LyondellBasell Industries N.V. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial statements are unaudited; amounts below are in U.S. dollars unless stated otherwise.
Business context and results
LyondellBasell is a global chemicals and polymers manufacturer, crude oil refiner, and developer and licensor of polymer technologies. The company reported that stronger product prices and fuel demand supported results, while higher feedstock and energy costs pressured some margins. European operations also faced feedstock disruptions associated with the war in Ukraine.
Financial performance
- Revenue: $13.157 billion, up 45% year over year and 3% from Q4 2021. The year-over-year increase reflected higher prices and volumes.
- Profit: Operating income was $1.661 billion, up 53% year over year. Net income was $1.320 billion versus $1.070 billion; net income attributable to shareholders was $1.318 billion. Diluted EPS was $4.00 versus $3.18.
- Margins: Operating margin was approximately 12.6%, compared with 12.0% a year earlier. Net margin was approximately 10.0%, compared with 11.8%, reflecting a higher effective tax rate and lower equity-investment income.
- Taxes and equity income: The effective tax rate was 19.3%, versus 6.1% in Q1 2021, which benefited from prior-period tax adjustments and CARES Act benefits. Equity-investment income fell to $29 million from $137 million.
- Cash flow and investment: Operating cash flow was $1.502 billion, compared with $571 million. Capital expenditures were $446 million, up from $340 million. Cash and cash equivalents were $1.785 billion at quarter-end.
- Debt and liquidity: Total debt, including current maturities, was $11.324 billion; cash less total debt implies net debt of about $9.5 billion. Unused availability under credit facilities was $4.115 billion. The company reported compliance with debt covenants.
- Shareholder returns: The company paid $371 million in common dividends ($1.13 per share) and repurchased about 2.1 million shares for $217 million of cash.
Changes versus comparable periods
- Against Q1 2021, revenue, operating income and shareholder EPS increased substantially, while cost of sales rose 45%, broadly in line with revenue growth. Lower equity-investment income and the higher tax rate tempered net-income growth.
- Against Q4 2021, operating income rose 82% to $1.661 billion. Results rebounded from the prior quarter’s $624 million refinery impairment charge; the company also cited stronger refining, I&D, APS and O&P–EAI results.
- Segment EBITDA was strongest in O&P–Americas ($911 million) and I&D ($546 million). O&P–EAI EBITDA was $188 million, down from $412 million a year earlier, mainly due to weaker olefin margins and lower equity income. Refining EBITDA was $148 million versus a loss of $110 million a year earlier.
- Operating cash flow was higher year over year, with the company citing earnings and substantially lower cash use from the main working-capital components.
Outlook, risks and unusual items
- Management expected seasonal summer demand to support markets, including consumer packaging, automotive compounds, building and construction products, and oxyfuels. It anticipated second-quarter margin improvement as product prices catch up with feedstock and energy costs, while noting geopolitical uncertainty, volatile costs, supply-chain risks and inflation. No consolidated earnings or revenue guidance was provided.
- In April 2022, after quarter-end, the company announced plans to cease operating its Houston Refinery no later than December 31, 2023. It estimated related costs of $580 million to $870 million, primarily lease-asset amortization, decommissioning, personnel and other charges, expected to be recognized over time through 2024. Actual costs and timing could differ materially.
- Management said it would stop new business with Russian state-owned entities and discontinue existing relationships to the extent legally possible; it did not expect a direct material effect on operations or financial position.
- Environmental remediation accruals were $135 million; the company said additional losses were reasonably possible but could not be estimated. Management did not expect pending litigation to have a material adverse effect. A separate EPA/DOJ matter concerning the Morris, Illinois facility had a revised penalty demand of $324,000, with settlement discussions ongoing.
- Key operating and financial risks include commodity and energy-price volatility, inability to pass cost increases through to customers, facility outages, global economic and geopolitical disruption, foreign-exchange movements, and risks to the Houston refinery closure plan.
Important facts for investors to verify
- Whether product prices and margins continue to offset feedstock and energy cost inflation, particularly in O&P–Americas and Europe.
- Execution, total cost and timing of the Houston Refinery closure, including potential alternative uses or transactions for the site.
- Cash generation, working-capital needs, capital spending and the company’s capacity to sustain dividends and repurchases while maintaining its investment-grade balance sheet.
- Effects of Ukraine-related supply disruptions, broader geopolitical uncertainty and foreign-exchange changes on operations and equity-investment income.
- Progress in environmental remediation and resolution of the Morris facility matter, along with any changes to contingencies or risk disclosures.