LyondellBasell Industries N.V. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. LyondellBasell manufactures chemicals and polymers, refines crude oil, produces gasoline blending components, and licenses polymer technologies. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and position
| Metric | Q1 2023 | Comparable period |
|---|---|---|
| Sales and operating revenues | $10,247 | $13,157 in Q1 2022 |
| Operating income | $713 | $1,661 in Q1 2022 |
| Net income attributable to company shareholders | $472 | $1,318 in Q1 2022 |
| Diluted earnings per share | $1.44 | $4.00 in Q1 2022 |
| Segment EBITDA | $1,131 | $2,020 in Q1 2022 |
| Cash from operating activities | $482 | $1,502 in Q1 2022 |
| Capital expenditures | $352 | $446 in Q1 2022 |
Revenue declined 22% year over year, reflecting lower prices, weaker volumes and unfavorable foreign exchange. Operating income fell 57%; reported results included a $252 million non-cash goodwill impairment. The effective tax rate was 26.0%, versus 19.3% a year earlier, primarily because the impairment generated no tax benefit. Operating income was $487 million and net income $353 million in Q4 2022, so both improved sequentially.
Operating cash flow included $558 million of cash use from the main working-capital components, principally receivables and inventory. Cash and cash equivalents were $1,790 million at quarter-end, down from $2,151 million at December 31, 2022; cash plus restricted cash ended at $1,804 million. Total debt, including current maturities and short-term debt, was $11,376 million, compared with $11,321 million at year-end. The company reported $3,950 million of unused availability under its revolving credit and receivables facilities and compliance with debt covenants.
Quarterly common dividends paid were $389 million ($1.19 per share); cash spent on share repurchases was $70 million. The company reported $352 million of capital expenditures, with approximately 45% directed to growth projects, primarily the PO/TBA plant.
Material changes and segment results
Compared with Q1 2022, EBITDA declined in O&P-Americas ($541 million versus $939 million), O&P-EAI ($77 million versus $214 million), I&D ($426 million versus $546 million), APS (loss of $226 million versus income of $71 million), and Technology ($73 million versus $103 million). Refining EBITDA increased to $246 million from $148 million, supported by stronger market margins. The company attributed the broader year-over-year decline to weaker product prices and demand, lower polymer margins, and unfavorable currency effects.
Effective January 1, 2023, Catalloy and polybutene-1 products moved from APS into O&P-Americas and O&P-EAI. The change in reporting-unit goodwill allocation led to the $252 million APS goodwill impairment. Segment comparisons were recast for the new structure.
In Q1, the company also expensed costs related to its planned Houston refinery exit: $51 million of accelerated lease amortization, $16 million of personnel costs, $55 million of asset-retirement-cost depreciation and $2 million of asset-retirement-obligation accretion.
Outlook, commentary and risks
Management expected typical seasonal trends to bring modest near-term improvement in global demand, with summer fuel demand supporting oxyfuels and refining margins. Delayed North American polyethylene capacity additions were expected to limit new supply and support polyethylene margins. For Q2, the company expected I&D assets to operate at 80% and modestly higher O&P-Americas and O&P-EAI operating rates of approximately 85%. It remained watchful of global monetary policy and economic conditions in China for petrochemical markets in the second half of 2023. These are expectations, not guarantees.
The company started up what it described as the world’s largest PO/TBA plant during Q1. In March, it announced it would explore strategic options for its U.S. Gulf Coast ethylene oxide and derivatives business, which it does not view as a long-term leading position. Its new strategy focuses on upgrading core businesses, developing profitable circular and low-carbon solutions, and improving performance and culture.
The planned Houston refinery closure is expected no later than year-end 2023. For subsequent periods, management estimated additional costs of $100–$200 million for accelerated lease amortization, $40–$70 million for personnel, and $50–$100 million for other charges. Estimated refinery asset-retirement obligations were $150–$450 million; $253 million was recorded at March 31. No material cash payments related to the exit were anticipated in 2023.
Key disclosed risks include volatile feedstock, energy and product prices; industry oversupply and demand weakness; unplanned outages; foreign exchange and tax changes; execution of growth projects; and the timing, costs and liabilities associated with the refinery exit. The company said there were no material changes to previously disclosed risk factors. It accrued $126 million for environmental remediation and noted that additional losses may be possible but could not be estimated. Management did not expect pending lawsuits to have a material adverse effect. The filing also discusses Texas proceedings involving Houston refinery air-permit matters and a La Porte release; the La Porte matter had an agreement in principle for a $1.1 million civil penalty, subject to final court action.
Important facts for investors to verify
- Whether demand, product spreads, feedstock costs and operating rates develop as assumed in management’s outlook.
- Progress and total costs of the Houston refinery closure, including final asset-retirement obligations and any timing changes.
- Performance of the new PO/TBA plant and the effect of inventory and working-capital movements on cash generation.
- APS results and the assumptions underlying the goodwill impairment valuation.
- Outcome of strategic options for the EO&D business and developments in the disclosed environmental and legal matters.