LyondellBasell Industries N.V. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. LyondellBasell is a global chemicals and polymers manufacturer, crude oil refiner, and technology licensor. Amounts below are in U.S. dollars unless noted.
Financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $11.561 billion | $5.546 billion | $20.643 billion | $13.040 billion |
| Operating income | $2.526 billion | $339 million | $3.614 billion | $643 million |
| Net income attributable to company shareholders | $2.058 billion | $313 million | $3.126 billion | $455 million |
| Diluted EPS | $6.13 | $0.94 | $9.32 | $1.36 |
| Operating cash flow | $1.9 billion | Not stated for quarter | $2.473 billion | $1.834 billion |
Operating margin was approximately 21.8% in Q2 2021 versus 6.1% in Q2 2020, and 17.5% for the first half versus 4.9% a year earlier. Q2 segment EBITDA was $3.018 billion, compared with $760 million.
At June 30, cash and cash equivalents were $1.381 billion and short-term investments were $136 million. Total debt, including current maturities, was $14.173 billion, down from $15.957 billion at year-end 2020. The company reported $2.910 billion of unused credit-facility availability. Shareholders’ equity was $10.538 billion.
Changes versus prior comparable periods
- Q2 revenue more than doubled year over year, primarily due to higher product prices, supported by crude oil price increases; higher demand and volumes also contributed. First-half revenue rose 58%, with sales volumes relatively unchanged overall.
- Higher margins and demand drove substantial earnings improvement in O&P–Americas, O&P–EAI, Intermediates and Derivatives, and Advanced Polymer Solutions. The company attributed much of the comparison to improved market conditions and the recovery from weak 2020 markets.
- Refining weakened: Q2 EBITDA was a loss of $81 million versus income of $165 million. Lower margins, higher renewable identification number costs, and the absence of favorable prior-year hedge mark-to-market gains were factors. Texas weather-related outages also affected first-half volumes.
- Prior-year results included $323 million of first-half inventory valuation charges and a $96 million Q2 inventory valuation benefit; there were no comparable 2021 adjustments.
- Operating cash flow increased, although working capital used $1.561 billion in the first half, mainly from higher receivables and inventory. Investing cash outflow was $362 million; financing cash outflow was $2.470 billion.
Management outlook, capital allocation, and risks
- Management expected strong product demand to continue for several quarters, supported by economic reopening, customer backlogs and inventory rebuilding. It anticipated strong integrated polyethylene margins and stronger gasoline and jet fuel demand in the second half of 2021.
- The stated 2021 capital priority was debt reduction, with expected debt reduction of $3 billion to $4 billion. Management also expected full-year capital spending to remain flat year over year, with spending higher in the second half than the first.
- The quarterly dividend was raised 7.6%; Q2 dividends were $1.13 per share. The company said it intended to continue quarterly dividends while prioritizing balance-sheet strength and debt reduction. No shares were repurchased under the May 2021 authorization through June 30.
- Planned 2021 maintenance was expected to reduce EBITDA by approximately $115 million. A $104 million investment established a 50/50 China joint venture to build a propylene oxide and styrene monomer unit; startup was expected at the end of 2021.
- Key disclosed risks include volatile raw-material and energy prices, cyclical supply and demand, unplanned facility outages, pandemic and economic uncertainty, project execution, foreign exchange, regulation and litigation, and access to financing. Management reported no material change in previously disclosed risk factors and no material change in market-risk exposure during the first half.
- Environmental remediation liabilities were $129 million. The company said additional losses beyond recorded liabilities were reasonably possible but could not be estimated. Management did not expect pending lawsuits to have a material adverse effect. Debt covenants were in compliance at June 30.
Important facts for investors to verify
- Whether strong product pricing and margins persist as supply constraints ease and markets normalize.
- Progress against the $3–$4 billion 2021 debt-reduction target, and the effects of working-capital needs, dividends, and capital spending on liquidity.
- Refining-segment recovery, including operating reliability, product margins, and the impact of outages and RIN costs.
- Execution, cost, and schedule for the Houston PO/TBA plant and the China joint-venture project.
- Potential additional environmental or legal liabilities, which the filing says cannot be fully quantified in some cases.