Lyondellbasell Industries N.V. annual report, FY2023

Business context and reporting period

LyondellBasell Industries N.V. filed this Form 10-K for the fiscal year ended December 31, 2023. The company is a global chemicals and polymers producer, operates the Houston refinery, and licenses process technologies and sells catalysts. Results cover six reportable segments: O&P-Americas, O&P-EAI, I&D, APS, Refining and Technology. Segment comparisons reflect the January 2023 transfer of Catalloy and polybutene-1 businesses from APS to the two O&P segments.

Financial results and liquidity

Metric	2023	2022
Revenue	$41.107 billion	$50.451 billion
Operating income	$3.053 billion	$5.101 billion
Net income attributable to shareholders	$2.114 billion	$3.882 billion
Diluted EPS	$6.46	$11.81
EBITDA	$4.509 billion	$6.301 billion
Cash from operating activities	$4.942 billion	$6.119 billion
Capital expenditures	$1.531 billion	$1.890 billion

• Revenue declined 19%, primarily because lower average selling prices reduced revenue by 21%; higher volumes and favorable foreign exchange each contributed about 1%.
• Calculated operating margin was approximately 7.4% versus 10.1%; net margin was approximately 5.1% versus 7.7%; and EBITDA margin was approximately 11.0% versus 12.5%.
• Cash from operations less capital expenditures was approximately $3.411 billion in 2023. Cash and cash equivalents were $3.390 billion at year-end, including $1.816 billion held outside the U.S.
• Total debt, including current maturities, was $11.232 billion. Unused availability was $4.150 billion: $3.250 billion on the revolving facility and $900 million on the U.S. Receivables Facility. No borrowings were outstanding under either facility or the commercial paper program; the company reported compliance with debt covenants.
• Common dividends paid were $1.610 billion ($4.94 per share); share repurchases were $211 million. The 2022 comparison included a $1.704 billion special dividend.

Material changes versus 2022

• Operating income fell 40%, while EBITDA declined about 28%. Lower product prices and weak demand weighed on most chemical businesses; lower feedstock and energy costs helped reduce cost of sales by 18%.
• O&P-Americas EBITDA fell to $2.303 billion from $2.865 billion, mainly on weaker polyolefin margins. O&P-EAI moved to a $9 million EBITDA loss from $178 million of EBITDA. APS moved to a $162 million EBITDA loss from $115 million of EBITDA.
• I&D EBITDA declined to $1.679 billion from $1.872 billion, including a $192 million non-cash impairment tied to the European PO joint venture. Refining EBITDA fell to $379 million from $921 million as refining margins weakened. Technology EBITDA increased slightly to $375 million from $366 million.
• Non-cash impairments totaled $518 million, principally a $252 million APS goodwill impairment and the $192 million European PO joint venture impairment. SG&A increased 19% to $1.557 billion; interest expense rose 66% to $477 million.
• Operating cash flow decreased by $1.177 billion year over year. Year-end cash increased by $1.239 billion, while financing cash outflow fell, partly because 2022 included a special dividend.

Outlook, management commentary and risks

• For the first quarter of 2024, management cited seasonally slow demand and economic uncertainty, with modest regional demand improvement in the Americas. It expected O&P-Americas to operate at about 80% and O&P-EAI and I&D at about 75% of capacity. Oxyfuels and refining margins were expected within typical winter seasonal ranges; management anticipated seasonal demand improvement in spring and summer.
• Management planned approximately $2.1 billion of 2024 capital expenditures, about 60% for sustaining maintenance. Approximately $400 million of growth-project spending was designated for sustainability-related projects.
• The Value Enhancement Program had an estimated year-end 2023 annual run rate of approximately $400 million in recurring EBITDA, after about $200 million of one-time 2023 costs. Management targeted approximately $600 million recurring annual EBITDA at year-end 2024, with $325 million of estimated one-time costs, and up to $1 billion at year-end 2025.
• The company plans to exit refining no later than the end of the first quarter of 2025. Exit costs incurred through 2023 were $521 million; estimated total costs, including amounts incurred, are $550 million to $1.050 billion. Management did not anticipate material cash payments for the exit in 2024. The refinery exit and site transition remain execution considerations.
• A sale of the U.S. Gulf Coast ethylene oxide and derivatives business and Bayport facility for $700 million, subject to adjustments, was expected to close in the second quarter of 2024 after planned maintenance and customary approvals. In January 2024, the company also agreed to acquire a 35% interest in Saudi Arabia-based NATPET for approximately $500 million, subject to approvals and other closing conditions.
• Key risks include cyclical chemical and refining markets, new industry capacity and price competition; volatile feedstock and energy costs and limits on passing costs through; outages, severe weather and supply disruptions; environmental, climate and plastics regulation; project execution and impairment risks; foreign-exchange, tax and pension exposures; and cybersecurity threats. The company reported no cybersecurity risks that had materially affected or were reasonably likely to materially affect it.
• Environmental remediation liabilities were $124 million at year-end; the company said additional losses were reasonably possible but could not estimate a range. It stated that pending lawsuits were not expected to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements and internal controls and identified unrecognized tax benefits as a critical audit matter.

Important facts for investors to verify

• Whether product demand, selling prices and segment margins recover as management expects, and whether first-quarter operating-rate assumptions are met.
• Progress, costs, timing and proceeds for the planned refining exit and the $700 million EO&D sale, including the ultimate Houston site transition.
• Delivery of Value Enhancement Program targets relative to the associated one-time costs and expected benefits.
• Cash-flow resilience, capital spending, shareholder returns and debt maturities, including the $775 million of 5.75% notes due in 2024 and the receivables facility’s June 2024 expiry.
• Closing and funding of the NATPET investment, and the financial performance and valuation assumptions for the European PO joint venture and APS goodwill.
• Potential changes in environmental remediation exposure, tax positions, regulatory requirements and other contingencies; the filing does not quantify possible additional environmental losses.