LyondellBasell Industries N.V. — Q1 2015 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2015, compared with Q1 2014. LyondellBasell is a global chemicals and polymers manufacturer, crude-oil refiner, and developer and licensor of process technologies. Amounts below are in millions of U.S. dollars, except per-share data and where noted.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $8,185 | $11,135 |
| Operating income | $1,575 | $1,340 |
| Income from continuing operations | $1,167 | $943 |
| Net income | $1,164 | $944 |
| Net income attributable to Company shareholders | $1,166 | $945 |
| Basic / diluted EPS, continuing operations | $2.43 / $2.42 | $1.73 / $1.72 |
| Operating cash flow | $1,468 | $801 |
| Capital expenditures | $306 | $343 |
- Margins: Operating margin was approximately 19.2%, versus 12.0% in Q1 2014; net margin was approximately 14.2%, versus 8.5%. The filing reports an effective tax rate of 27.4%, down from 28.9%.
- Cash flow and shareholder returns: Operating cash flow rose $667 million. Operating, investing and financing cash flows were respectively $1,468 million, negative $443 million and negative $401 million. The company repurchased approximately 16 million shares and paid $334 million in dividends ($0.70 per share).
- Liquidity and debt at March 31, 2015: Cash and cash equivalents were $1,616 million and short-term investments were $1,478 million; management reported $3,094 million of unrestricted cash and marketable securities. Total debt, including current maturities, was $8,267 million. Undrawn availability under credit facilities was $2,864 million. The company was compliant with its revolving-credit leverage covenant.
- Segment EBITDA: O&P-Americas $1,031 million (prior year $736 million); O&P-EAI $357 million ($356 million); Intermediates and Derivatives $337 million ($375 million); Refining $149 million ($129 million); Technology $76 million ($76 million). Total segment EBITDA was $1,950 million, versus $1,672 million.
Material changes versus Q1 2014
- Revenue fell 26%, primarily because lower crude oil and feedstock prices reduced average selling prices, with additional reduction from the weaker euro; higher sales volumes partly offset these impacts.
- Operating income increased $235 million. Excluding specified unusual items, management said operating income increased $414 million, driven mainly by higher U.S. olefins volumes and improved U.S. and European polyolefin margins.
- Q1 2015 cost of sales included $92 million of non-cash lower-of-cost-or-market inventory adjustments and $35 million of emission-allowance amortization. Q1 2014 included a $52 million environmental-indemnification settlement benefit.
- Comprehensive income was $624 million, compared with $946 million. The 2015 result included a $511 million foreign-currency translation loss, primarily reflecting euro depreciation.
- In March, the company issued $1 billion of 4.625% senior notes due 2055, receiving net proceeds of $984 million. Long-term debt rose to $7,749 million from $6,757 million at year-end 2014.
Outlook, commentary and risks
- Outlook: Management said first-quarter market conditions persisted into early Q2, but gave no specific earnings or revenue guidance. It expected additional U.S. olefins and polyolefins supply as competitors returned production, with the impact dependent on demand. Strong EU polymer demand and supply constraints continued into Q2. I&D was expected to benefit from normal seasonality; planned maintenance at a Channelview PO/SM facility would offset the benefit of resumed methanol production. Refining spreads were slightly below Q1 levels; crude runs were expected to increase, with minor coker maintenance not expected to materially affect operations.
- Inventory exposure: Management identified $3.4 billion of inventory as “at-risk” for further valuation adjustments. Further sustained product and feedstock price declines could cause additional charges during 2015; price recovery could reverse some or all of the 2015 charges in later quarters.
- Operations and labor: A strike at the Houston refinery began February 1 after the collective bargaining agreement expired. The refinery was operating at near-normal rates with trained salaried and voluntarily returning hourly employees. The Houston refinery is the company’s only refining operation, creating concentration risk.
- Contingencies: Accrued environmental remediation liabilities were $96 million; the company said additional losses were reasonably possible but could not be estimated. An Access Industries-related indemnity dispute tied to pending litigation remained unresolved; the company disputed the claims and could not estimate a possible loss. Berre refinery closure-related costs and severance payments are expected to continue through 2017 and substantially through 2019, respectively.
- Other risks: The filing highlights commodity-price and feedstock volatility, competition and capacity additions, foreign exchange, plant outages, environmental and regulatory exposure, litigation, tax-law changes, and access to financing. Management said market-risk exposure had not changed materially from year-end disclosures.
Important facts for investors to verify
- Whether lower feedstock costs and strong product demand continue to support segment margins as competitors restart capacity and markets absorb additional supply.
- Potential further inventory write-downs or reversals, given the $3.4 billion of at-risk inventory and Q1’s $92 million charge.
- Houston refinery operating conditions, labor developments, and the impact of maintenance or outages at the company’s facilities.
- Debt, liquidity and capital allocation: the 2055 note issuance, share repurchases, dividends, and remaining authorization (approximately 2 million shares at April 22, 2015).
- Developments and potential exposure in environmental matters and the Access-related indemnity dispute; the filing does not provide a clear estimate of possible additional losses.