LyondellBasell Industries N.V. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. This is an annual filing, not a standalone fourth-quarter report; selected fourth-quarter figures are also summarized below. Amounts are in U.S. dollars unless noted.
Business context
LyondellBasell is a global chemicals and polymers producer with five reporting segments: Olefins and Polyolefins–Americas (O&P–Americas), O&P–Europe, Asia and International (O&P–EAI), Intermediates and Derivatives (I&D), Refining, and Technology. Its sole refinery is in Houston. Results are particularly sensitive to feedstock and energy costs, product demand and pricing, operating reliability, and refining margins.
Financial performance
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $44.062 billion | $45.352 billion |
| Operating income | $5.102 billion | $4.676 billion |
| Net income | $3.853 billion | $2.834 billion |
| Diluted EPS, continuing operations | $6.76 | $4.96 |
| Cash from operations | $4.835 billion | $4.787 billion |
| Capital expenditures | $1.561 billion | $1.060 billion |
| Cash and cash equivalents at year-end | $4.450 billion | $2.732 billion |
| Total debt, including current maturities | $5.835 billion | $4.400 billion |
- Revenue fell 3%, mainly from lower sales volumes, particularly at the refinery; average sales prices were broadly unchanged. Operating income rose 9%, reflecting improved margins as feedstock costs declined.
- Operating margin increased to approximately 11.6% from 10.3%; net margin increased to approximately 8.7% from 6.2%. The 2013 effective tax rate was 22.7%, including a $353 million tax benefit from releasing valuation allowances, primarily for French tax losses.
- Operating cash flow less capital expenditures was approximately $3.274 billion, versus $3.727 billion in 2012. The company reported working capital provided $60 million of cash in 2013.
- Year-end current assets were $14.599 billion and current liabilities $5.510 billion. Available capacity under credit and receivables facilities was $3.469 billion; the $2.0 billion revolving credit facility had no borrowings or letters of credit outstanding. Net debt, using reported total debt less cash, was approximately $1.385 billion.
- Interest expense declined to $309 million from $655 million, following prior debt refinancing, partly offset by interest on notes issued in 2013. The company reported investment-grade credit ratings from Moody’s and S&P.
- O&P–Americas operating income increased to $3.253 billion from $2.650 billion. O&P–EAI rose to $377 million from $127 million; I&D declined to $1.300 billion from $1.430 billion; Refining fell to $22 million from $334 million; and Technology increased to $157 million from $122 million.
- For the fourth quarter, revenue was $11.138 billion versus $11.097 billion a year earlier; operating income was $1.264 billion versus $959 million, and net income was $1.175 billion versus $623 million. Fourth-quarter continuing-operations income included the $353 million valuation-allowance release.
Capital allocation and material changes
- Issued $1.5 billion of guaranteed notes in July 2013: $750 million at 4.0% due 2023 and $750 million at 5.25% due 2043. Year-end long-term debt was higher than in 2012.
- Repurchased approximately 27.4 million shares for $1.949 billion during 2013. Dividends paid were $1.127 billion, or $2.00 per share; 2012 included a $2.75-per-share special dividend, making its $4.20 annual declared dividend non-comparable as a recurring rate.
- Capital expenditures increased to $1.561 billion. The company began Texas ethylene expansion projects and restarted its Channelview methanol plant in December; the methanol restart added 250 million gallons of annual capacity. It also completed a butadiene expansion in Germany.
- The company’s tax residence shifted from the Netherlands to the United Kingdom effective July 1, 2013. In December, it sold its 40% interest in Nihon Oxirane Company, recording a $16 million loss.
- The Berre, France refinery had ceased operations in January 2012 and is reported as discontinued operations. Remaining exit and employee-related payments are expected to extend into future years.
Outlook, risks and contingencies
- Management expected North American olefins to continue benefiting from cost-advantaged natural gas liquids and expected to advance growth projects. It anticipated a La Porte turnaround spanning late first quarter into second quarter 2014, and projected 2014 capital expenditures of approximately $1.592 billion.
- Management expected European olefin and polyolefin demand to improve from seasonally low fourth-quarter 2013 levels; described I&D performance as steady, with additional contribution expected from the methanol restart; and anticipated a stronger refining position as North American crude production and delivery infrastructure grew. These are forward-looking statements, not guarantees.
- Principal business risks include volatile feedstock, energy and product prices; potential erosion of the U.S. natural-gas cost advantage; announced capacity additions and commodity-market competition; economic weakness, particularly in Europe and emerging markets; plant outages and weather disruptions; and the Houston refinery’s single-site exposure.
- Other material exposures include environmental and emissions regulation, including expected additional EU emissions-trading costs; foreign-exchange and geopolitical risks; pension funding and actuarial assumptions; joint-venture partner and counterparty risks; and access to financing. The pension deficit was $668 million, and environmental remediation accruals were $120 million; the company said additional environmental losses were possible but could not be estimated.
- Legal matters include an Access-affiliate demand for indemnity and $100 million in management fees; the company disputes liability and could not estimate a reasonably possible loss. Several environmental proceedings were disclosed. The DOJ closed its investigation into a previously disclosed Kazakhstan-related FCPA matter in January 2014 without a fine or penalty.
- Environmental compliance capital expenditures were $121 million in 2013; estimated at $215 million for 2014 and $274 million for 2015.
Important facts for investors to verify
- How much of the 2013 earnings increase is attributable to recurring operations versus the $353 million tax valuation-allowance release?
- Whether North American feedstock-cost advantages persist amid gas and NGL price changes, exports, regulation and new industry capacity.
- Whether the Houston refinery can recover from lower throughput and margins, higher renewable identification number costs, and turnaround or outage exposure.
- Progress, costs, timing and expected returns of ethylene expansions, the La Porte turnaround, and other planned capital projects.
- Debt maturities, interest obligations, covenant compliance, and the sustainability of dividends and repurchases alongside capital spending and pension contributions.
- Developments in the Access dispute, environmental proceedings and remediation estimates, and the $668 million pension deficit.