looking forward to FY08, BAK expects the Brazilian market for thermoplastics resins to be in the range of 8.0% to 10.0%.

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